Dealing with Vulnerable Customers – LSB Guidance
The Lending Standards Board’s (LSB) Standards of Lending Practice have replaced their Lending Code from 1 October 2016. The LSB has published five documents dated September 2016 to help regulated firms with examples of the approach that they could take into consideration to demonstrate compliance with the regulatory provisions including the Standards. These cover a) Product sale, b) Account maintenance and servicing, c) money management, d) financial difficulty and e) consumer vulnerability.
The FCA rules require firms to have a vulnerability strategy, which defines its approach to the identification and treatment of customers considered to be vulnerable (CONC 2.10, 7.2 etc). In LSB’s view, firms should ensure that there is executive level support and accountability for developing a fair approach to dealing with customers in vulnerable circumstances, recognising that the strategy will need to be reviewed, evaluated and strengthened based on what works well and not so well. This should be supported by appropriate management information, governance frameworks and strong reporting lines to the executive to ensure vulnerability continues to remain a corporate priority.
The LSB would encourage firms to consider the development of customer feedback mechanisms which could be used to explore the practical impact of the current structures in place. Consideration could also be given to establishing formal and informal focus groups to gain insight into their customer base and utilising for example, short customer experience questionnaires. They have also advised that firms could establish a set of common ‘principles’ which underpin the design and operation of all products and services, to help ensure the fair and consistent treatment of customers in vulnerable circumstances. These principles may include: a consistent definition of vulnerability across the organisation, methods of support, and guidance to business areas. When considering the impact vulnerability can have on an individual, Firms should have regard to:
- The customer’s state of mind: (across both traditional and where possible, digital channels) and their ability to understand key product features/risks and make informed decisions both in relation to new applications and reviewing the suitability of existing products held; and
- The customer’s finances: focusing on their ability to manage existing commitments, and the impact the situation may have on current and future income and household expenditure, and the customer’s ability to maintain their contractual repayments.