Unfortunately, when Government Commissions are developed in order to address issues which affect the general population, little consideration is afforded to decisions which may ultimately impact the most vulnerable in our society by consumer detriment. Some work has been done recently in addressing the problems faced by vulnerable consumers, yet there is much more which can be done to help the more vulnerable members of our communities who regularly face restrictions in accessing goods and services.
It is important for us to understand the language that is used to describe situations in which consumers of all socio-economic backgrounds may find themselves. The terms ‘consumer detriment’, ‘consumer harm’ and ‘consumer vulnerability’ are used interchangeably to describe the impacts that certain consumer activities have on various people.
De-Mystifying the jargon
So, what do these terms mean?
Consumer Detriment – This describes the loss or damage that a consumer could experience as a direct result of purchasing goods or services not meeting the required requirements, whether that is due to poor quality or overpricing.
Consumer Harm – This is the actual or potential loss to the consumer as a result of the service or goods provided not being as described or is of poor quality / over-priced.
Consumer Vulnerability – A vulnerable consumer is considered particularly susceptible to detriment due to their personal situation. Vulnerability is a concern especially when a company or organisation selling a product or service is not providing appropriate levels of care when doing so.
What does this mean for the consumer in real terms?
Consumers are made more vulnerable in situations where poor competition exists, choice is limited and the ability to make informed decisions is inhibited.
Some consumers find themselves in a position where options are limited due to personal circumstances. This can look vastly different for varying groups, dependent upon the situation. This may be an inability to obtain credit, or for others, could necessitate using to alternatives such as ‘rent-to-own’ retailers in order to purchase essential household items. Using ‘rent-to-own’ retailers can impact consumers over long periods of time, resulting in an unfair total cost due to high interest rates.
Rent-to-own retailers
In a response to proposals from the Financial Conduct Authority (FCA) for a cap on rent-to-own retailers, Campbell Robb, the Chief Executive of the Joseph Rowntree Foundation, has said –
“The high cost of rent-to-own deals, combined with low pay, high rents and the benefits freeze, have swept too many families into poverty. The FCA is right to take action to tackle this problem, and it is now vital to ensure that people on low incomes have better access to affordable credit so that they can plan for a debt-free future.” SOURCE: jrf.org.uk
The problem is not limited to the ‘rent-to-own’ markets, but also extends into various consumer areas such as the energy sector. Here, the chasm between those in different social situations, with varying income levels is apparent.
Prepayment Meters in the energy market
The concept of a ‘Prepayment Meter’ is to pay for energy in advance, reducing the opportunity to fall into debt with an energy provider. Despite how it sounds, (and the fact that payments are made in advance of usage), this method of payment for energy is usually considerably more expensive: in some cases, almost doubling cost in terms of price per kilowatt-hour.
Historically, energy providers have used Prepayment Meters as a way of controlling the expenditure of consumers who are already in debt to them, with the removal of a ‘dry’ monthly or quarterly billed meter and the debt transferred to be paid off through set amounts which are to be deducted from prepayment meter ‘top-ups’.
Very often those in debt to their energy providers are in this position due to changes in circumstance beyond their personal control. Ofgem, the Energy Ombudsman, have highlighted their own concerns around fuel-rationing and the impacts of fuel poverty, with many consumers limiting the amount of energy they use daily.
These are only two examples of markets where the most vulnerable members of society are being placed at a disadvantage due to the social circumstances in which they find themselves.
Consumer detriment and harm are not only confined to those on a low income, or those impacted by socio-economic factors but affect the entire consumer landscape.
The Loyalty Penalty
Consumers who have been in long-standing ‘consumer relationships’ with product and service providers can also find themselves in situations where they fall prey to consumer detriment and harm. The ‘new deals for new customers’ mentality can negatively impact those who have shown brand loyalty to a particular company.
In this scenario, the consumer is in fact worse-off financially as a result of remaining “loyal” to an organisation. This principle also extends to consumers not actively participating in price comparison and others who remain loyal due to the service they are receiving, despite being in a position of detriment when compared with other customers.
What is being done to tackle consumer harm and vulnerability?
Regardless of the situational disadvantages that consumers can be exposed to and putting socio-economic factors aside, what is being done to tackle these issues?
The Competitions and Markets Authority (CMA) held their ‘Symposium on Consumer Detriment’ in Edinburgh last month. This event brought together a number of public bodies and regulators to discuss the very real impacts on the more vulnerable consumers within society.
This event highlighted consumer detriment from the perspective of various sectors, including Financial Services, Energy and Telecommunications. One major focal point was the impact that regulators have when working alongside service providers.
The overarching theme of placing the consumer at the heart of every decision and action was prevalent. In assessing consumer vulnerability, companies and organisations can adapt their own strategies to help. The development of policies for ‘Treating Customers Fairly’ were at the forefront of discussion at the Symposium, as well as getting to the root of the problems that consumers face.
Practically, the conversation included being more proactive in circumstances such as the forced switch of consumers in debt to prepayment meters being reduced by energy companies. There was also a call for a marked reduction in the number of energy disconnections as the result of a direct campaign by regulators to ensure fair consumer treatment.
The discussion also suggested energy and telecommunications firms potentially demonstrating a more customer-focussed ethos, with a switch to a more economical tariff for the consumer as an automatic, rather than self-motivated process.
All the points raised show a strong willingness amongst organisations for progress. However, questions around corporate greed and the underhanded business tactics of other organisations sadly remain.
consumeradvice.scot Top Tips for getting better deals
Considering the real-world meaning behind the terms and understanding how we are all positioned as consumers to do something about the way we are collectively vulnerable is now more important than ever.
How can we make more informed decisions about the way we operate as consumers and ensure that we are not being taken advantage of?
At consumeradvice.scot, we have put together our top tips for getting what we need from consumer interactions and experiences.
- Shopping around can get you a better deal – By making comparisons before signing up to contract terms on items such as mobile phones and credit cards. Look at the total amount you will pay over the course of a credit agreement in relation to the product you are purchasing and consider the APR % and rates of interest that will be paid.
- Try before you buy – Make the most of free trials, samples and demonstrations – but remember to cancel before the end of the trial period if you don’t want to pay!
- Report the rip-offs – We’ve all been in a position where we feel that we have been put at a disadvantage by a supplier or service provider. Know your rights and complain if you must. Regulators are in place to ensure the various companies and organisations within their domains are operating fairly, competitively and legally and can intervene if the need arises.
- Spot the Scams – Report suspected scams. These can then be investigated by the relevant authorities. If something doesn’t look right – report it!
- Negotiate – If you feel that you are paying too much with your current provider or supplier, tell them! Make them aware that you are looking at alternatives and make the switch if you have to.
If you would like more advice on any consumer matter, or need to report a scam or underhand trading tactics, you can contact consumeradvice.scot on 0808 164 6000. We are open 9am-5pm, Monday-Friday. You can follow us on social media – Twitter: @advicedotscot and Facebook at www.facebook.com/advice.scot, Instagram: @advice.scot, or get ahead by visiting our knowledge centre at www.consumeradvice.scot.