What makes consumers vulnerable to harm?

To understand vulnerability, we need to distinguish between the factors that make consumers vulnerable to harm (causes) and the types of harms they experience (consequences). This helps stakeholders identify the appropriate consumer protection interventions, and pre-empt and mitigate harm1. It helps identify the boundaries of responsibility between regulators and policymakers, as there is a limit to what regulators can do about preventing harm.

The factors that make consumers vulnerable operate at four different levels – individual, situational/ point-in-time, market related, and external or systemic.

Individual and situational causal factors include: poor physical and mental health; traumatic life events such as divorce and bereavement; low/ precarious incomes and poor financial resilience; and low financial capability2.

Markets allocate value according to economic and social leverage3,not according to needs or rights. This is not a criticism, it is just in the nature of markets. Misaligned market structures can also increase the risk of harm. Households on low/ precarious incomes face higher risks of harm when engaging with markets throughout their lives, not just at a point in time.

Consumer vulnerability can be compounded by adverse structural changes in key markets, technological developments, and external factors such as the cost-of-living crisis and economic recessions.

The types of harm

The types of harm consumers experience include: becoming a victim of scams and frauds, rip offs, poor value, unsafe or risky products and services; making suboptimal choices due to aggressive competition and exploitation of behavioural biases; paying an unsustainable price for essential services; and facing discrimination in and outright exclusion from markets.

Has vulnerability changed?

So, have the factors that make consumers vulnerable and the types of harms changed over the decade? Well, yes and no. Has the number of vulnerable consumers grown over the decade? We can’t answer that definitively as we don’t have a consistent baseline to measure against.

The causes of individual vulnerability have, for the most part, not changed. There is a depressing consistency in the profile of consumers who are most vulnerable to harm. But, the numbers of consumers affected by a particular characteristic of vulnerability can change. For example, the numbers affected by mental health issues changes over time.

Falling real wages4, real term reductions in benefits5, and growth of the gig economy means more people are economically or financially vulnerable to market-based harm.

The types of harm for the most part remain the same. Consumers are still at risk of being ripped off, and exploited due to behavioural biases. The poor still pay a greater share of their disposable incomes for essential services. We have made almost no progress in promoting financial inclusion and resilience post the 2008 financial crisis. Fraud and scams are as old as civilisation and didn’t just emerge with the internet.

But, even if the types of harm are similar, there is no doubting the impact of technology. Of course, consumers were vulnerable to exploitation and outright fraud when products and services were sold door-to-door or via telephone sales. But, the intensity of technological change (internet distribution, automated consumer profiling, fintech/ embedded finance, AI, and big data and so on) has significantly increased the number of vulnerable consumers who are now potentially exposed to various types of harm. Moreover, the bad actors (legal and illegal) are very ‘innovative’ and agile in using technology to exploit consumers. New variations of harms emerge with unnerving frequency.

Looking forward, if we get the policies wrong on the just and fair transition to net zero, vulnerable households will be at risk.

Credit to the UKRN

So, consumer vulnerability is complex. Consumer harms do not exist in silos. A harm experienced by a consumer in one market can create a harm in another market. The speed of technological innovation would make your head spin. In this hugely challenging environment, the UKRN deserves real credit for coordinating a more holistic, cross-cutting, and collaborative approach to understanding consumer vulnerability. Moreover, the UKRN’s use of data insights to inform policy helps us all develop a more effective approach to tackling consumer vulnerability. This collaborative approach will be all the more important if we are to achieve a just and fair transition to net zero.

1. Early intervention to prevent harm is better than fixing a market failure
2. The FCA estimates that around 25 million adults exhibit one or more characteristics of vulnerability. Women and Black and Black British adults are much more likely to be affected. FCA finds the Covid-19 pandemic leaves over a quarter of UK adults with low financial resilience | FCA Financial Lives 2022 survey: insights on vulnerability and financial resilience relevant to the rising cost of living | FCA
3. That is, consumers having the spending power and the confidence and capability to function effectively in a market
4. 15 years of economic stagnation has left workers across Britain with an £11,000 a year lost wages gap • Resolution Foundation
5. Even with inflation uprating, benefits next year are on course to be 6% below their pre-pandemic levels | Institute for Fiscal Studies (ifs.org.uk)