The Financial Ombudsman Service (FOS) has warned it will demand compensation awards from businesses for non-financial errors if they are deemed to have failed vulnerable clients by "rigidly applying rules".
The FOS will look at how firms have responded to their clients' personal needs when handling complaints and will take into consideration the "non-financial impact of a business' error" when awarding compensation, it said in a newsletter out on 18 August.
Complaints are often made worse by firms rigidly applying their rules when dealing with vulnerable clients instead of responding to their personal circumstances, the FOS said.
The Financial Conduct Authority (FCA) has also come across problems in the way firms deal with clients in difficult circumstances.
Its main gripe, it said in March when it published its first guide on the issue, was firms' products and systems often 'streamline' consumers and were "not designed to meet nonstandard needs of those who don't fit into a set mould".
The FCA defined vulnerable clients as those with poor literacy skills, those who have caring responsibilities, people with disabilities, dementia or the elderly.
But the FOS pointed out life-changing events such as redundancy, relationship breakdown or bereavement could also mean someone is put in a position where they are deemed vulnerable.
The FOS said: "Realising there's a problem - and trying to get it put right - can be stressful at the best of times. But if the trouble has resulted from, or coincides with, already challenging circumstances, it may have a significant impact.
"Unfortunately, we often find situations have escalated (or deteriorated) because the business involved has rigidly applied rules and procedures - or hasn't realised the extent of their customer's vulnerability.
"Where a vulnerable customer has proactively approached a business for help, this can be particularly upsetting.
"Understandably, complaints [from vulnerable consumers reaching the FOS] may involve compensation to recognise the wider, non-financial impact of a business's error."
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