Promoting high standards of lending

What are the Standards?

The Standards of Lending Practice are voluntary and set the benchmark for good lending practice in the UK, outlining the way registered firms are expected to deal with their customers throughout the entire product life cycle.

The Standards of Lending Practice for personal customers covers loans, credit cards, charge cards and overdrafts. The Standards of Lending Practice for business customers covers loans, credit cards, charge cards and overdrafts, with a separate set of Standards covering asset finance.

Each section of the Standards contains:

• A customer outcome;
• An overall statement of how a firm intends to achieve this outcome; and
• A detailed set of standards that demonstrate the approach.

While a number of these outcomes are well established within firms, new areas do emerge from time to time. As and when they do, the Standards of Lending Practice will evolve to help registered firms develop their approach to them.

Increasing protection for customers and promoting fair lending

We know that there is not just one way of achieving fair customer outcomes – with this in mind, the Standards provide a level of flexibility to Firms, allowing them to tailor their practice around their customer’s individual circumstances.

The Standards of Lending Practice logo

Our registered firms can use the Standards of Lending Practice logo to demonstrate that they adhere to the Standards.

Only registered firms can use the logo.

The logo can be sized to suit the firm’s preferences and may be used on websites, relevant product literature, the statement of lender and borrower responsibilities (SLBR), the statement of commitment and borrower responsibilities (SCBR) and customer correspondence.

Our approach

The Standards recognise that there may be several ways to achieve the right outcome for customers, depending on the specific situation and individual circumstances.

Instead of expecting firms to rigidly follow a set of rules that may not always be relevant, we evaluate ways in which firms demonstrate they are achieving the desired customer outcomes. This offers a far greater level of flexibility and better outcomes for borrowers.

Recognising emerging new areas

Each section of the Standards contains:

• A customer outcome;
• An overall statement of how a firm intends to achieve this outcome; and
• A detailed set of standards that demonstrate the approach.

While a number of these outcomes are well established within firms, new areas do emerge from time to time. As and when they do, the Standards of Lending Practice will evolve to help registered firms develop their approach to them.

Example: customer vulnerability – In the case of consumer vulnerability, the Standards of Lending Practice support firms in applying a consistent approach to the provision of inclusive products and services across all operations.

Oversight and enforcement

The LSB takes a proactive, risk-based approach to oversight and enforcement, with an emphasis on supporting and challenging firms to meet the Standards.

Our compliance oversight model has been designed to strike a balance. On the one hand, it provides the independent assurance that standards are being achieved. On the other, it avoids over-burdening firms whose processes are subject to regular review by statutory regulators and their own independent assurance functions.

This collaborative, proactive approach significantly reduces the burden on firms, is proportionate to the risk presented, yet remains robust and independent.

Our core methodology is divided into three phases:

1. Assurance: focusing on fair customer outcomes and putting in place the controls to achieve those outcomes

2. Development & Research: ensuring that the Standards continue to improve the levels of consumer protection through the research of emerging areas of focus

3. Insight & Support: helping firms to meet the Standards and achieve fair customer outcomes

Assurance

Assurance takes a risk-based approach, placing a strong emphasis on the ability of the relevant controls to deliver fair customer outcomes. Our assurance work is also designed to identify any weaknesses that could have an adverse impact on this and on the Standards in general. To avoid unnecessary duplication, it excludes areas covered by CONC.

What areas does our Assurance cover? 

New applications

Fair customer outcomes are achieved by meeting all the standards. Any firm wishing to sign up to the Standards of Lending Practice will be fully assessed to confirm it meets the required level of good practice – including those areas covered by CONC.

To find out how to apply, click here.

Risk assessment review (RAR)

Our oversight strategy places a degree of reliance on a firm’s internal governance where we have confidence in it. Through our risk assessment reviews, we assess every firm to gain an understanding of its risk management framework, oversight arrangements and internal monitoring and assurance capability.

The output of this determines the level of oversight this firm will be subject to. For firms with a mature risk management framework for example, primary reliance is placed on our relationship management model supplemented with remote monitoring, which is achieved through the assessment of available management information and other intelligence. For those firms whose governance is still developing, or is not at a sufficiently mature level, the approach is flexed to include more formal oversight.

Our approach is collaborative and proactive thus significantly reducing the burden on firms, is proportionate to the risk presented, and yet, remains robust and independent. The emphasis is on supporting and challenging firms to help them meet the Standards.

Relationship management

Relationship meetings represent a key element of the oversight strategy. Meetings generally involve:

• A focus on a specific outcome or topic, with front line areas of the business describing how they make sure the desired customer outcomes are being achieved.
• Input from second and third line areas, plus any recent examples where the topic under discussion has been reviewed.
• Raising any significant changes to process or policy that might impact the risk assessment classification.
• Discussion of any failure to meet a certain standard, analysing the root cause and identifying appropriate actions.
• Discussion of any development or advisory work being considered or already underway.

Management information

We use a varied mix of data, intelligence and management information to continuously monitor how effectively firms are achieving customer outcomes. This information also feeds into risk assessment reviews, as well as providing supporting information for the relationship meetings.

Outcomes testing

Short reviews focus on a specific principle, outcome or standard to assist firms rated as immature or at the lower end of progressive.

Development & Research

Our development work represents a continuous cycle of improvement aimed at creating and continuously enhancing best practice guidance, as contained in the Information for Practitioners Guide (IfP). Post-implementation reviews of areas where we have previously conducted research identify what is working in an individual firm and what is not. We then use any learnings to enhance the Standards and the IfP.What areas does our Development & Research work cover?

Standards development projects

We aim to develop and enhance both the Standards and supporting information on an ongoing basis. To achieve this, we undertake a range of projects covering existing areas of the Standards and those that support them. Desktop research is followed by visits to the firm concerned and discussions with staff to identify good practice. Click here to access the work we have done in this area.

Research projects

Taking a similar methodology to the above, research projects focus on topical areas of emerging interest. Once an initial report has been produced, we may undertake a campaign to develop the theme and maintain interest by publishing updated research to firms and in industry publications.

Post-implementation reviews (PIR)

A two-stage PIR follows each development project, taking place at approximately six and twelve months. The first involves a ‘stock check’ at a sample of firms, evaluating the implementation of any recommended measures arising from the development project. The second PIR comprises a more detailed assessment of the measures implemented, including the barriers to adoption where recommendations have not been acted on. We will invite firms to work collaboratively with us on these reviews.

Insight & Support

Adding value beyond monitoring and development

Our Insight & Support work offers a range of value adding initiatives aimed at helping registered firms to continue meeting the Standards and achieve fair outcomes – practical and collaborative, these activities go beyond our core assurance and development work.

As part of their fee, our registered firms have access to one piece of Insight & Support work per year.

What Insight & Support services are available?

Practitioner support

Training: we deliver tailored and interactive classroom-based training covering a wide range of topics. We engage with you to understand your business, your customers and your people and ensure you get the most out of the training session.

Training sessions are currently available on the following themes:

• The Standards of Lending Practice for personal customers 
• The Standards of Lending Practice for business customers
• Personal customers in vulnerable circumstances
• Business customers in vulnerable circumstances

If you have other training needs, want to hear about our new training topics or would like to find out more about our Insight & Support services, please contact us via insight@lstdb.org.uk.

Soundboarding: we provide you with support, challenge and feedback whether you are making changes to existing processes or launching new initiatives.

Horizon scanning: we offer a range of methods of support and guidance on what is coming down the track and practical application.

Workshops

We host a range of workshops aimed at bringing firms and the wider industry together to share best practice and provide an open environment to discuss challenges and opportunities – recent themes have included digital, financial inclusion and vulnerable customers.

If you are hosting a workshop on areas or themes within the scope of the Standards, we can support these events, which might offer additional insight and to the discussion.

Benchmarking

We can provide best practice guidance, challenge and thought leadership in the development of your policies, processes and procedures.

Business reviews

We host call calibration sessions and we can give you an independent view of your customer interactions. We also offer full or partial business reviews at your request.

To find out more, get in touch via insight@lstdb.org.uk

Breaches

We will always work with Firms to support the achievement of fair customer outcomes.

Our breaches management framework puts a range of sanctions at our disposal and enforcement action is only ever used as a last resort. Breaches may be identified by registered firms themselves or by the LSB. In either case, all reported breaches and accompanying actions plans are logged internally via the online compliance tool to facilitate tracking and reporting.

When it comes to addressing a failure by a registered firm to achieve a defined customer outcome or meet the agreed standards, the LSB will hold that firm to account.

Best practice

Firms should have systems in place to ensure they can quickly identify any failure to meet the Standards. Where standards have not been met or outcomes have not been achieved, remedial action should be taken in line with LSB’s breach management and reporting policy.

What happens in the event of a breach?

Registered firms are expected to promptly inform the LSB of any failure to achieve an outcome or meet a standard, except for those which are classed as minor under the breach management and reporting policy.

Complaints

We promote fair lending and we help financial services product providers deliver fair customer outcomes, however, we do not have statutory powers which means we are unable to investigate or deal with customer complaints.

If you have a complaint about your financial product provider, we would recommend that you contact them in the first instance. Where you feel you have not received a satisfactory solution to your complaint, you can also contact the Financial Ombudsman Service.

For more information, visit www.financial-ombudsman.org.uk

Debt help

If you are experiencing financial difficulties, debt-advice organisations can help. The following all provide free financial advice:

Advice NI: www.adviceni.net

Advice UK: www.adviceuk.org.uk

Business Debtline: www.businessdebtline.org

Christians Against Poverty: www.capuk.org

Citizens Advice England, Wales and Northern Ireland: www.citizensadvice.org.uk

Citizens Advice Scotland: www.cas.org.uk

Money Advice Scotland: www.moneyadvicescotland.org.uk

Money Advice Service: www.moneyadviceservice.org.uk

National Debtline www.nationaldebtline.co.uk

Payplan: www.payplan.com

StepChange Debt Charity: www.stepchange.org

Other companies may charge for offering advice or managing your debts. Please make sure you check the fees involved before asking these companies to act on your behalf.