The Standards of Lending Practice are voluntary and set the benchmark for good lending practice in the UK. Sponsored by the British Bankers’ Association (BBA) and the UK Cards Association, the Standards outline the way Registered Firms are expected to deal with their customers throughout the entire product life cycle.

The Standards of Lending Practice apply to personal customers and cover six main areas

  • Financial promotions and communications
  • Product sale
  • Account maintenance and servicing
  • Money Management
  • Financial difficulty
  • Consumer vulnerability

A separate section covers governance and oversight, setting out the framework Firms should have in place to ensure that the Standards are implemented and operate effectively.

What products do they cover?

  • Loans
  • Credit cards
  • Current account overdrafts

A wider range of consumer lending products is currently under consideration.

Standards of Lending Practice for SMEs

Work is underway on extending business Standards of Lending Practice beyond the current micro-enterprise lending to larger SMEs. In the meantime, the relevant provisions of the current Lending Code will continue to apply.

Download the Standards

Click here to get your copy.

Introduction

The Standards of Lending Practice, which replace the Lending Code, are composed of seven main areas. These set out standards of good practice in relation to credit card, overdraft and unsecured loan products provided to customers, across the lifecycle from the initial offering of the product through to dealing with customers who find themselves in financial difficulty.

The principles for lending outline the overarching areas of focus for Registered Firms and underpinning these are the more detailed Standards of Lending Practice which are broken down into the following topics:

  • Financial promotions and communications
  • Product sale
  • Account maintenance and servicing
  • Money management
  • Financial difficulty
  • Consumer vulnerability

There is also a separate section on Governance and Oversight, which sets out the framework Registered Firms should have in place to ensure that the Standards are implemented and operate effectively.

The Standards represent a move away from its predecessor, which was focused more on compliance with provisions than customer outcomes. This acknowledges that there may be several ways to achieve the right customer outcome and that the best solution in a specific situation may differ depending on the customer’s individual circumstances. This avoids Firms having to rigidly follow a set of rules which may not always be appropriate and allow for flexibility. The LSB’s oversight regime will recognise this and will focus on how Firms are demonstrating that they are meeting the outcomes.

Each section contains both a ‘customer outcome’ and an overall statement of how a Firm will achieve this; both are supported by a more detailed set of standards to enable Firms to demonstrate how they achieve the desired outcome. While a number of these areas are well established within Firms, there are some newer, emerging areas where the Standards of Lending Practice help Firms in developing their approach to these.

One example is consumer vulnerability where the Standards of Lending Practice seek to support Firms in applying a consistent approach to the provision of inclusive products and services which is embedded across all operations. This means that the products offered therefore work well for the majority of customers but which also contain sufficient flexibility to enable the needs of customers who are, or who find themselves in, a vulnerable situation to be met.

Alignment with statutory regulation

Registered Firms are regulated by the Financial Conduct Authority (FCA) and will already be required to adhere to the Consumer Credit Sourcebook (CONC). For completeness, the Standards of Lending Practice also include where relevant, references to CONC and the Consumer Credit Act 1974, as amended (CCA). The Governance and Oversight section acknowledges that the FCA’s Senior Management Arrangements, Systems and Controls (SYSC) requires Firms to have adequate governance arrangements in place.

The intention is that the Standards of Lending Practice provide an overview of the entire lending process but adherence to any CCA/FCA/CONC requirement is outside of the LSB’s oversight regime.

Application

The Standards of Lending Practice apply to lending undertaken in the UK and across all delivery channels. Those Firms which agree to adhere to the Standards should ensure that any third party or agent acting on their behalf adheres to these in relation to any products or services which are covered by the Standards of Lending Practice.

Lending to micro-enterprises

Work is underway on developing Standards of Lending Practice for lending to micro-enterprises; in the interim the existing protections of the Lending Code will continue to apply for these customers.

Principles for lending

Application

Below are the overarching principles that Registered Firms which lend, and/or undertake associated debt collection activities, to personal customers should use to govern their relationship with their customers.

The Principles for Lending and Standards of Lending Practice apply to:

  • Credit card, overdraft and unsecured loan products.
  • Registered Firms and any third parties that retail and service the lending products listed above on behalf of a Registered Firm.
  • In the event that a third party takes over responsibility for any products the customer has with a Registered Firm, the existing consumer protections will continue to apply.

Registered Firms will ensure that their customers:

a. Are told about the lending products the Firm has to offer, they will not face unreasonable barriers to accessing these and will be provided with clear information to enable them to choose a product that meets their needs.

b. Will be assured that Firms are committed to promoting their products responsibly.

c. Are provided with clear information about how to apply for the different lending products a firm offers; what the application process entails and any other requirements a Firm may have. Customers should be made aware of what implications the application could have on their credit rating.

d. Are aware of the high level basis on which the Firm will make its decision to lend to them. If the customer’s application is declined the main reason for this will be provided, if requested by the customer.

e. Will be provided with clear and understandable documentation along with information which clearly sets out both parties’ rights and obligations during the lifetime of the product.

f. Will be supported if they anticipate, or a Firm becomes aware, that they will have or are experiencing difficulty in repaying their borrowing.

g. Will know what happens when they have repaid their borrowing or do not require it any longer.

Financial promotions and communications

Customer outcome: all product information presented to the customer will be clear, fair and not misleading and enable the customer to understand the key features and risks of the product including the interest rates, fees and charges that apply.

Firms will achieve this: with systems and controls at product design, financial promotion and product review stages that assess product performance and ensure product information is clear, fair and not misleading.

1. Firms should ensure that all financial promotions, across all channels, are clear, fair and not misleading. This includes material provided to price comparison websites. CONC 3

2. Firms should ensure that all marketing and advertising material adheres to Data Protection legislation and the requirements of the Information Commissioner’s Office. CONC 3

Product sale

Customer outcome: customers will only be provided with a product that is affordable and which meets their needs or requirements.

Firms will achieve this: with systems and controls that ensure the sales process, training and incentives promote the right behaviours and directs their employees, or their agents, to deliver the right customer outcome.

1. Firms should ensure that when a customer applies for a credit product, they are advised that checks will be made at, and information provided to, Credit Reference Agencies. CONC 4

2. Firms should ensure that customers are provided with sufficient information which enables them to decide whether the product they are applying for meets their needs and is suitable for their financial situation. CONC 4

3. If the customer’s application is declined due to information obtained from a Credit Reference Agency search Firms should direct the customer to obtain a copy of the information held about them from the relevant Credit Reference Agencies, prior to making any further applications.

4. If a firm offers a credit product which includes an indicative quotation facility, it should provide the customer with clear information as to how this works.

5. Before providing any form of credit, granting or increasing an overdraft or other borrowing, Firms should assess, from the information available to the firm at the time, whether the customer will be able to repay it in a sustainable manner without the customer incurring financial difficulty or experiencing significant adverse consequences. CONC 5

6. Firms’ application processes should ensure that a customer is not at a disadvantage because they are serving/have recently served in the British Armed Forces.

7. When providing a credit card product, Firms should present information about the main features of a credit card in a summary box, as set out in The UK Cards Association Best Practice Guidelines.

Account maintenance and servicing

Customer outcome: customer requests will be dealt with in a timely, secure and accurate manner. Information provided to customers will be clear in terms of presentation and in clarifying any action that the customer needs to take.

Firms will achieve this: with systems, processes and controls that aim to provide an accurate view of the customer’s relationship with the firm and the relevant lending products they hold. Information held about, and sent to, the customer is up to date and that this is underpinned by appropriately skilled and knowledgeable staff.

1. Firms should provide customers with a monthly credit card statement which includes sufficient information to allow the customer to manage their account. CCA

2. The minimum payment due on a credit card account should be clearly shown on the customer’s statement. CONC 6

3. If a current account customer wishes to opt out of an unarranged overdraft, where this facility is offered, firms should enable the customer to exercise this option and inform them of the effect this will have on the operation of their account.

4. Firms should provide credit card customers with written notice of any interest rate increase, unless this relates to a base rate tracker product, and how they can reject this if they wish to do so. The customer should be advised what happens to the account if they choose to reject the increase. CONC 6

5. Firms should have processes in place to deal with unauthorised credit card transactions. If customer fraud is suspected; the burden of proof is on the firm to prove this is the case. CCA

6. Firms should inform customers of any changes to the interest rates and fees on their overdraft. To help the customer to compare costs, the old interest rates and fees should be included within the information provided.

7. Firms will maintain the security of customers’ data but may share information about the day-to-day running of a customer’s account(s), including positive data, with credit reference agencies where the firm has agreed to follow the principles of reciprocity. CONC 5

8. Firms should ensure that where an individual provides a guarantee/indemnity or other security, they have access to regular financial information on their current level of liability.

Money Management

Customer outcome: customers will be helped with managing their finances through pro-active and reactive measures designed to identify signs of financial stress and to help them avoid falling into financial difficulty.

Firms will achieve this: with systems and controls that are capable of identifying, across the relevant products held, where customers may be showing signs of financial stress at any point in the customer life-cycle, and pro-actively engaging with the customer to provide an appropriate solution.

1. Firms should ensure that the product design stage takes into account internal and external risks which could impact upon a customer’s ability to maintain their repayments so that new products do not lead to unsustainable borrowing.

2. Firms should undertake both post-launch and cyclical product reviews to ensure that their products are, and remain, fit for purpose.

3. Firms should monitor customers’ credit card and overdraft limits to ensure that the customer is not exhibiting signs of financial stress and where relevant, offer appropriate support.

4. Firms should ensure that customer facing employees and third parties are sufficiently trained and skilled to help them to identify and deal with those customers who may be showing signs of financial stress.

5. Firms should undertake monitoring and assurance work to ensure that their policies and processes are designed and are operating effectively in identifying and supporting customers who are showing signs of financial stress.

Financial difficulty

Customer outcome: customers in financial difficulty, or in the early stages of the collections process, will receive appropriate support and fair treatment, across the different communication channels offered, in order to help them deal with their debts in the most suitable way.

Firms will achieve this: with systems and controls that are capable of identifying and subsequently, supporting customers in financial difficulty. Firms should be able to demonstrate that a sympathetic and positive approach has been applied when considering a customer’s financial situation.

1. Firms should have triggers and processes in place to identify customers who may be in financial difficulty and should act promptly and efficiently to address the situation with the customer. CONC 7

2. Customers identified as being in financial difficulty should be provided with clear information setting out the support available to them and should not be subject to harassment or undue pressure when discussing their problems. CONC 7

3. Firms should demonstrate an empathetic approach to the customer’s situation; listening to and acting upon information provided by the customer with a view to developing an affordable and appropriate solution.

4. If an offer of repayment is made via the common financial statement/standard financial statement, this should be used as the basis for pro-rata distribution amongst creditors covered by the plan. CONC 7

5. Firms should have appropriate policies and procedures in place to identify and support vulnerable customers where this impacts on their ability to pay. See also Consumer Vulnerability

6. Customers who are in financial difficulty will, where appropriate, be signposted to free, impartial debt advice. CONC 7

7. Firms should apply an appropriate level of forbearance, where, after having made contact with the customer, it is clear that this would be appropriate for their situation. CONC 7

8. Where a customer remains engaged with the Firm and maintains their repayment plan, they will not be subject to unnecessary contact.

9. Firms should consider freezing or reducing interest and charges when a customer is in financial difficulty. CONC 7

10. All communication with the customer/their authorised third party will be undertaken in a clear and open manner, via the customer’s/third party’s preferred method of communication (where this is known, appropriate and available). CONC 7

11. Firms should take into account the customer’s circumstances and consider whether it would amount to a fair customer outcome to pursue, or to continue to pursue, the amount owed.

12. Firms should follow a robust due diligence process when selecting third parties for debt collection or when selling a debt.

a. Firms should ensure that when a customer’s debt is sold, the purchaser continues to apply the relevant protections provided by the Standards of Lending Practice. Monitoring should a be undertaken at least annually where a Firm continues to sell debt to a purchaser, and for a further two years after a Firm has stopped selling debt to that purchaser.

b. If a customer has provided appropriate and relevant evidence of an ongoing mental health or critical illness that affects the customer’s ability to repay their debts, the debt(s) should not be sold.

c. Where a firm is aware that a customer is terminally ill, the debt(s) should not be sold.

Consumer Vulnerability

Customer outcome: inclusive products and services take into account the broad range of customers to which they may apply and contain appropriate flexibility to meet the needs of customers who may be, or are in, a vulnerable situation. Where customers are identified as, or the Firm has reason to believe that they may be, vulnerable, appropriate adjustments are made to ensure that their individual circumstances are accommodated to enable the customer, or their authorised third party, to manage their account(s).

Firms will achieve this: with systems and controls that are capable of assisting in the identification of customers who are, or may be, in a vulnerable situation, and having appropriate measures, referral points and skilled staff to deal appropriately with the customer once identified.

1. Firms should have a vulnerability strategy, which defines its approach to the identification and treatment of customers considered to be vulnerable, through whichever channel they choose to engage.

2. Firms should have policies and processes governing the identification and treatment of customers in vulnerable circumstances. These should take into account: the channel, where the customer is within the customer journey and the varying nature and degrees of permanence of different vulnerabilities.

3. (a) Firms should ensure that their employees and their agents are sufficiently trained to help them to identify vulnerability and deal with the customer in accordance with their policies and processes, with appropriate escalation points, where the circumstances require this.

3. (b) When a customer is identified as potentially vulnerable a Firm should ensure that its employees or its agents have appropriate referral and escalation points and are aware of how to access them.

4. Where appropriate, Firms should develop triggers and management information to assist employees in the identification and subsequent monitoring of customers who may be vulnerable.

5. Where a Firm is developing a new product or reviewing an existing product it should consider vulnerability as part of the design or review process, paying regard to target market, clarity, accessibility and the operation of the product.

6. Firms’ sales policies and processes should take account of the impact vulnerability may have on a customer’s ability to make an informed decision about a product, and provide relevant support to customers during the credit application process.

7. Where customers in financial difficulty are considered vulnerable they should be dealt with positively and sympathetically. See also Financial Difficulty

8. Firms should undertake monitoring and assurance work to ensure that the vulnerability policies, processes and controls are designed and operating effectively and delivering fair customer outcomes.

Governance and oversight

Customer outcome: customers will receive a fair outcome when taking out a consumer credit product and throughout the whole customer lifecycle, wherever the interaction with the customer takes place.

Firms will achieve this: with systems, controls and governance arrangements that ensure that there is effective senior management oversight of the Firm’s achievement of the customer outcomes contained in the Standards of Lending Practice.

1. Firms should have adequate governance, policies, processes, management information and controls to enable effective oversight of adherence to standards and delivery of fair customer outcomes.

2. Firms should have an effective risk management framework appropriate to the size of the Firm to ensure that the Standards of Lending Practice are achieved.

3. Firms should ensure that their employees and their agents are adequately trained to deliver the Standards of Lending Practice’s customer outcomes, and that any incentive schemes are driving the right behaviours to ensure fair customer outcomes.

4. Firms should have systems in place to ensure that any failure to adhere to the Standards of Lending Practice are identified, and assessed for materiality and root cause. Where the materiality threshold is met, these are reported to the LSB and remediated in a timely manner.

5. Firms should have processes in place to identify when changes to the Standards of Lending Practice are made and to ensure that these are effectively incorporated within policies, processes and systems.

6. Firms should ensure that when systems or processes are changed, or products are introduced or changed, the impact on meeting the Standards of Lending Practice is adequately assessed.

7. Where part of the credit process/life cycle is outsourced, Firms should:

a. undertake effective and robust due diligence in selecting a third party to ensure that it can meet the Standards of Lending Practice and deliver the required customer outcomes; and

b. exercise effective ongoing oversight of the third party to ensure that it is meeting the Standards of Lending Practice and delivering the required customer outcomes.

8. Firms should have a robust complaints management process in place to deal with Standards of Lending Practice-related complaints and to undertake root cause analysis. DISP

9. Firms should assign an appropriately skilled and senior individual with accountability for overseeing that the Standards of Lending Practice are being adhered to and customer outcomes achieved, and for ensuring that remedial action is instigated where this is not happening.

Download the Standards

Click here to get your copy.

Supporting you in maintaining the Standards

These documents have been produced by the LSB and provide non-exhaustive examples of the approach Registered Firms may wish to take into consideration when seeking to adhere to the Standards of Lending Practice. The Information for Practitioners is available for the following areas:

 

Product sale

This document has been produced by the LSB and provides non-exhaustive examples of the approach Registered Firms (Firms) may wish to take into consideration when seeking to adhere to the Standards of Lending Practice (the Standards) on product sale.

Registered Firms must be able to demonstrate to the LSB that they are adhering to the Standards of Lending Practice; however the LSB does not monitor compliance with the content of this document and as such, it is not intended to be prescriptive nor binding on Registered Firms. The LSB acknowledges that each Firm will have its own way of demonstrating that it is adhering to the Standards without the need to refer to, or take account of, the content of this document.

Where a Standard cross references to the Consumer Credit Act 1974, as amended (the CCA), the Consumer Credit Sourcebook (CONC) or other Financial Conduct Authority (FCA) requirement, the examples or suggestions which follow represents the LSB’s view on how the Standard could be achieved but should not be considered to supersede the wording or intention of the CCA/CONC or the FCA.

This document will be kept under review and will be updated on an ongoing basis as and when the LSB identifies further examples of the work which is being undertaken by the industry in this area. The Standards contained within account maintenance and servicing are covered in some detail within CONC, therefore the language used within this document reflects the fact that Firms are required to, and already are undertaking specific activities, to ensure compliance with CONC.

Download a copy of the document here.

 

1.  Firms should ensure that when a customer applies for a credit product, they are advised that checks will be made at, and information provided to, Credit Reference Agencies [CONC 4]


In line with the requirements of CONC, when a customer applies for a product covered under the Standards of Lending Practice, they should be told whether searches will be made at Credit Reference Agencies (CRAs), whether a record of any search will be retained at the CRA and, if so, that this could impact on the customer’s ability to obtain credit elsewhere. The customer should also be told if the details of the account, if opened, will be passed to CRAs and that the information will be accessed and used by others. This will include information about the running of the account such as the limit and balances as well as payment performance.

 

2.  Firms should ensure that customers are provided with sufficient information which enables them to decide whether the product they are applying for meets their needs and is suitable for their financial situation [CONC 4]


CONC sets out the rules and guidance regarding information which should be provided to customer at the pre-application stage.  Applicants should be told how they will be notified of changes to terms and conditions when they become a customer.  The LSB would expect that where a customer has been advised of an adverse change to the terms and conditions of their product, a freephone number should be provided for the customer to contact the Firm, should they wish to do so. However, if the customer operates their account online, this would be the usual method of contact for the customer.   

If a customer applies for a basic bank account, they should not be upsold to a full service current account, unless during the course of the application, it becomes apparent that the features of the basic bank account are not suitable for their needs. 

In order to help the customer make an informed decision, where a Firm provides within its current account range one or more accounts that provide customers with the ability to opt out from unarranged overdrafts, details of such accounts should be provided to customers applying for a new current account, together with a comparison of this type of account against other current accounts offered by the Firm without such facility. The comparison only needs to include comparable current account products on which overdrafts are permitted. However, where the Firm is told, or has reason to be believe, that the customer has already decided on another current account product in the Firm’s range of current accounts (e.g. a basic bank account), this information does not need to be provided.

Consolidation loans

Where a consolidation loan is provided to a customer and the Firm considers the customer to be in financial difficulty, the LSB would expect the Firm to:

  • reduce or pay off the existing in-house borrowing that it is aware is being consolidated where the existence of such borrowing is apparent to a Firm via their systems. Exceptionally there may be circumstances in which it is appropriate not to reduce or pay off existing borrowing.
  • the monthly repayments on the consolidation loan should not exceed the total monthly repayments of the debts being consolidated, unless exceptional circumstances apply, for example where the customer has a repayment holiday or an interest-free period under their existing arrangement, which is shortly to end.

 

3.  If the customer’s application is declined due to information obtained from a Credit Reference Agency search, Firms should direct the customer to obtain a copy of the information held about them from the relevant Credit Reference Agencies, prior to making any further applications


Some customers may lack understanding of how CRAs fit into the application process and how the process of applying for credit requires that information is recorded on their credit file.  If a customer’s application is declined, they should be advised of the main reasons why their application has been unsuccessful, told which CRA(s) the Firm uses and how to get a copy of the information the relevant CRA(s) hold about them. The customer should be provided with any leaflets produced by the Firm or directed to relevant pages of the Firm’s website which explain how credit referencing works. The ICO’s guidance for consumers[1] advises that if an application is declined and they have additional information which may alter the decision, they can request that the Firm reviews its decision.

What might good practice look like: where applications or requests for credit limit increases are declined the individual should be provided with clear information about the factors that will have influenced the decision and where relevant, are recommended to check their file at the CRAs. This could include a set of suggested actions for the consumer to take such as making sure they are on the electoral register.

 

4.  If a Firm offers a credit product which includes an indicative quotation facility, it should provide the customer with clear information as to how this works


If a Firm offers an indicative quotation facility for a credit product, the LSB would expect the customer to be informed that the headline rate may not be available and any quotation will be linked to their own financial circumstances as known to the Firm and CRAs, prior to the customer commencing a formal application.

If asked by a customer for an indication of the likely interest rate for a product, a Firm should either:

  • as industry best practice, provide an indicative quotation, in respect of which any credit search undertaken is not registered as a full application search at CRAs i.e. it is not used by lenders in their risk assessment; or
  • inform the customer that it does not offer an indicative quotation facility and ensure that the customer is aware that, if they proceed, an application search will be registered at the CRA(s).

 

5.  Before providing any form of credit, granting or increasing an overdraft or other borrowing, Firms should assess, from the information available to the Firm at the time, whether the customer will be able to repay it in a sustainable manner without the customer incurring financial difficulty or experiencing significant adverse consequences [CONC 5]


CONC 5 and 6 contain rules and guidance in relation to the assessment of affordability and creditworthiness. Consideration could be given to the type and amount of credit being sought, how the customer has handled their finances in the past, any known further commitments of the customer, any future changes which could be reasonably expected to have a significant financial impact on the customer, internal credit scoring techniques, the customer’s income, the reasons for the borrowing and for how long and where relevant, any security provided.

Where an application is declined, the Firm could consider whether the individual would benefit from a referral to free, independent debt advice. The LSB acknowledges that not every decline will be on the basis of a lack of affordability but where the information available to a Firm suggests that the customer may be showing financial stress, they may benefit from a referral.

Credit card limit increases

Before setting a customer’s credit limit, or increasing an existing limit, Firms should follow The UK Cards Association Best Practice Guidelines for credit card limit increases.

Overdraft limits

If a customer applies for an increase in their overdraft limit, they should not be provided with more than they have requested.

 

6.  Firms’ application processes should ensure that a customer is not at a disadvantage because they are serving/have recently served in the British Armed Forces


Members of the Armed Forces who are based overseas or in a UK barracks can find it difficult to build a credit history and therefore may experience difficulties in demonstrating creditworthiness. This could be because their address is outside of the UK; they move regularly or have a British Forces Postcode. The LSB would expect that Firms’ systems and process, where possible, should be able to take account of the different types of information service personnel may provide, such as a British Forces Postcode, so that applications can be processed in line with standard processes and procedures. When considering an application for credit from a member of the Armed Forces, Firms should take account of the key principles contained within the Ministry of Defence’s Guidance.

 

7.  When providing a credit card product, Firms should present information about the main features of a credit card in a summary box, as set out in the UK Cards Best Practice Guidelines


Information provided to customers should be clear, fair and not misleading. Firms should present information about the main features of a credit card in a summary box, as set out in The UK Cards Association Best Practice Guidelines.

This should be provided to the customer prior to their acceptance of the agreement. For online applications, a click-through to a page containing the summary box should be available. For telephone based applications, Firms should consider how this information can be conveyed in a way which enables the customer to follow and understand the information provided.

All integral features of the product, such as introductory rates, should be included in the summary box. Information on free-standing or optional product features, if offered, protection insurances, credit card cheques or other free-standing product features should not be shown in the summary box. Information on such free-standing features should be provided separately and should comply with any relevant best practice guidelines.

Pre-contract, the summary box should appear prominently on, or within, any application form/pack, acting as a final reminder for the consumer.

Before a customer enters into the contract for a credit card (and when they accept the product for the first time) they should be given information relating to the following:

  • an explanation of how interest is calculated and charged; for example, whether it is charged on the full statement balance or only on any balance remaining after the customer has made the monthly payment
  • the Payment Services Regulations (PSR)s require that the customer should be provided, where relevant, with details of the interest and exchange rates to be applied or, if reference interest and exchange rates are to be used, the method for calculating the actual interest and the relevant date and index or base for determining such reference interest or exchange rates
  • this information should be provided either in good time before the customer is bound by the contract, or where the contract is concluded at the payment service user’s request, using a means of distance communication, immediately after the conclusion of the contract;
  • details of how monthly payments are applied to any outstanding balance across transaction types including promotional offers;
  • an explanation of recurring transactions
  • details of charges for the day-to-day running of the account, including any annual fee, dormancy fee, charge for exceeding credit limit, charge for delayed monthly payment, charges for overseas transactions, cash withdrawal fees for card usage at an ATM or over the counter, fees for any cash equivalent transactions, balance transfer fees, returned payment fees due to insufficient funds, and any other applicable fees
  • the distinction between being the principal cardholder and an additional cardholder should be explained i.e., that the principal cardholder is responsible for all spending, including that by additional cardholders, and is responsible for repayments on the credit card
  • the interest rates applicable to different types of transactions (e.g., purchases, balance transfers, credit card cheque transactions and cash transactions) and the ways in which customers will be told about changes in interest rates; and
  • sufficient details to enable customers to pay on time, including via automated payments. Firms should also ensure that, where customers are offered the facility to pay by cheque by post, sufficient time is given to allow payments to be made in time, taking account of the postal delivery system and the length of the clearing cycle.

 

 

 

 

[1] https://ico.org.uk/media/for-the-public/documents/1282/credit-explained-dp-guidance.pdf

 

Account maintenance and servicing

This document has been produced by the LSB and provides non-exhaustive examples of the approach Registered Firms (Firms) may wish to take into consideration when seeking to adhere to the Standards of Lending Practice (the Standards) on account maintenance and servicing.

Registered Firms must be able to demonstrate to the LSB that they are adhering to the Standards of Lending Practice; however the LSB does not monitor compliance with the content of this document and as such, it is not intended to be prescriptive nor binding on Registered Firms. The LSB acknowledges that each Firm will have its own way of demonstrating that it is adhering to the Standards without the need to refer to, or take account of, the content of this document.

Where a Standard cross references to the Consumer Credit Act 1974, as amended (the CCA), the Consumer Credit Sourcebook (CONC) or other Financial Conduct Authority (FCA) requirement, the examples or suggestions which follow represents the LSB’s view on how the Standard could be achieved but should not be considered to supersede the wording or intention of the CCA/CONC or the FCA.

This document will be kept under review and will be updated on an ongoing basis where the LSB identifies further examples of the work which is being undertaken by the industry in this area. Account maintenance and servicing is covered in some detail within CONC, the language used within this document, for example, ‘should’, ‘could’, ‘may’ and so on, reflects the fact that Firms are required to undertake specific activities to ensure compliance with CONC.

Download a copy of the document here.

 

1.  Firms should provide customers with a monthly credit card statement which includes sufficient information to allow the customer to manage their account [CCA]


As required by the Consumer Credit Act, credit card customers should be provided with a monthly statement for their account unless it has a zero balance and has not been used. This process is embedded within Firms and those who offer a credit card product will follow the UK Cards Best Practice Guidelines (BPG) for the Cardholder Statement Summary box. Under the BPG, the table of information is required to appear prominently either on the front or reverse of the cardholders’ monthly statement. It provides cardholders’ with details of the key features of their credit card to allow them to compare their current card with others should they wish to review whether their existing product continues to best suit their needs.

There are a number of specific pieces of information which are required to be included on every credit card statement (and where appropriate on a link from an online statement):

  • sufficient details to enable customers to pay on time, including via automated payments for any amount between the minimum payment and full payment
  • the current interest rate should be printed on each statement. Also, if more than one interest rate applies to an outstanding balance (for example, where one rate applies to a transferred balance and different rates to new borrowing and cash transactions) this should be made clear
  • a clear statement that if the account is not fully cleared, interest will be charged on the total value of the statement, and not just on the outstanding balance
  • a clear statement that interest will be charged on a daily basis and that interest payments therefore increase the longer payment is delayed (even before the monthly payment date)
  • a brief summary on the allocation of monthly payments on the front or back of the statement (or a link from an online statement)
  • the front of each credit card statement should show a cash figure indicative of the amount of interest which would be payable by the customer if they paid the minimum amount and it reached the Firm on the last day for payment; and
  • a warning about the risk of only making minimum payments which should include the wording: ‘If you make only the minimum payment each month, it will take you longer and cost you more to clear your balance.’

Firms will have processes in place to address missed payments; any notification sent to a customer should remind the customer that they have the option to set up an automated payment to avoid missing future payments.

Allocation of payments

As required under CONC, Firms should apply a customer’s repayments to the most expensive parts of the credit card balance first. This means that repayments will be applied to the various elements within the balance ranked by order of their annual interest rate (not APR) on a pure high to low basis. In allocating customer repayments, Firms will apply them to, at least, statemented transactions.

Payment holidays

If a Firm offers payment holidays, the terms associated with the use of this facility should be clearly explained to the customer who should be told that they can reject the holiday by continuing to make repayments. Where a payment holiday is provided, the minimum repayment afterwards should be sufficient to avoid negative amortisation over a period of 12 months from the start of the holiday.

Credit Card Cheques

While the LSB recognises that many Firms no longer issue credit card cheques, if a Firm does, the customer should be provided with clear information regarding the use of this product. Firms should take account of the UK Cards Association Best Practice Guidelines for credit card cheques. The information provided to a customer regarding this product should be contained within summary box form.           

Firms should not send out unsolicited credit card cheques with a pre-completed amount. In addition to the summary box, Firms should clearly and transparently highlight, in the main body of any communication sent to the customer accompanying the provision of credit card cheques, the following (where applicable):

  • that credit card cheques do not provide the same level of consumer protection as a normal credit card purchase
  • the transaction fee per cheque
  • whether there is an interest free period and
  • an alert to the summary box (e.g. ‘see important information overleaf’).

 

2.  The minimum payment due on a credit card account should be clearly shown on the customer’s statement [CONC 6]


The minimum payment amount on the account should be clearly shown on the customer’s statement, and cover that month’s interest and a proportion of the balance outstanding from the previous month (further details are contained within CONC 6). The principle applied is that the minimum repayment on a credit card should reduce month by month if there have been no further transactions on the card and assuming all other conditions of the product remain unchanged. ‘Transactions’ includes any fees, charges, or if offered, protection insurances incurred by the customer.

The minimum payment amount may be calculated as a percentage of the balance carried forward, so long as the percentage would normally prevent negative amortisation. Firms may have other methods for calculating the minimum payment due in place, provided this principle can be demonstrated and adheres to CONC/CCA requirements.

Firms should ensure that for customers entering a new credit agreement, the calculated minimum payment will always cover at least:

  • 1% of the principal owing;
  • the amount of interest that appears on the statement;
  • default fees/charges; and
  • annual fees that may be levied (whether as a single sum, twelve equal instalments or other method).

The ‘principal owing’ means the outstanding balance shown on the statement less the current month’s interest and fees. ‘Fees’ do not include fees for services such as balance transfers or cash advances.

Minimum payment – Health warning

Firms offering credit card products should adhere to the industry agreement contained within UK Cards Best Practice Guidelines, which is also a requirement under CONC, regarding the provision of an agreed health warning which should appear on a customer’s statement. This warning should be positioned close to the minimum repayment figure and advise the customer that making only the minimum repayment each month means that money borrowed will take longer to pay off, and that it will cost the customer more.

 

3.  If a current account customer wishes to opt out of an unarranged overdraft, where this facility is offered, Firms should enable the customer to exercise this option and inform them of the effect this will have on the operation of their account


This section of the LSB’s Guide for Practitioners recognises the work that the Competition and Markets Authority (CMA) has undertaken as part of its market investigation into retail banking and that work is underway to address the remedies proposed in the CMA’s final report which was issued in August 2016. The following is intended to provide a steer for Firms where the facility to opt out of an unarranged overdraft is offered.

Customers may wish to opt out of any unarranged overdraft on their account as a way of seeking to exert further control over their financial situation. They may not be aware of what the implications of doing so are for their account, that is, where they exceed any arranged overdraft or have insufficient funds to cover a transaction that this will result in the payment being declined. This could then have an impact on their credit file as a result of returned items.

The information may be provided electronically, by letter or by a leaflet, according to the normal channel of communication with the customer. Customer facing staff should also be able to provide customers with information on what the implications of opting out of an unarranged overdraft are.

If an applicant requests an account which includes an option to opt-out of unarranged overdrafts, a Firm should not, in response, offer the customer a Basic Bank Account unless the limited functionality of this product is appropriate for the customer’s circumstances.

Customers also may not be aware of the implications that opting out will have on their account, for example, a Firm’s policy may require their particular account to be closed and another re-opened. If this is the case, the customer should be provided with a clear explanation of what this entails and any change over should be as smooth as possible.

Although a customer’s decision to opt out of unarranged overdrafts is capable of being revoked by the customer, a Firm may place restrictions on the number and frequency of permitted switches that a customer may make in respect of unarranged overdrafts.

Should a Firm wish to adopt an opt-in approach, it should ensure that this is underpinned by a clear communication strategy for reminding customers that this is the approach which has been taken and, by having opted-in that they have the right to change their mind and instead opt-out of all future overdraft increases. This reminder should also include clear information on what this means in practice for them and their account and if they wish to do so, how they can go about changing their preference.

 

4.  Firms should provide credit card customers with written notice of any interest rate increase, unless this relates to a base rate tracker product, and how they can reject this if they wish to do so. The customer should be advised what happens to the account if they choose to reject the increase [CONC 6]


The provision of information to customers regarding a change in the interest rate applicable to their credit card will help to support customers to manage their account more effectively.  Written notice should be provided at least 30 days before the interest rate increase takes effect and should explain in clear language how the rate is changing, what it will cost, the options available to the customer and the following information:

  • current interest rate
  • the new increased interest rate
  • an indicative cost impact of the increase (by either a generic or personalised example); and
  • notification of the customer’s ability to reject the increase during the period of 60 days specified in the notice and pay the outstanding balance in full at the current rate.

The requirement to notify the customer does not apply if:

  • the change is to an interest rate which is set to track the movement in an external index, such a base rate, which has been clearly stated in the terms and conditions associated with the product.
  • a promotional rate has come to the end of its term or has been revoked early because, for example, a payment has been missed.
  • there is a interest rate decrease.

If the Firm offers alternative lending products, it may also provide the customer with the option to transfer the balance to such a product at the existing (or lower) rate of interest.

For a risk-based rate increase, the notice of interest rate increase should be sent separately from any account statement. For a general interest rate increase, the notice may be sent with the customer’s statement, via a separate communication or online message.

The 60 day rejection period may run concurrently with the 30 day notice period and if this is the case, the written notice will make this clear to the customer. During the 60 day rejection period, the Firm should remind the customer of their right to reject the interest rate increase and what this means in terms of their account – that this will require the Firm to close the account and the customer will be required to repay the outstanding balance. This reminder may be included on or with the customer’s account statement and does not need to repeat the detail included in the original notification.

The customer may tell the Firm, at any time during the 60 day rejection period specified in the notice of increase that they wish to reject the interest rate increase. Where the customer rejects the rate increase, this means that:

  • the customer’s credit card account will be closed; and
  • the customer will be permitted to pay their outstanding credit card balance at their pre-notification interest rate within a reasonable period. This will take into account the level of minimum payments and the customer’s financial situation.

A Firm should not increase a customer’s interest rate where it is aware that:

  • the customer is currently two or more payments in arrears
  • an agreed repayment plan is in place in respect of the customer’s account or
  • the customer has engaged a debt management Firm to act on their behalf, and the Firm has been notified of this.

Firms are encouraged to periodically review customers’ credit card limits to ensure that they remain suitable for the customer’s situation and that they are not showing signs of financial distress.

If asked by the customer, Firms should explain why the interest rate is being increased and make available an industry standard explanation of how credit card re-pricing works.

Selection of accounts for re-pricing

Where a customer manages their account within the Firm’s terms and conditions, the Firm will not increase interest rates:

  • for risk-based re-pricing – within the first 12 months of a customer having the credit card; or
  • for risk-based re-pricing and general re-pricing – more often than 6 monthly, other than in exceptional circumstances. The exception applies to general re-pricing only and, for example, may be due to rapid escalation in underlying interest rates, or a change to legislation/regulation, that significantly increases costs, or decreases income.

 

5.  Firms should have processes in place to deal with unauthorised credit card transactions. If customer fraud is suspected; the burden of proof is on the Firm to prove this is the case [CCA]


Firms will have policies and processes in place regarding unauthorised credit card transactions. The Payment Service Regulations (PSRs) contains a carve out for unauthorised credit card transactions as these are regulated by the Consumer Credit Act (CCA). Under the CCA, a customer’s liability for any transactions made by someone who has used their card without their consent is limited to £50. When considering a customer’s claim that they have not authorised a transaction on their account, the burden of proof lies with the Firm and not with the customer. The LSB would expect the Firm to provide proof that it has reason to believe that the customer has provided authorisation.

Firms should consider a customer’s claim on the basis of the individual circumstances. The LSB would expect that unless the Firm can show that the customer has acted fraudulently, the customer’s liability for their credit card being misused should be limited as follows:

  • If someone else uses the card before the customer informs the Firm that it has been lost or stolen or that someone else knows the PIN, the most the customer will have to pay is £50.
  • If someone else uses the card details without the customer’s permission, and the card has not been lost or stolen, the customer will not have to pay anything; this would include where a customer’s card has been cloned.
  • If the card is used before the customer has received it, the customer will not have to pay anything, unless the Firm can show that the customer acted fraudulently.
  • In the event that card details are used by someone else without the customer’s permission, for a transaction where the cardholder does not need to be present, the customer will not have to pay anything.
  • If unless the firm can show that the customer acted fraudulently, where a credit card transaction has not been authorised by the customer, any interest or other charges that may have been applied as a result of the transaction will be refunded, unless the Firm can show that the customer acted fraudulently.

 

6.  Firms should inform customers of any changes to the interest rates and fees on their overdraft. To help the customer to compare costs, the old interest rates and fees should be included within the information provided


If an overdraft facility is offered, Firms should provide customers with information on the interest rates which apply and when this will be collected. If a customer asks, the Firm should also provide the customer with a full explanation of how interest is worked out.

Before taking any interest and overdraft charges incurred by the customer, Firms should provide a minimum of 14 days notice to the customer of how much will be taken. Firms should also consider including a specific date on which this charge will be applied to support customers in the management of their account. Firms should inform customers about changes to the interest rates on their overdraft as required under the CCA/CONC.

Firms should make available to customers information about any charges for overdrafts via their online account, a telephone helpline or by via branch staff.  Customers should be personally notified at least 30 days before any increase in an overdraft charge or the introduction of a new overdraft charge.

 

7.  Firms will maintain the security of customers’ data but may share information about the day-to-day running of a customer’s account(s), including positive data, with credit reference agencies where the Firm has agreed to follow the principles of reciprocity [CONC 5]


Firms can provide Credit Reference Agencies (CRAs) with default information about a customer’s debts if:

  • the customer has fallen behind with their payments
  • the amount owed is not being disputed by the customer (a customer dispute is relevant if it refers to the amount of money owed by the customer and is genuine, reasonable and unresolved) and
  • the customer has not made a proposal that satisfies the Firm for repaying the debt following the Firm’s formal demand.

The customer should be given further notice of the intention to disclose the information at least 28 days before the disclosure is made, for example, when a default notice or formal demand is given. At the same time, customers should be provided with an explanation about how default information registered against them may affect their ability to obtain credit in the future. This notice means that customers have 28 days to try to repay or come to some arrangement with the Firm before default information is passed to the CRA. The requirement to share data does not apply in specialist customer segments such as private banking where sharing CRA data is not always appropriate.

Firms should ensure that data is up-to-date, accurate and complete before it is passed to credit reference agencies and any errors are addressed and corrected efficiently once discovered.

With the customer’s permission, Firms can share information about the day-to-day running of the customer’s account, including positive data, with CRAs where the Firm has agreed to follow the industry’s Principles of Reciprocity. See also CONC 5.3.1G (12) regarding the FCA’s expectations on data sharing. Subject to the relevant legal constraints, FCA encourages the sharing between lenders of accurate data about the performance of a customer’s account and the settlement of outstanding debts, as the process of making the assessments in this chapter is assisted by lenders registering such data with credit reference agencies, in a timely manner.

 

8.  Firms should ensure that where an individual provides a guarantee/indemnity or other security, they have access to regular financial information on their current level of liability


This standard applies to individuals who offer personal guarantees or indemnities.[1] Firms should also refer to CONC which provides further requirements in relation the guarantor lending.

Firms should ensure that regular financial information about the individual on whose behalf a guarantee/indemnity or other security is being given, is always made available to the guarantor or granters of third party security, so that they can assess the likelihood of being called upon to pay. If the guarantor or granter requests confidential financial information (with the exception of the current level of liability), such as details of balances, copy statements, etc, the customer’s consent should first be obtained.

Independent legal advice

Prior to entering into an agreement, guarantors or granters should be told that by giving the guarantee or other security they may become liable instead of, or as well as, the individual; and what the extent of their liability will be. Depending on the nature of the guarantee, some guarantors or granters may wish to seek independent legal advice before signing an agreement and should be provided with the opportunity to do so.  Whilst acknowledging that not all customers will require it, Firms should encourage, potential guarantors or granters to take independent advice. The recommendation to take independent legal advice, and the potential consequences of their decision, could be stated on appropriate documents that the guarantor or granter is asked to sign.

Area for consideration: depending upon the circumstances, Firms may wish to go further than what is covered in this section and require a potential guarantor or granter who refuses to take legal advice to sign a declaration to that effect.

Firms must also tell the guarantor the extent of their liability, including the addition of interest and charges after demand has been made. Where independent legal advice has been given, it may be assumed that the solicitor will have explained the nature of all monies and continuing security, if appropriate. Depending on the nature and structure of facilities, Firms may choose to explain these features to those customers who have declined independent legal advice (and should always do so when requested by any guarantor).

The LSB would not expect a Firm to take an unlimited guarantee from an individual. However, other forms of unlimited third party security may be taken from an individual, provided that the limit of the granter’s liability is explained in a side letter. This is to avoid the need to take fresh security, with the associated expense and inconvenience to customers, each time a facility changes. ‘Unlimited’ applies to the capital amount of the loan and excludes interest, charges and arrears etc. An explanation of this should be covered in the guarantee/indemnity or other security documents that the guarantor is asked to sign.

 

 

 

 

[1] A guarantee is different from an indemnity which is also a promise to be responsible for another’s loss. However, an indemnity is a primary obligation which is not contingent on the obligations of the borrower.

Money management

This document has been produced by the LSB and provides non-exhaustive examples of the approach Registered Firms may wish to take into consideration when seeking to adhere to the Standards of Lending Practice (the Standards) on money management.

Registered Firms must be able to demonstrate to the LSB that they are adhering to the Standards of Lending Practice; however the LSB does not monitor compliance with the content of this document and as such, it is not intended to be prescriptive nor binding on Registered Firms. The LSB acknowledges that each Registered Firm will have its own way of demonstrating that it is adhering to the Standards without the need to refer to, or take account of, the content of this document.

Where a Standard cross references to the Consumer Credit Act 1974, as amended (the CCA), the Consumer Credit Sourcebook (CONC) or other Financial Conduct Authority (FCA) requirement, the examples or suggestions which follow represents the LSB’s view on how the Standard could be achieved but should not be considered to supersede the wording or intention of the CCA/CONC or the FCA.

This document will be kept under review and updated on an ongoing basis as the LSB gathers further examples of the work which is being undertaken by the industry in this area.

Download a copy of the document here.

 

1.  Firms should ensure that the product design stage takes into account internal and external risks which could impact upon a customer’s ability to maintain their repayments so that new products do not lead to unsustainable borrowing


Firms could consider a broad and realistic view of internal and external risks which may impact on the customer’s ability to maintain product repayments to help ensure that new products do not lead to unsustainable borrowing. Firms may benefit from having frameworks in place which support new product design and any refreshes of existing propositions. This could include: considerations in respect of the target market and how validation of product features and usage is undertaken both pre and post launch, so as to ensure they are and remain fit for purpose.

Firms may find it useful to consider a broad range of internal and external risks and drivers for customer behaviour to help ensure that the products are designed to meet those needs without leading to unsustainable borrowing. Examples of areas for consideration include:

  • internal account performance data, such as accounts which operate within the terms of the product verses those that breach them, and any identifiable trends, such as accounts falling into arrears at an early stage.
  • ease of access for customers via the relevant sales channels and the alignment of checks and controls.
  • customer feedback from a range of sources such as customer satisfaction surveys and complaints.
  • application decline rates and the associated rationale.
  • customer research to test the understanding and usefulness of the proposed product and features.
  • wider economic factors, such as changes to the employment market, significant changes to the benefits system, changes to housing market and associated costs (such as rents) and potential Bank of England base rate changes and how this may impact the ability of customers to service the account.

 

2.  Firms should undertake both post-launch and cyclical product reviews to ensure that their products are, and remain, fit for purpose


The LSB considers that post launch reviews and cyclical product reviews which take into consideration customer feedback as well as performance metrics, provide an opportunity to ensure the product is and remains fit for purpose. The product design framework could include a post launch review phase to ensure the product is being accessed, sold and operated as expected and where that is not happening appropriate actions can be implemented. The post launch review could also provide a valuable opportunity to review customer outcomes and identify any new risks. 

What might good practice look like? Cyclical product reviews, conducted on a risk basis, could then form part of the ‘business as usual’ suite of controls to monitor performance, risks and track any trends.

 

3.  Firms should monitor customers’ credit card and overdraft limits to ensure that the customer is not exhibiting signs of financial stress and where relevant, offer appropriate support


As Firms already undertake periodical reviews of credit card/overdraft limits with a view to reducing where appropriate, monitoring of customer’s limits could also allow for the early identification of customers who may be showing signs of actual or potential stress. The results of this may suggest that the customer would benefit from some form of contact from the Firm and appropriate action taken.

Where the decision is taken to reduce a customer’s limit, Firms should give consideration to the impact that any reduction will have on their overall ability to manage their finances. Where the decision is made to reduce the limit, the LSB would suggest that the customer is encouraged to contact the Firm if this reduction is going to cause them immediate or future difficulties. Where appropriate, these customers may also benefit from signposting to sources of free, impartial debt advice.

Limit increases

Firms should ensure that credit limit increases are only undertaken once they are satisfied that the customer is able to afford the repayments. Firms should not offer a customer, who is already in arrears, an increase in their credit card or overdraft limit, unless this is part of the agreed repayment plan. Where a customer requests an increase, they should not be offered more than they have requested.

If a customer is offered an arranged overdraft, or an increase in their existing arranged overdraft limit, firms should tell the customer if the overdraft is repayable on demand. This means that the firm is able to request repayment of all or any part of the facility in question at any time during the life of the agreement, without having to point to any particular default on the part of the customer.

 

4.  Firms should ensure that customer facing employees and third parties are sufficiently trained and skilled to help them to identify and deal with those customers who may be showing signs of financial stress


Firms will have a number of different techniques to ensure that staff have the appropriate skills and knowledge for their role. This includes the soft skills required to probe for further information in a positive and sensitive manner if there are indications that the customer may benefit from additional support in managing their finances.  

The LSB is aware that Firms may have trialled contact strategies where some customers have been unwilling to engage in discussions around their financial situation. Others may be more forthcoming with information but may, for example, be wary of disclosing the full extent of their situation as they lack an understanding of how the content of the conversation will be used by the Firm. Therefore, the member of staff’s ability to empathise and explore the customer’s concerns about disclosing information is an important part of the process.

What might good practice look like? staff training could seek to examine differences in customer behaviour, for example, from those who want to quickly and efficiently access information to the more relaxed and chatty approach. This could then be used to develop approaches for different customer styles, covering how the customer might feel and react in a situation of stress so that staff can engage effectively to ensure their anxieties are addressed and their needs met.

Case reviews involving reviewing recorded calls can provide an opportunity for teams to assess how well they are doing. By listening to randomly selected calls and discussing how the call was handled, Firms can determine if there is anything that could have been done differently and whether the right customer outcome was achieved. Additional training and support could be provided to address any specific needs on an individual basis, or more widely, in relation to process improvements.

What might poor practice look like? the review process takes account of any improvements which could be made but omits to consider whether the customer is provided with the right support for their situation.

A blended learning technique can help to ensure that staff have the opportunity to put their new skills into practice and can demonstrate their competence though various exercises and knowledge checks. Shadowing related internal departments to see firsthand how those areas support customers can further embed understanding of pre-arrears and provide a valuable wider perspective.

What might good practice look like? firms could develop various aids and techniques for ensuring the knowledge is retained once training is complete. This could include posters acting as a reminder to staff of the different customer types and related techniques, desk aids, interactive colleague learning platforms or using the intranet to assist in identifying appropriate actions.

 

5.  Firms should undertake monitoring and assurance work to ensure that their policies and processes are designed and are operating effectively in identifying and supporting customers who are showing signs of financial stress


Firms’ compliance oversight and internal audit functions (whether internal or outsourced) could benefit from considering the risks to customer outcomes associated with the prevention of customers falling into financial difficulty across the product lifecycle and customer journey.

While firms are at different stages in the development of strategies designed to prevent customers falling into financial difficulties, they will benefit from having monitoring in place in respect of staff competence, which will trigger additional training as needed. At a policy level, local and cross operational initiatives could test the effectiveness of policies and provide an opportunity for improvements where needed.

Management information (MI) is routinely used to identify trends and measure performance through a quantitative review of key indicators. In the case of pre-arrears activity, MI can be used to track the level of contact, use of different channels and even response rates to particular activities which can then lead to refinements in the approach to improve the level of response. This quantitative approach does not readily lend itself to assessing whether positive customer outcomes have been achieved, particularly where the appropriate step might be to accelerate the move into collections, for instance if a customer lacked the level of affordability required to maintain payments to their account.  In some instances a qualitative approach to monitoring the effectiveness of strategies and processes would provide a better understanding of performance in respect of customer outcomes and help to identify any areas that are not working so well. 

What might good practice look like? mapping a customer journey, using real examples, from the point that the account is first opened to when it enters collections, could provide a clearer view of the strengths of the processes in place and highlight any opportunities to make improvements. This approach could be used to focus in on a particular aspect of the journey and be scaled to ensure a sufficient number of cases are reviewed to form an opinion.  

What might good practice look like? detailed case reviews can provide an in-depth understanding of the way in which an account has been handled. The topic could dictate the start and end point for the review, in terms of the actual activity or process to be scrutinised.

 

Financial difficulty

This document has been produced by the LSB and provides non-exhaustive examples of the approach Registered Firms (Firms) may wish to take into consideration when seeking to adhere to the Standards of Lending Practice (the Standards) on financial difficulty.

Registered Firms must be able to demonstrate to the LSB that they are adhering to the Standards of Lending Practice; however the LSB does not monitor compliance with the content of this document and as such, it is not intended to be prescriptive nor binding on Registered Firms. The LSB acknowledges that each Firm will have its own way of demonstrating that it is adhering to the Standards without the need to refer to, or take account of, the content of this document.

Where a Standard cross references to the Consumer Credit Act 1974, as amended (the CCA), the Consumer Credit Sourcebook (CONC) or other Financial Conduct Authority (FCA) requirement, the examples or suggestions which follow represents the LSB’s view on how the Standard could be achieved but should not be considered to supersede the wording or intention of the CCA/CONC or the FCA.

This document will be kept under review and will be updated on an ongoing basis as the LSB gathers further examples of the work which is being undertaken by the industry in this area.

Download a copy of the document here.

 

1.  Firms should have triggers and processes in place to identify customers who may be in financial difficulty and should act promptly and efficiently to address the situation with the customer [CONC 7]


The LSB considers a customer to be in financial difficulty when their income is insufficient to cover reasonable living expenses and meet financial commitments as they become due. This may be as a result of a significant change in the customer’s situation such as: loss of employment, a decrease or fluctuation in income, break down of a relationship, bereavement, a serious accident or illness which prevents them from working/affects their ability to work as much as they would like to. This list is not intended to be exhaustive but is intended to demonstrate that there are differing reasons as to why customers may find themselves in financial difficulty.

In addition to the indicators of financial difficulty provided in CONC, Firms will have differing ranges of information available to them which can be used as a means of indicating that a customer may be experiencing financial difficulty. The customer may display a range of behaviours such as:

  • items repeatedly being returned unpaid due to lack of available funds
  • failing to meet loan repayments or other commitments on time
  • discontinuation of regular credits
  • regular requests for increased borrowing or repeated rescheduling of debts
  • increases in interest bearing credit card balance(s)
  • making frequent cash withdrawals on a credit card at a non-promotional rate of interest
  • repeatedly exceeding a credit card or arranged overdraft limit without agreement
  • frequent incurrence of unarranged overdraft/late payment/over-limit fees
  • frequent requests for refunds of fees and charges which have been applied in line with the terms and conditions
  • long term minimum repayments on a credit card without good reason
  • the customer informing the Firm that they are, or at risk of being, in financial difficulty.

Ideally, Firms which offer multiple credit products should have a ‘single view’ of their customers, particularly those who are in arrears on more than one credit line with the Firm.  This has been a problem for many firms for several years.  It is recognised that the costs of single view management capability are not insignificant, and the efforts of some of the larger organisations have been hampered due to mergers taking place over the years and inheriting legacy systems which do not ‘talk to each other’.

Area for consideration: where a Firm does not have the ability to deal with all customer products at the same time it is suggested that a process for communication of completed income and expenditure or agreed repayment plans is established internally.  This could be undertaken with a view to the importance of debt repayment, i.e. mortgage, followed by any business borrowing, and, ultimately, unsecured debts.  This could provide a better customer outcome in that there is no repetition of process or additional calls made.

What might good practice look like? regular training of agents, particularly in softer skills (questioning and active listening), coupled with a quality assurance programme that is aligned to the delivery of good customer outcomes can help to ensure that agents build their confidence in dealing with customers and ultimately achieve the right outcome for the customer. 

Area for consideration: firms may wish to introduce a more outcomes based assurance model for the purposes of call monitoring.  Through the introduction of more customer led and soft skills based calls, the metrics for a good or bad call can be based on whether the outcome was correct for the customer concerned. 

 

2.  Customers identified as being in financial difficulty should be provided with clear information setting out the support available to them and should not be subject to harassment or undue pressure when discussing their problems [CONC 7]


When a customer is identified as being in financial difficulty, the LSB would suggest, in line with current industry practice, that they are contacted with a view to understanding the customer’s situation through appropriate questioning,  the outcome of which can be used to determine how the customer’s account should be handled. During the course of a conversation it may become evident to the agent that the customer lacks capacity to deal with their financial situation for one reason or another, this may mean that the call is passed to a dedicated team to progress the conversation with the customer.

The appropriate level of intervention/support required will be dependent upon the individual customer’s position and the information obtained. This could take the form of one or more of the following:

  • referring the customer to free, impartial debt advice
  • applying breathing space
  • undertaking an assessment of affordability with a view to setting up an affordable repayment plan
  • referring the customer to a dedicated team (where available) if, for example, they are vulnerable
  • returning the account to the original creditor, where this is an option
  • restructuring the debt to offer a repayment break or an extension in the term of, for example, a loan
  • where the product is available, and the eligibility criteria met, offering a customer an opportunity to open a basic bank account which would provide them with a reasonable level of protection over their funds.

The LSB believes that there is a benefit for Firms to seek to ensure that members of staff who deal with customers in financial difficulty are familiar with the range of insolvency products available to customers and that some are only applicable in certain jurisdictions, for example, the Debt Arrangement Scheme for customers based in Scotland. The expectation is not that staff have an in-depth knowledge of the products and how they work but that they have an awareness of them and are able to signpost customers where relevant.

Where a customer is experiencing financial difficulties they should be able to engage constructively with the Firm in order to address the situation. The use of chargeable telephone numbers could potentially cause the customer further financial distress. Whilst the LSB recognises the rule contained in CONC[1]  that a firm must not require a customer to make contact on a premium rate or other special rate telephone number the charge for which is higher than to a standard geographic telephone number. The LSB would encourage the provision of freephone telephone numbers when customers are contacting a Firm in respect of any element of financial difficulty.

 

3.  Firms should demonstrate an empathetic approach to the customer’s situation; listening to and acting upon information provided by the customer with a view to developing an affordable and appropriate solution


Affordability

Before agreeing a repayment plan with a customer, it is beneficial for Firms to have sufficient information regarding the customer’s financial situation to enable them to assess whether any proposed repayment plan is affordable. 

This can be achieved through appropriate questioning, as well as listening to and acting upon the information provided by the customer. Obtaining sufficiently detailed information regarding the customer’s income, expenditure, assets and liabilities, including any amounts owed to other priority and non-priority creditors will help the agent to do this. Other factors could also be taken into account, for example, whether the customer:

  • is self-employed
  • has an irregular income
  • is likely to experience a change in income etc in the foreseeable future which will have an impact, either positively or negatively, upon their ability to manage their finances.

Area for consideration: encouraging agents to explain what constitutes a priority bill can aid the customer’s understanding.  Where they are in arrears on their priority bills but with no arrangement in place, the customer could be referred to debt advice rather than having a repayment plan set.

Setting out the benefits of going through an affordability assessment and what this entails to the customer at the outset of the conversation, may help to further the customer’s understanding of why they are being asked to provide such information and how it will be used. It may be that the customer does not have the necessary documents/information to hand at the point in time and it would, therefore, be helpful to both the Firm and customer to defer the call to a mutually agreed time.

Reflection point: firms may wish to consider whether staff would benefit from the incorporation of dedicated training on developing effective listening skills into training modules which could help to ensure that they have the ability to actively listen, and confidence to draw upon and probe further, where necessary, the information provided by the customer.

What might good practice look like? agents building a good rapport with a customer which results in some information being imparted prior to an affordability assessment being completed. However, this can lead to poor practice when the agent then starts to complete the assessment of affordability and their manner of questioning demonstrates that they have not listened to what the customer told them. This requires the customer to either repeat information they have already provided and, more often than not, extends the call unnecessarily.

What might poor practice look like? failing to probe a history of missed repayments to fully understand the customer’s underlying reason for arrears and whether this is indicative of longer term financial difficulty.

What might poor practice look like? not taking into account information provided by the customer regarding changes in their overall household income which may impact upon their ability to meet their repayments. For example, their partner has been/is about to be made redundant, there has been a decrease in the household income or they/their partner are on, or are about to start, maternity leave.  

The information provided by the customer should be assessed in light of what is known about their circumstances and whether it is consistent with these, so that when considered as a whole, the affordability assessment is realistic.  

What might good practice look like? a ‘past, present, future’ approach could help agents to understand a customer’s overall financial and personal situation much more quickly through tailored questioning on areas such as why the customer fell into arrears, what the present position is in terms of income, expenditure, employment, family, other creditors, and what might change in the near future, be that positive or negative.

Reflection point: rather than agents suggesting a figure(s) for expenditure where the customer is unsure, allow the customer time to collate the information and provide the correct figures, by arranging a call back.           

What might poor practice look like? failing to consider information obtained during previous calls, either due to poor record keeping following earlier conversations or due to lack of experience or training in accessing file notes. This may result in customers having to go through details which they have already provided and can lead to disengagement if the customer feels that they are not being listened to. 

Repayment plans

Area for consideration: in some circumstances, rather than setting up a repayment plan, the customer’s situation may benefit from placing the account on hold; for example, they may be starting a new job in the near future or are due to move house/flat; the account could be allowed to ‘rest’ until the customer is able to provide realistic details regarding their net income, commitments etc. Applying a period of breathing space in such situations could mean that the Firms has more accurate figures to work with when it comes to developing the repayment plan.

What might poor practice look like? repayment plans are set up without having obtained realistic/accurate information from the customer.

There will be customers who, for whatever reason, decline to go through an assessment of affordability but are willing to make a repayment or set up a repayment plan. While the Firm may not be able to establish whether this is affordable for the customer, it may not always be in the best interests of the customer to refuse the offer of repayment. In this situation, the LSB’s view is that such payments can be accepted or a repayment plan put in place; however for the benefit of the customer’s understanding, the Firm should reiterate what the process entails and the benefits of providing the information. The outcome of the conversation should be documented within system notes.

In this situation, in order to ensure that the customer is able to sustain the repayment plan, the customer’s account should be subject to regular review. The customer should be advised that if the plan proves to be unsustainable, they will be contacted with a view to undertaking an affordability assessment. The outcome of this may mean that the customer pays more than they are paying under the existing plan because the assessment indicates that they can afford to do so, or it could demonstrate that the plan is unsustainable and therefore it will need to be revised.

Similarly, there may be customers whose assessment of affordability demonstrates that they have negative disposable income but the customer is insistent upon setting up a repayment plan. Subject to appropriate questioning about how they will be able to afford the repayment, a plan can be set. However, as set out above, the customer’s account should be subject to regular reviews and they should be advised that if the plan proves to be unsustainable, they will be contacted with a view to understanding if anything has changed or to discuss any revisions to the repayment plan that may be required.

In the absence of the information required to undertake a full assessment of affordability, if the customer can provide some key information, a ‘short form’ affordability assessment could be undertaken as an interim measure. However, this may not be appropriate where the Firm has reason to believe or to suspect that the customer is vulnerable.  A Firm should consider whether the plan is affordable for the customer at that point in time, taking into account key information regarding:

  • employment status
  • level of income
  • status of priority debts
  • what, if any, non-priority debts they have and the status of these
  • any other relevant information regarding the customer’s financial situation.

The LSB would expect the Firm to monitor the performance of this type of plan and continue to attempt to contact the customer to undertake a fuller affordability assessment. If the Firm has made repeated attempts and the customer refuses to engage, then the plan can continue if it is performing. This type of plan should be subject to a regular review period until contact is made with the customer and affordability assessed, and system notes reflect the attempts made.

Once a repayment plan has been agreed, it would be useful for the customer to receive confirmation of this and a copy of their income and expenditure form for future use, for example when a repayment plan is due for review.  

It is common practice for a Firm taking on a debt, whether on a contingent or purchased basis, to request a new income and expenditure statement to understand the customer’s most up-to-date position.  However, if a statement has only recently been completed and provided to the third party or a repayment plan is being maintained and the review date has not yet been reached, consideration should be given as to whether an updated statement should be requested. The Firm which outsources or sells the debt, should, however, provide details of any agreed repayment plans and income and expenditure statements to the third party.

When dealing with a customer who has other non-priority debts in addition to those owed to the Firm, consideration could be given to accepting payments based on pro-rata basis. There will be circumstances where this may not always be appropriate for the customer’s situation; for example, the customer may already have a repayment plan set up for another creditor or may choose to repay more to a higher debt or one which is continuing to attract interest. However, the option can be explored with the customer (subject to the customer having full details of all other creditors to hand to ensure that a fair amount is agreed).

If the customer does not co-operate with the Firm, a plan cannot be developed and the Firm may wish to proceed with normal debt recovery procedures. Lack of co-operation would include not responding to the Firm’s attempts at contact and unreasonable demands by the customer (for example, a request that the debt be written off or repaid over a very long period, even though the customer could afford to make reasonable repayments).

Token payments

A Firm may wish to accept a token offer where the customer has demonstrated they have no surplus income available for their ‘non-priority’ creditors and where they have proactively made an offer of repayment. The customer would benefit from being made aware of whether or not a token offer will be regarded as an agreed repayment plan and whether it will therefore prevent the debt from being registered as in default with the Credit Reference Agencies (CRAs).

When taking into account the information provided by the customer, a Firm may wish to consider whether it is in the best interests of the customer to accept an offer of a token payment. If their situation is such that they have no disposable income or they are seeking to make long term token payments, alternative options may be more appropriate. These should be explored with the customer and could include, for example, placing the account on hold to allow for an improvement in the customer’s circumstances.

Partial settlements

Where a customer indicates that they are in a position to offer, and the Firm is willing to accept, a partial settlement, the customer should be advised of the implications for their credit file and how the settlement will be recorded at CRAs.

 

4.  If an offer of repayment is made via the common financial statement/standard financial statement, this should be used as the basis for pro-rata distribution amongst creditors covered by the plan [CONC 7]


Firms will have established policies and procedures for dealing with offers of repayments made via a debt management Firm, whether ‘free’ or ‘fee-charging’. However, for completeness the following paragraphs outlines the expectations for Firms:

If a customer works with a third party to complete a common financial statement/standard financial statement (CFS/SFS), the Firm should accept this as the basis for pro-rata distribution amongst creditors covered by the plan.  Repayment offers based upon expenditure falling within the trigger figures of the CFS/SFS can be challenged by the Firm if there is reasonable cause to believe that the customer’s income and expenditure figures may be incomplete or inaccurate.

The CFS Creditor Good Practice checklist promotes clear communications between creditors and customers. The following wording reflects that contained within the Debt Management Protocol:

  • Firms should fully and constructively co-operate with debt management plan providers and should submit all relevant and reasonably requested material within 10 working days of the receipt of the request (where the customer has provided consent)
  • Where a customer is repaying via a debt management plan, Firms should provide account balance information to the provider within 10 working days of receiving the request.
  • Firms should, where possible, provide customers with a phone number on all communications that will put the customer in contact with a named person or a team dedicated to dealing with cases of financial difficulty.

 

5.  Firms should have appropriate policies and procedures in place to identify and support vulnerable customers where this impacts on their ability to pay


Being in financial difficulty can be a stressful situation for a customer who is not vulnerable, therefore when dealing with a customer who has been identified as, or the Firm has reason to suspect that they may be, vulnerable there is a greater need to fully understand the customer’s circumstances.

Having the structures and processes which allow staff to investigate situations fully, and equipping them with the knowledge, confidence and skills to question and explore circumstances appropriately will enable them to identify the likely support needs of the customer.

The LSB would suggest that, wherever possible, Firms seek to establish a single customer view. It is acknowledged that for some, the ability to implement this across the organisation may be hampered by legacy systems, or it is not possible to generate a single customer view for customers with multiple product holdings. Consideration could be given to manual workarounds to help Firms to ensure that multiple accounts can be linked so that correspondence and account activity is coordinated. This will help to prevent customers from having to repeatedly provide the same information to the different areas of the business.

When developing a repayment plan for a customer who has been identified as vulnerable, but who is able to set-up or continue to maintain a plan, Firms may wish to give consideration to the financial impact that the vulnerability may have. Taking account of the cost of travel to hospital, medication, and the impact of a reduced income as part of the income and expenditure statement will help to ensure a plan is reflective of the customer’s current situation. Identifying this expenditure will also help the agent to assess whether the proposed repayment plan is affordable and sustainable. Where a vulnerable customer is unable to set up a plan, Firms should consider placing the account on hold and agreeing regular reviews with the customer to check in on their situation.

The Money Advice Liaison Group (MALG) has produced a Debt and Mental Health Evidence Form (DMHEF) which provides a standardised approach for third parties and creditors to share relevant information about the customer’s mental health condition from health and social care professionals. In line with current industry practice, Firms should consider the DMHEF if it is presented by the customer or, with the customer’s consent, their adviser or medical practitioner.

If a customer informs a Firm that they have a mental health problem or other vulnerability that is impacting on their ability to manage any financial difficulty, the Firm should allow the customer a reasonable period of time to collect and submit relevant evidence to the Firm. Medical evidence should only be requested where this is needed to develop a response and should not be used as a barrier to providing the customer with support.

Use of flags

Firms may wish to develop or implement a code or a flag which allows for easy identification of customers who require additional support, or as a way of separating out customer accounts so that they do not fall into the general collections strategy. With a customer’s explicit consent and in line with requirements of the Data Protection Act, where it is possible and appropriate, Firms can record relevant information about the customer on their system notes.  The customer should then be informed as to how their information will be used and for what purposes.[2] Many Firms will have established specialist teams within collections to assist customers identified as vulnerable and in financial difficulty.  Developing and maintaining relationships with free money advice agencies and charities can help to ensure that these teams are, and remain, effective.

What might good practice look like? the control framework could include case reviews which consider letters and calls made to customers identified as vulnerable over a period of time. This would allow a Firm to assess the effectiveness of its collections strategy including contact, approach to setting up a solution and evaluating whether the solution is appropriate given the customer’s circumstances. The outputs could be used to feed into broader process, policy and strategy reviews.

 

6.  Customers who are in financial difficulty will, where appropriate, be signposted to free, impartial debt advice [CONC 7]


Ensuring that members of staff have a good understanding of the types of support that the free, impartial advice sector can offer and being able to tailor this information to the customer’s situation can help Firms to ensure that appropriate referrals are made. The LSB’s expectation is that the customer should be provided with a clear explanation of why the referral may be beneficial to their circumstances rather than just being told to contact a particular organisation. Customers may not always understand what support a debt advice agency can offer or may think that speaking to one will be viewed negatively or that they ‘won’t be able to help’. While the decision to seek advice is one for the customer to make, the provision of an explanation could also encourage the more reticent customer to explore the option.

Area for consideration: whether it is appropriate, from the information provided by the customer to refer every customer to free, impartial advice.

 

7.  Firms should apply an appropriate level of forbearance, where, after having made contact with the customer, it is clear that this would be appropriate for their situation [CONC 7]


When applying forbearance or breathing space to a customer’s account, the LSB considers it important that the customer understands what this means. Providing a clear explanation of what it entails, how this could be of benefit, and what it means in terms of the operation of their account will aide this understanding.

The explanation should, ideally, be more than simply informing the customer that it will be applied and should include the number of days it will be in place. Typically Firms will apply breathing space for a minimum of 30 days but there may be situations where a Firm decides that due to the customer’s situation, a longer period of time may be more appropriate. This could include situations where the customer is experiencing a long-term illness, has had bereavement, or has been made unemployed.

A period of forbearance could be applied in circumstances other than when a customer has been referred to free, impartial debt advice. Following discussions with the customer, it may become apparent that setting a repayment plan would not be appropriate in the circumstances but there is expected to be an improvement in the customer’s situation in the near future.  This could be because:

  • the customer is experiencing temporary unemployment but is due to start a new job soon
  • there will be an increase in their income in the near future, because, for example, they are returning to work following maternity/parental leave, selling their property with a view to downsizing, in the process of applying for housing allowances or are changing jobs.
  • they may be experiencing a longer term illness, which they are expected to make a full recovery from or are currently recovering from an operation or injury.

The application of forbearance in such examples would allow the customer time to deal with their current situation; a date could be arranged for a follow up call with a view to reviewing the customer’s circumstances at an agreed point in time.

 

8.  Where a customer remains engaged with the Firm and maintains their repayment plan, they will not be subject to unnecessary contact


This Standard does not preclude Firms from undertaking regular reviews of any established repayment plans. Each Firm will have a point at which a plan should be reviewed, typically this varies between six monthly and yearly but will also depends on the customer’s personal circumstances.

The intended outcome is that customers are not contacted outside of the review period unless there is a good reason for doing so, for example, a payment has been missed or a Firm is aware that a debt management company operating on the customer’s behalf is not/no longer authorised by the FCA.

Firms will typically contact customers before the expiry of any present arrangement to obtain details of their financial position at that time; however customers should not be expected to increase repayments unless there has been an improvement in their circumstances and affordability can be established. Firms may choose to undertake internal reviews but the LSB would only expect customers to be contacted when a repayment plan is approaching the agreed review date, unless repayments have not been maintained.

Area for consideration: where a repayment plan is agreed but payments received are slightly less than the amount agreed Firms may wish to consider automatically re-setting the arrangement for the lower amount.  This reduces the need to contact customers until the time of the next plan review.

At the review stage, if it becomes apparent from appropriate questioning that the customer’s personal circumstances have not changed since the plan was established or last reviewed, the Firm may wish to consider whether it is in the customer’s interests to continue to undertake a further affordability assessment. i.e. is there any benefit for the customer or the Firm in prolonging, for example a telephone conversation when the customer’s situation, and all the information previously provided, remains the same. This should be subject to confirmation that the customer is up to date with their priority bills.

 

9.  Firms should consider freezing or reducing interest and charges when a customer is in financial difficulty


Where a customer is in financial difficulty and is unable to meet payments as they fall due, the continued application of interest and charges may add to their overall level of indebtedness. The decision to reduce or freeze interest and charges should ideally be based upon an assessment of the customer’s ability to make repayments sufficient to meet contractual terms. A Firm’s assessment should reflect the customer’s lack of ability to pay rather than the stage an account has reached in the arrears cycle. Where the decision is made to decline a request to reduce or suspend interest and charges, the customer (or their authorised third party) should be advised of the reasons why.

The LSB’s view is that interest and charges should not continue to be applied where this results in the repayment period becoming excessive for the customer. In forming a judgement on what might be excessive, a Firm should take into account the type of product and the individual customer’s circumstances. If a customer is only able to make payments (token or otherwise) their debt should not increase as a result of any interest and charges applied to their account.           

Area for consideration: repayment plans set up following receipt of offers from third parties are not subject to further interest or charges.  The same approach could be adopted for customers using a self-help process.

Firms should ensure that a consistent policy is in place when it comes to the application of charges and interest concessions for customers who are in financial difficulty and who hold more than one product or account with the Firm.

Where a customer is repaying via a Debt Management Plan (DMP), Firms should advise the customer’s DMP provider within 10 days of the repayment proposal being received, whether interests and charges will be frozen and, if this is not the case, the amount at which these will be applied going forward.

Concessions should not be arbitrarily withdrawn irrespective of a customer’s ability to pay or without any evidence of a change in the customer’s circumstances. Expiry of a repayment arrangement should not automatically lead to the withdrawal of concessions nor should an increase in repayments. The customer may be able to increase their repayments but this does not mean there has been a significant improvement in their circumstances; it would therefore be beneficial for a Firm to understand the customer’s situation before deciding to reinstate interest or charges. This does not prevent regular reviews from being undertaken and if a customer’s position has sufficiently improved then interest and charges may be reintroduced provided affordability is confirmed.

A Firm may wish to consider whether it amounts to a good customer outcome for interest and charges to be reapplied simply because a payment under an agreed repayment plan exceeds the contractual minimum for a product, particularly where the customer is not allowed any further borrowing. The customer’s overall situation should be taken into account and consideration given to whether the reintroduction of interest and charges will significantly increase the life of the repayment plan and if so, the Firm should consider freezing interest and charges.

 

10.  All communication with the customer/their authorised third party will be undertaken in a clear and open manner, via the customer’s/third party’s preferred method of communication (where this is known, appropriate and available) [CONC 7]


Communications with a customer or their third party should acknowledge and reflect any previous contact made and any resulting discussions that may have taken place to date. Where a customer requests that the Firm deals with them in writing or email rather than by telephone, this should be accommodated.

If a third party authority has been received, the Firm should communicate through the authorised person or organisation.  This does not preclude a Firm from copying correspondence to a customer where it believes it is in the best interests of the customer to do so. If this is the case, the decision to do so should be documented within system notes.

On occasions a Firm may need to contact the customer directly when an authority is in place. If a Firm makes the decision to do so, and the Firm is aware that the customer is vulnerable, Firms may wish to consider whether this would be appropriate in the circumstances and document within system notes. Where a customer is contacted directly, the Firm should explain the reasons for the contact and why it was not appropriate to speak to the customer’s authorised third party.

In certain circumstances it may be beneficial for discussions (either face-to-face or over the telephone) between the authorised third party and Firm to take place with the customer present.

Where a customer has a debt adviser operating on their behalf, Firms should accept the authorisation provided for the duration of any repayment plan. The LSB does not believe that it is necessary to request that the authority is renewed, for example, on an annual basis, unless advised by the customer that the debt management company is no longer acting on their behalf, or the Firm is aware that the debt management company is no longer authorised by the FCA.

 

11.  Firms should take into account the customer’s circumstances and consider whether it would amount to a fair customer outcome to pursue, or to continue to pursue, the amount owed


Where a Firm considers the customer’s personal and financial circumstances to be exceptional and unlikely to improve, the Firm could, amongst other options, consider writing off or not pursuing part or all of the customer’s debt(s). The decision to do so is for each Firm to make on the basis of the individual customer’s situation. The factors which could be taken into consideration when reaching a decision could include:   

  • the customer’s circumstances
  • the amount owed to the Firm
  • the customer’s age
  • repayment history
  • anticipated time to repay the debt
  • how long the account has been in arrears or, where relevant, with the debt purchaser
  • employment history
  • last known income
  • last known disposable income
  • any arrangements with other creditors, if known.

Writing off the debt would mean that the balance is set to zero at the CRAs and that no further payments are due. If a debt is written off, the customer and relevant third parties including CRAs and, where applicable, the customer’s adviser should be advised of the decision to do so.

However, if collection of the account is simply frozen or if any balance remains outstanding and collectable, this should be made clear to the customer and any adviser, and the customer should be told whom they should communicate with about the account.[3] Where write-off is requested by a customer or adviser but is not considered appropriate by the Firm, the LSB would encourage the Firm to provide its reason(s) in writing. If the Firm agrees to a write-off, then the debt may be registered as a default with the CRAs and the customer advised of the implications of this on their credit file.

Right of set-off

The process regarding the use of right of set-off is contained in BCOBs and BCOBs industry guidance. Here, the focus is on the use of right of set-off if a Firm suspects, or is aware that the customer is in financial difficulty.

Before applying set-off a Firm will want to take account of information available to it to identify whether the customer is in, or is at the risk of, financial difficulty. The LSB would not expect set-off should to be applied where the customer is co-operating with the Firm and:

  • the Firm is aware of, or has reason to believe that the customer is in, or at risk of being in, financial difficulty;
  • the Firm is aware that the customer is seeking debt advice.

Set-off should normally only be used to make up the most recent missed payment. However if the Firm has contacted the customer about missed payments, told the customer that set-off is an option, and used the information available which confirms that the customer is not at risk of, or in, financial difficulty, it may be used to make up earlier missed payments. A Firm may also take more than one missed payment where the customer is not co-operating, for example, by not responding to repeated attempts to make contact.

What might good practice look like? At least on the first occasion after set-off has been used, a Firm should contact the customer to advise them that set-off has been applied and the customer should be encouraged to take appropriate action in the future to avoid missed payments.

If it is evident from subsequent contact with the customer that they are now in financial difficulty either as a result of the use of set-off or otherwise, the LSB’s expectation is that at least on the first occasion, any amounts debited via the right of set-off should be credited back to the customer.

 In addition, appropriate action should be taken promptly to ensure that they are treated fairly, sympathetically and positively as required by the Standard of Lending Practice.

 

12.  Firms should follow a robust due diligence process when selecting third parties for debt collection or when selling a debt

a.  Firms should ensure that when a customer’s debt is sold, the purchaser continues to apply the relevant protections provided by the Standards of Lending Practice. Monitoring should be undertaken at least annually where a Firm continues to sell debt to a purchaser, and for a further two years after a Firm has stopped selling debt to that purchaser

b.  If a customer has provided appropriate and relevant evidence of an ongoing mental health or critical illness that affects the customer’s ability to repay their debts, the debt(s) should not be sold

c.  Where a Firm is aware that a customer is terminally ill, the debt(s) should not be sold


The due diligence process for selecting third parties for debt collection should be sufficient to satisfy the Firm that the third party can meet the requirements of the Standards of Lending Practice and the Consumer Credit Sourcebook (CONC). Any due diligence should also include third party compliance with consumer credit legislation, data protection legislation and the code of the Credit Services Association.

The LSB would expect Firms to undertake sufficient call listening and a full assessment of the third party’s quality assurance, internal monitoring, training and incentives schemes to assure themselves that the right standards are being met and the right behaviours are being promoted. In terms of what constitutes sufficient call listening, this will be judgmental based on the size of the Firm but should be a sufficient for the Firm to be satisfied that standards are being consistently met, with calls, spread across different advisers, and the sample to include calls that have been internally quality assured. The Firm should review what compliance monitoring activity and has been undertaken in the last 12 months to assess what work has been conducted, any issues raised and any action taken.

The LSB would expect that adherence to the Standards of Lending Practice forms part of all third party contracts and Firms should ensure that the outcomes for handling financial difficulty cases are applied by such agents, through due diligence and periodic audit and review.

Firms should undertake appropriate monitoring in order to satisfy themselves that debt purchasers to whom they have sold customers’ debts continue to deal with such customers in a manner that is consistent with the relevant requirements of the Standards of Lending Practice and the contractual terms.  Such monitoring should be conducted at least annually where Firms continue to sell debt to a purchaser, and for a further two years after they have stopped selling debt to that purchaser.

The results of the monitoring referred to above should be used to satisfy the Firm and the LSB that all of the relevant requirements of the Standards of Lending Practice in respect of the debts sold are being adhered to.  Where instances of non-compliance are identified through monitoring, Firms must be able to evidence to the LSB that appropriate action has been taken to remedy any breakdown of control or customer detriment.

Where a Firm agrees to a subsequent sale of the debt, they must satisfy themselves that appropriate arrangements are in place to ensure that following the sale of the debt, the subsequent debt purchaser will continue to deal with customers in a manner that is consistent with the requirements set out in the Standards of Lending Practice for the treatment of customers in financial difficulty.

The Standards of Lending Practice prohibit the sale of debt where there is evidence of an ongoing mental health problem or critical illness that affects the customer’s ability to repay their debt. Where vulnerability is identified by the creditor, which impacts upon the customer’s ability to repay their debt, these accounts should be ring-fenced and not sold.

Area for consideration: where a Firm identifies a customer as being vulnerable, or it has reason to suspect that they may be, the debt is not passed to a debt collection agency for contingent collection.

Vulnerability can occur at any time during a customer’s relationship with their lender, including post debt sale. Responsibility for managing such accounts should be agreed between the creditor and the purchaser up front, though any decision should give due consideration to:

  • assessing each case on its merits, which may include having regard to the nature and longevity of the customer’s situation; and
  • the customer experience and risk to customer outcomes.

The guiding factor here is to ensure a seamless and uninterrupted customer experience and a fair outcome. The industry has instigated the development of minimum standards across creditors and their debt collection agencies (DCAs) and purchasers, to minimise any interpretational issues and agree best practice. The working group has established measures to ensure customers in vulnerable circumstances are treated appropriately and consistently, and get the support they need. This work will be reflected in this document once it has been completed.

What might good practice look like? Due diligence frameworks and audits ensure outsourced collections agencies and debt purchase Firms have processes in place to deal fairly with customers identified as being vulnerable.

Firms should seek to ensure that adequate system notes are maintained and updated following any discussion with a customer who is in financial difficulty regarding their account so that the approach taken can be evidenced. This also helps to ensure that a customer does not have to repeat information already provided and allows any agent of the Firm to be brought up to date with details of the customer’s situation before the call is made.

 

 

 

 

[1] See CONC 7.9.5R

[2] www.malg.org.uk/wp-content/uploads/2016/04/Flags-Final-Mar16.pdf

[3] www.malg.org.uk/wp-content/uploads/2015/04/Guidelines-2015.pdf

 

Consumer vulnerability

This document has been produced by the LSB and provides non-exhaustive examples of the approach Registered Firms may wish to take into consideration when seeking to adhere to the Standards of Lending Practice (the Standards) on consumer vulnerability.

Registered Firms (Firms) must be able to demonstrate to the LSB that they are adhering to the Standards of Lending Practice; however the LSB does not monitor compliance with the content of this document and as such, it is not intended to be prescriptive nor binding on Registered Firms. The LSB acknowledges that each Firm will have its own way of demonstrating that it is adhering to the Standards without the need to refer to, or take account of, the content of this document. 

Where a Standard cross references to the Consumer Credit Act 1974, as amended (the CCA), the Consumer Credit Sourcebook (CONC) or other Financial Conduct Authority (FCA) requirement, the examples or suggestions which follow represents the LSB’s view on how the Standard could be achieved but should not be considered to supersede the wording or intention of the CCA/CONC or the FCA.

This document will be kept under review and will be updated on an ongoing basis as the LSB gathers further examples of the work which is being undertaken by the industry in this area.

Download a copy of the document here.

 

The Financial Conduct Authority defines a vulnerable consumer as someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a Firm is not acting with appropriate levels of care. Building upon this, vulnerability can take a number of different forms and the situation and impact may vary in degrees of permanence and presentation. Factors such as low literacy and numeracy skills, mental and physical health, caring responsibilities, life changing events, a change in circumstances, (e.g. job loss, bereavement, breakdown of a relationship) can create situations which may put a customer in a vulnerable circumstance. The impact may be particularly acute where vulnerability affects the customer’s ability to make an informed decision, or, maintain existing financial commitments. The British Banker’s Association (BBA) Financial Services Vulnerability Taskforce established a number of recommendations and principles to improve outcomes for customers in vulnerable circumstances. The information for Practitioners  been reviewed to align to these recommendations, the content of which will be used to inform our independent oversight activity.

 

1.  Firms should have a vulnerability strategy, which defines its approach to the identification and treatment of customers considered to be vulnerable, through whichever channel they choose to engage


In the LSB’s view, a Firm’s vulnerability strategy should take account of its business model, product and service offerings and growth into new areas, across all distribution channels for example, where possible digital, to ensure a consistent approach to identifying and managing vulnerability, at all stages of the customer journey. This would include the point at which a product or service is designed, through to account servicing, including pre-arrears collections and complaints. 

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 is aware that many Firms already engage with charities in a variety of areas; positive engagement with these organisations can help to provide Firms with a more detailed insight into dealing with customers with specific conditions, or those who are going through a particular circumstance, e.g. MIND for mental health issues, and UNLOCK for prisoners, which could be used to develop existing policies and procedures.  Developing a working relationship with charities at a business level, can allow for the sharing of best practice and support a better understanding of vulnerability, as well as providing an external view on the adequacy of a Firm’s policies, processes and training in supporting customers in vulnerable situations.

Areas for consideration: 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.

Area for consideration: 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. 

 

2.  Firms should have policies and processes governing the identification and treatment of customers in vulnerable circumstances. These should take into account: the channel, where the customer is within the customer journey and the varying nature and degrees of permanence of different vulnerabilities


Vulnerability can manifest itself in different ways, such as a reduced understanding of alternative products (including features and suitability) or lenders, and confidence in engaging with the Firm. It can impact upon a customer’s access to the market or may mean that they are less likely to shop around for credit. Alternatively, they may apply for unsuitable products across different lenders without fully appreciating the implications for their credit file of doing so.  The LSB would encourage Firms to think of vulnerability as a fluid state which is not limited to a certain group of people. The   way in which an individual may handle or respond to a situation can vary, based on personal circumstances, past experiences, and individual characteristics such as: levels of resilience, the availability of support networks and in the case of a medical condition, the impact and extent of their symptoms. Every individual is unique and should be treated as such. This means that not everyone going through what could be considered a vulnerable situation is automatically vulnerable, and there is a greater need to understand the customer’s circumstances. The LSB believes that this  should be underpinned by policies and processes that allow staff to investigate situations, as fully as possible, with a view to identifying impact and likely support needs by adopting a flexible and tailored approach to managing vulnerability.

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 wherever 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.

Whilst some elements of the process do not lend themselves easily to the identification of whether a customer is vulnerable, for example online applications/engagement with customers, there should be, as far as possible, a consistent approach in the identification of vulnerability across branch, telephony and digital channels. At the collections stage, Firms offering customers the ability to set up an online repayment plan are encouraged to consider how any underlying vulnerability can be identified and taken account of.

The LSB recognises that identifying vulnerability is difficult within a digital platform and there is need for guidance and a longer term solution for digital depending on the nature of the vulnerability; however consideration may be given to the following:

  • the use of clear and fair website content and its presentation
  • interactive videos to present information and the use of intelligent questioning to check the customers understanding of a product
  • gaining input from external subject matter experts such as charities via focus groups on website design and content
  • FAQs and the availability of web chat facilities
  • clear signposting of details for telephony teams for additional help and support where needed
  • setting parameters to prompt a manual assessment where there have been a number of searches registered at a credit reference agency within a short space of time.

The benefits of maintaining a digital platform means that in most instances Firms have access to a large array of transactional information on customers, which, with the correct data analytic tools, can help decipher trends and flag up anomalies. There may be scope to analyse data to help identify account activity which may indicate that there has been a change in financial circumstances, or where internal and external data sources show potential signs of financial stress, where the underlying cause may be attributed to customer vulnerability. For example: signs may include: fluctuations in income shown through reduced credits to an account and/or repeated incurrence of fees and charges.

Proactively identifying vulnerability: existing account holders

The market can play a significant role in creating or exacerbating a vulnerable situation. For example, an increase in interest rates may impact affordability on existing repayments, which, coupled with a change in circumstance, may cause anxiety or stress which in turn could affects the customer’s ability to manage their finances and deal with the Firm.  

What might good practice look like?  consideration could be given to whether more could be done to proactively monitor accounts where transactional information or internal/external data shows potential signs of financial stress, and where the underlying cause may be due to customer vulnerability.

Raising flags and single customer view

The LSB would encourage Firms, wherever possible, to seek to establish a single customer view. It is acknowledged that for some Firms, the ability to implement this across the organisation may be hampered by legacy systems. Where feasible, manual workarounds should be considered to ensure that multiple accounts can be linked so that correspondence and account activity is coordinated and the customer doesn’t have to repeat information they have already provided. 

Firms may wish to develop or implement a code or a flag which allows for easy identification of customers who require additional support, or as a way of indicating that caution should be exercised when for example, pro-actively extending credit or contacting a customer during the debt collection process. The flag could also prohibit a pro-active extension of credit where a customer is identified as vulnerable and the information provided indicates that they would not be able to sustain the increased level of borrowing.

What might good practice look like? when a customer is identified as being vulnerable, a flag is applied which has the effect of ring-fencing the account from mainstream collections.  This allows for the application of more bespoke treatments and forbearance measures based on a detailed understanding of the customer’s vulnerability.

As vulnerability can vary in degrees of permanence, and taking account of the requirements of the Data Protection Act, the length of time the code or flag is used for is of prime importance, particularly where a flag is raised but the information is no longer considered accurate or up to date. A flag should not be maintained unless it is necessary to ensure the individual can be treated properly and that the information remains current. Whilst the responsibility of keeping information up to date resides with the Firm, this should be a collaborative approach with the customer, or their authorised third party, encouraged to keep the Firm informed of any changes in their personal circumstances, to ensure that any adjustments offered remain appropriate and relevant to the customer’s support needs.

The Equalities Act 2010 places an obligation on Firms not to discriminate against a customer because they have been identified as vulnerable, a duty which extends more widely than lending. Firms must ensure that sensitive information regarding the customer’s vulnerability is only used as a means to support the customer and meet their needs, through for example, the application of reasonable adjustments or where applicable, forbearance.

Area for consideration: a flag could be developed to identify cases where customers require additional support. These could be used by staff to quickly identify that the customer is vulnerable and to prevent the customer having to repeat information which they have already provided about their circumstances. In the case of a debt collection agency or a debt purchaser, where the customer consents to recording and sharing information regarding their vulnerability with the creditor, information is shared to allow decisions to be made around the management of a customer’s account. This may be helpful in more complex cases of vulnerability where a decision around write off from the creditor may be required, as the creditor has access to customer information to make an informed and balanced decision.

What might good practice look like? building in regular review periods for customers and staff to get in touch. The frequency of review should be bespoke to the customer’s circumstance and determined by a complete and full understanding of their situation, including, for example, the duration of any forbearance offered.

 

3(a).   Firms should ensure that their employees and their agents are sufficiently trained to help them to identify vulnerability and deal with the customer in accordance with their policies and processes, with appropriate escalation points, where the circumstances require this


The structure and remit for any specialist team should be designed to suit a Firm’s business model (taking into account resourcing and capacity) to manage those customers identified as requiring further support. In all cases, staff should be encouraged to exercise discretion, thinking practically about the implications of their actions and deliver a fair customer outcome. This should be balanced by appropriate targets and measurement systems which support the fair treatment of customers and robust monitoring systems which ensure fair outcomes are achieved and levels of staff competence are maintained.

Many Firms have dedicated specialist team(s) to support customers in vulnerable circumstances within collections; whilst the impact of vulnerability in relation to problem debt may be particularly acute, not all customers in a vulnerable situation are in financial difficulty. Vulnerability can occur at any stage in the customer journey and therefore the LSB would encourage Firms to review at which point referrals to specialist teams are made, and consider whether the remit of any existing teams can be expanded to accept referrals from customers who require additional support but are ‘up to date’ and not in arrears.  

Whilst there are benefits in training all staff to manage vulnerability, Firms may wish to establish dedicated specialist team(s), with greater levels of training, knowledge and the flexibility to make decisions. There are a number of approaches which can be taken to training and supporting staff to identify and support vulnerable customers and each Firm will have its own way of achieving these. Examples of these are: front line staff act as ‘listening posts’ to identify indicators of potential vulnerability, seek explicit consent to record and share sensitive data and refer to a dedicated specialist team for more bespoke support and assistance. Alternatively, Firms may wish to train all front line staff to an enhanced level to identify and support customers in vulnerable situations. This could be supported by formal and informal escalation routes to operational, legal and regulatory risk teams for further guidance and support for more complex cases. Firms could  look to raise customer awareness of the different types of support available, whilst being mindful of how this support might be positioned, as reference to a ‘vulnerable customer team’, can be intimidating for some customers who do not identify their situation with that term. Outlining the benefits of a specialist team, and the support available, may help put some customers at ease, and encourage them to be receptive to the different types of support the Firm can offer.

What might good practice look like? a dedicated induction programme, with a module on vulnerable customers, supported by discussion based case studies on ‘real life’ customer encounters, covering vulnerabilities which range from accessibility issues to mental capacity.

Area for consideration: the development of online based training module on vulnerability, using scenarios to increase understanding of the different types of vulnerability and the corresponding needs of customers. This helps to reinforce the idea that vulnerability is not confined to front line or specialist teams, but should be an active consideration for everyone at all stages of the customer journey. 

What might good practice look like? operating a specialist team which is able to provide additional guidance and support to front line teams where they are unsure of the support that can be provided or the action that can be taken when dealing with customers who are potentially vulnerable.  Staff are aware of the availability of this team and the scope of the support they can offer

Area for consideration: raising awareness of the various types of charitable organisations and the remit of their services allows for more intelligent signposting. This could be achieved via training and maintaining information in a centralised hub such as an intranet for staff to refer to, or a dedicated section on the Firm’s website.  

Data protection

The Data Protection Act requires Firms to seek explicit consent from customers when recording and processing sensitive personal data; this includes information about a customer’s vulnerability.  Firms can face difficulty in this area when recording information in situations where consent is not forthcoming or the disclosure is from a third party such as a family member or carer. The Information Commissioner has clarified that when reviewing the fairness of a decision to record information, it will have regard to the merits of each individual case and the overall customer outcome. There are elements of information which can be recorded. Examples include:

When dealing with disclosures from unauthorised third parties:

  • adopting a ‘can do’ attitude, recognising that a sensitive approach to handling the call is key, and that by proceeding with the call you may help alleviate some stress;
  • prevent disclosure of account information or transactional data, but note down any unverified disclosures in a comprehensive and factual manner so that this information is visible where possible, at a single customer level; If systems do not allow for a single customer view, ensuring there is a manual work-around to allow staff to identify each account the customer holds, to coordinate account activity and correspondence and prevent conversations from having to be repeated.
  • outlining next steps, having regard to the nature and duration of the customer’s vulnerability, and considering the different types of third party authorisations available, including: temporary delegation, third party mandates, or a longer term power of attorney.

When dealing with the customer:

  • giving full consideration to any action that needs to be taken by the Firm to prevent the account from deteriorating. This should be supported by an explanation of any appropriate action taken, how their data might be used and shared. This may also include setting out how the account will operate; for example, ‘the account will be placed on hold; this will mean that during this time no interest and fees will apply.’
  • recognising that evidence is not a pre-requisite, and is only requested where it is felt that this information will assist the Firm in understanding the customer’s situation better and to help the customer. Where evidence is requested, Firms should ensure they do not follow a rigid process, adopting a pragmatic approach and giving consideration to alternative (free) forms of evidence so that the customer’s financial situation is not exacerbated.

 

3(b) When a customer is identified as potentially vulnerable a Firm should ensure that its employees or its agents have appropriate referral and escalation points and are aware of how to access them


The ability to deal with and empathise with a customer who is vulnerable may not be something which comes naturally to all members of staff or despite training, they do not possess the necessary soft skills to deal with customers who may be particularly vulnerable. Firms should ensure that where there are specialist teams in place, mechanisms exist to refer the customer to appropriate support and that staff understand how and when they should refer a customer to a specialist team.

Where specialist teams are in place, a single point of contact may be appropriate and beneficial for the customer but consideration should be given as to whether this could create a dependency upon individual members of staff. This may be more apparent at branch level or in the debt collection space where customers have a regular relationship due to the account review process or where the customer visits the branch regularly. Whilst it can be of benefit for a customer to deal with someone who has prior knowledge of their circumstances, consideration should be given as to whether this places too much of a burden upon the member of staff or creates a more dependent relationship than is appropriate in the circumstances. Staff should be supported and trained to identify these situations and know when and how to seek advice and support, should they need it. Consideration should also be given to the need to record comprehensive notes which detail any previous conversations held with the customer, including, where relevant, any reasonable adjustments made and the application of any forbearance measures.

The effects of dealing with certain situations on a daily basis can be difficult and sometimes traumatic for staff. Whilst possessing the necessary skills and qualities to deal with vulnerable customers is integral to Firms providing a fair and positive customer experience, Firms should ensure that they build and maintain an appropriate support network for staff in these particular roles. This may include: the option for counselling, regardless of whether they sit within a specialist team or not, building a good rapport within teams, knowing that they can ask questions and access immediate support via team leaders.

  • Firms should develop triggers and management information to assist employees in the identification and subsequent monitoring of customers who may be vulnerable.
  • Developing triggers can support front line staff in identifying signs of potential vulnerability. This could be underpinned by targeted training for which involves educating staff on potential vulnerability triggers and customer impact. Customers or third parties may volunteer information, whether consciously or not, when interacting with a Firm and these opportunities should not be lost.
  • Each customer is different as it their ability to cope, therefore it isn’t possible to list all of the examples of information which the customer may provide or which could have a detrimental effect upon the customer. However, such examples could include life events such as the breakdown of a relationship or bereavement which may affect their ability to meet their housing costs/other commitments or even the ability just to cope with the day to day living.
  • Training on identifying and exploring information volunteered by the customer during conversations could take account of the more overt, such as: being in receipt of a disability allowance, being off work for a period of time, or a drop in income. The customer may also use phrases such as: ‘I cannot cope’, ‘I’m having difficulties managing at the moment’, ‘I’m struggling to get back on my feet’.
  • There are also softer behavioural triggers, which, whilst not obvious, may indicate that the customer requires further support. These include: signs of agitation, tone of voice, questions or answers which indicate the customer does not understand what is being explained or placing reliance on a third party for support, where there are no existing mandates or authorities in place. Whilst the LSB recognises that not every trigger may result in a customer being identified as vulnerable, they are indicators that could be probed and explored further to encourage a complete understanding of the customer’s situation. The information should be recorded, with the customer’s consent, to facilitate a ‘tell us once’ approach, where appropriate.

What might good practice look like? the specialist team is responsible for providing a ‘chaperone service’, offering a single point of contact for customers identified as vulnerable. This means that issues requiring resolution across departments are coordinated via the specialist team, and that customers do not have to repeat their situation. Comprehensive notes are maintained to ensure that any future correspondence with the customer takes account of any previous conversations with the customer. 

Area for consideration: offering rotations within the teams and across the Firm so that, for example, agents are allocated a number of vulnerability queues, which means that each call requires a different skill set depending on the vulnerability they are dealing with; ensures agents are engaged and that their knowledge and experience continues to develop.

 

4.  Where appropriate, Firms should develop triggers and management information to assist employees in the identification and subsequent monitoring of customers who may be vulnerable


Developing triggers can support front line staff in identifying signs of potential vulnerability. This could be underpinned by targeted training for which involves educating staff on potential vulnerability triggers and customer impact. Customers or third parties may volunteer information, whether consciously or not, when interacting with a Firm and these opportunities should not be lost. 

Each customer is different as it their ability to cope, therefore it isn’t possible to list all of the examples of information which the customer may provide or which could have a detrimental effect upon the customer. However, such examples could include life events such as the breakdown of a relationship or bereavement which may affect their ability to meet their housing costs/other commitments or even the ability just to cope with the day to day living.

Training on identifying and exploring information volunteered by the customer during conversations could take account of the more overt, such as: being in receipt of a disability allowance, being off work for a period of time, or a drop in income. The customer may also use phrases such as: ‘I cannot cope’, ‘I’m having difficulties managing at the moment’, ‘I’m struggling to get back on my feet’.

There are also softer behavioural triggers, which, whilst not obvious, may indicate that the customer requires further support. These include: signs of agitation, tone of voice, questions or answers which indicate the customer does not understand what is being explained or placing reliance on a third party for support, where there are no existing mandates or authorities in place.  Whilst the LSB recognises that not every trigger may result in a customer being identified as vulnerable, they are indicators that could be probed and explored further to encourage a complete understanding of the customer’s situation. The information should be recorded, with the customer’s consent, to facilitate a ‘tell us once’ approach, where appropriate.

Not all customers will be forthcoming with information, particularly during early interactions, as there may be a fear that this could adversely impact the customer’s ability to apply for credit, or the perception that the information may be construed negatively when setting up a repayment plan at the collections stage. Alternatively, customers may simply believe that the Firm does not need to know such personal information about them and lack understanding of how any information they provide will be used. Therefore, the importance of softer skills such as the ability to listen, empathise and question in a sensitive and patient manner is critical to a successful vulnerability strategy.

Customers should be provided with a clear explanation of how any sensitive information they wish to disclose might be used and the circumstances in which it might be shared across the Firm, for example that it will be used to ensure that products and services offered to the customer take account of their circumstance and are appropriate for their needs.

Area for consideration: the use of scripts can make an adviser sound insincere; removing the requirement for call scripts, or enabling flexibility for free flowing conversations within them, allows for the adoption of a more customer service based/conversational approach to handling calls. This can also allow staff to tailor their conversation with the customer based on the individual’s circumstance and respond accordingly.

Poor practice: recording that a customer is vulnerable because they hit a trigger but without seeking to fully understand the customer’s situation and assuming that all customers who are experiencing a particular condition or situation will respond in a similar way.

 

5.  Where a Firm is developing a new product or reviewing an existing product it should consider vulnerability as part of the design or review process, paying regard to target market, clarity, accessibility and the operation of the product


LSB would encourage Firms to ensure that vulnerability is integral to their processes and is not approached as a ‘tick box exercise’ and that this can be evidenced through the product design, development and launch processes/stages. Firms should ensure that product limitations and risks are drawn out clearly to assist a customer’s understanding of a product. This could be accompanied by adequate staff training for customer facing channels and consideration of all content distributed via marketing channels, to assist customers in making a balanced and informed decision on a product, having regard to their contractual obligations. Where products are being reviewed, the LSB would encourage Firms to assess how the product is performing in terms of accounting for vulnerability and whether any adjustments are required.

There is also a broader need for customer education around banking products and services. This need is more evident for customers encountering credit or banking products for the first time e.g. young adults where limited knowledge may impact product selection. Charities as subject matter experts could be engaged both in general and during the market research phase of a product which would help to ensure that the viewpoints of those experienced in dealing with customers with certain vulnerabilities are represented and accounted for. This could also be of benefit when designing/reviewing customer facing documents such as account information, terms and conditions etc.

 

6.  Firm’s sales policies and processes should take account of the impact vulnerability may have on a customer’s ability to make an informed decision about a product, and provide relevant support to customers during the credit application process


Firms should have mechanisms in place to support customers identified as vulnerable, however, there is a challenge in ensuring that the customer is given sufficient information to help make a balanced and informed decision. Vulnerability can take many forms, and the needs of customers may also vary, which can make it extremely difficult for staff to manage, particularly where sales policies and processes do not account for vulnerability at the point of sale.

The stress associated with being in a vulnerable situation may have an adverse effect on a person’s emotional state and cognitive ability. This may include general feelings of anxiety, the feeling of being unable to cope, being too upset to talk, finding it difficult to concentrate and assimilate information to help make and communicate an informed decision. Firms could provide further training and guidance to staff which may include:

  • Educating staff on the types of support the Firm can offer in cases where vulnerability is identified at acquisition; this may include: giving customers the time to reflect on the information they have received, allowing a family member to accompany the customer in a face to face meeting, or defining referral points for a specialist team to engage with the customer;
  • In the context of vulnerability, what good non-advised sale process might look like with practical examples of support the agents can provide, whilst avoiding straying into implied advice, and what the consequences might mean for the customer;
  • In cases where the Firm has concerns over product suitability (having supported the customer in making an informed borrowing decision), but the customer insists they want that product, having escalation points for those decisions to be considered in greater detail including, for example, considering further avenues of support. Where there remain concerns over the customer’s ability to understand, make or communicate an informed decision following the offer of further support, a decision not to lend may, in the circumstances, be considered an appropriate outcome.
  • Strengthening quality assurance frameworks to ensure staff are assessed on the quality of their sales, on a non-advised basis, reflecting this requirement in staff objectives and targets;
  • Increasing use of mystery shops and feeding the outputs of this into strengthening existing process.

Area for consideration: using existing guidance and research to train branch and telephony teams to identify vulnerability and to assess the customer’s ability to understand, weigh up and retain information. Staff could be trained to utilise questions from the Royal College of Psychiatrists guidance to test a customer’s understanding of a product.  This requires customers to confirm key product terms and associated risks, and whilst the questions will be product specific, examples may include:

  • can you summarise the key consequences of entering into this credit agreement?
  • can you tell me what the consequences will be if you start to miss payments?
  • can you tell me what the total amount is that you are borrowing?
  • how long do you have to pay it back?
  • how many payments will you have to make?

What might good practice look like? referral to a specialist team for new applications where the customer was identified as being vulnerable; this prevents an automated decision and triggers a manual underwriting process.

Area for consideration: applying flags to applications from customers who are identified as vulnerable, means that the specialist team remain responsible for supporting the customer in managing the account or, in the absence of a specialist team, staff are able to easily identify accounts which indicate that the customer may require further support.

 

7.  Where customers in financial difficulty are considered vulnerable they should be dealt with positively and sympathetically


Being in financial difficulty can be a stressful situation for a customer who is not vulnerable, therefore when dealing with customer who have been identified as, or the Firm has reason to suspect that they may be vulnerable, there is a greater need to fully understand the customer’s circumstances. The way in which a person handles a particular situation could mean that for some there is a limited or very little personal or financial impact at all. For others, there are days where the impact is particularly heightened. Firms should have the structures and processes which allow their staff to investigate situations, and equip them with the knowledge, confidence and skills to question and explore circumstances appropriately, with a view to identifying impact and likely support needs of the customer.

Collections

A majority of Firms have established specialist teams within collections to assist customers identified as vulnerable and in financial difficulties.  Developing and maintaining relationships with free money advice agencies and charities will help to ensure that these teams are, and remain, effective.

What might good practice look like? the control framework includes case reviews which consider letters and calls made to customers identified as vulnerable over a period of time. This allows a Firm to assess the effectiveness of its collections strategy including contact, approach to setting up a solution and evaluating whether the solution is appropriate given the customer’s circumstance. The outputs could be used to feed into broader process, policy and strategy reviews.

Area for consideration: for longer term situations, considering the financial impact including the cost of travel to hospital, medication, reduced income as part of the income and expenditure so that any plans set are reflective of the customer’s current situation and are affordable and sustainable.

Debt sale

The Standards of Lending Practice prohibit the sale of debt where there is evidence of an ongoing mental health problem or critical illness that affects the customer’s ability to repay their debt. The LSB acknowledges the impact that any vulnerability can have on a customer’s state of mind and their ability to maintain their existing financial commitments. Where vulnerability is identified by the creditor, these accounts should be ring-fenced and not sold.

Vulnerability can occur at any time during a customer’s relationship with their lender, including post debt sale. Responsibility for managing such accounts should be agreed between the creditor and the purchaser up front, though any decision should give due consideration to:

  • assessing each case on its merits, which may include having regard to the nature and longevity of the customer’s situation; and
  • the customer experience and risk to customer outcomes.

The guiding factor is to ensure a seamless and uninterrupted customer experience and a fair outcome. The industry has instigated the development of minimum standards across creditors and their debt collection agencies (DCAs) and purchasers, to minimise any interpretational issues and agree best practice. The working group has established draft measures to ensure customers in vulnerable circumstances are treated appropriately and consistently, and get the support they need. The outcomes will be referenced in this document when the work is published.

What might good practice look like? capturing the customer’s consent to disclose information to the creditor at the contingent collections stage allows the creditor to make a decision based on the customer’s circumstance to leave the account where it is or recall. This also ensures that where an account was recalled, the customer would not need to divulge information to the creditor again, preventing a ‘cold hand-off’.

What might good practice look like? Due diligence frameworks and audits ensure outsourced collections agencies and debt purchase Firms have processes in place to deal fairly with customers identified as being vulnerable.

 

9.  Firms should undertake monitoring and assurance work to ensure that the vulnerability policies, processes and controls are designed and operating effectively and delivering fair customer outcomes


As Firms document and develop their vulnerability strategies, consideration should also be given to the ongoing evaluation of these strategies to ensure that the relevant strategies continue to operate in a manner that is conducive to the delivery of fair customer outcomes. This could be achieved through:

  • ongoing review and assessment of the design and operational effectiveness of policies, processes and training, along with an assessment of the internal control framework.
  • testing the full customer journey through using case reviews to form a view on the overall effectiveness of the Firm’s strategy, response to a situation and appropriateness of the solution offered.

Area for consideration: case reviews are incorporated into the control framework. This could involve reviewing letters and calls to customers identified as vulnerable, regardless of where they are in the customer journey, over a specific period of time. This would allow for an assessment of the effectiveness of a Firm’s collections strategy from the point of contact with the customer, the approach to setting up a solution and evaluating whether the solution was appropriate given the customer’s circumstances. The outputs from this work could be fed into broader process, policy and strategy reviews.

Area for consideration: case reviews for customers identified as vulnerable earlier on in the ‘customer journey’ could be undertaken. The outputs of these assessments could assist a Firm in identifying whether the treatments/solutions offered or approach taken at an earlier stage, are helpful in preventing the customer from getting into difficulty.

Area for consideration:  a customer experience forum is established which has representation from all areas of the business. The forum allows staff to raise concerns based on their experiences. The output from the forum could be used to improve processes for example, a revised income and expenditure or enhancements to the content of customer letters.

What might poor practice look like? empowering agents to make decisions relevant to the customer’s circumstance but with a control framework which assesses a call or a case based on the agent’s ability to meet policy and process rather than the attainment of fair customer outcomes.

Management Information

Management Information on vulnerable customers should be outcomes focused and forward looking rather than just looking at the identification of customers or the numbers referred to specialist teams. Firms will have their own approach and strategies for what type of information is captured and how this is reported but it could include: 

  • the number of vulnerable customers identified
  • types of vulnerability – if there is a peak in certain vulnerabilities there may be a need to engage with specialist charities to encourage a better understanding/support
  • solutions/interventions offered to the customer, case review information could be fed into this to consider whether the solutions or approach taken for the customer is appropriate
  • an indication of outcomes, which would allow Firms to assess the effectiveness of their interventions and form a view as to whether these need to be enhanced/removed/re-viewed and developed.

What might poor practice look like? MI is focused only on the identification of vulnerable customers, referrals to specialist teams and the nature of the vulnerability with no assessment of whether the solution offered to the customer was appropriate for their situation.

Area for consideration: data is reported in a monthly dash-board and discussed at committee level with senior visibility.

 

Helping Registered Firms to act fairly

Registered Firms have a responsibility to act fairly and as part of this they have committed to follow the Standards of Lending Practice.

A statement detailing financial institutions’ key responsibilities and what they ask of their customers, which some Firms may choose to tailor according to their product offerings, can be viewed here.

Adopting an outcome-based focus

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 look at the ways in which they demonstrate they are achieving the desired 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.

Taking a highly proactive approach

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 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 can still be viewed as 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: ensuring that the Standards continue to improve the levels of consumer protection
  3. Advisory: helping Firms to meet the Standards and achieve fair customer outcomes

Delivering consistently fair customer outcomes

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.

Risk assessment review (RAR)

All Registered Firms who have moved from the previous framework (the Lending Code) to the new Standards of Lending Practice will be subject to a RAR. This will be based on our existing knowledge of a Firm, any new management information, and an on-site visit including discussions with senior management.

The RAR will assess the Firm’s risk management framework as Mature, Progressive or Immature. We then factor in a high/medium/low risk weighting. This combined classification then determines the appropriate oversight strategy:

  • Mature: the Firm is subject to a relationship management model
  • Progressive: a more intensive relationship management model or some element of outcomes testing
  • Immature: may require a more regular programme of outcomes testing and closer level of collaboration

Firms categorised as low risk will adopt the Mature oversight strategy. Those that conduct both personal and SME lending will undergo an assessment for each.

Relationship management (RM)

RM 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 RM 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.

Continuously improving levels of customer protection

Our development work represents a continuous cycle of improvement aimed at creating and continuously enhancing best practice guidance. 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 supporting guidance.

What areas does our Development 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.

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.

Further information

The output of the initiatives described above will lead to additions to the LSB’s Information for Practitioners.

Adding value beyond monitoring and development

Our advisory work offers a range of value-adding initiatives aimed at helping registered Firms to continue meeting the Standards and achieve fair outcomes. Practical, collaborative and complimentary for all Firms, these advisory services go far beyond our core assurance and development activities.

What Advisory services are available?

Benchmarking

In addition to advising registered Firms on their performances in specific areas, exploratory research and fact finding compares different methods of meeting the Standards.

Call calibration

Advice and guidance to help Firms develop and improve their financial difficulty call frameworks.

Workshops

Focus on a specific area of the Standards, particularly where new elements have been added. Sessions can be held on a remote basis for a number of Firms simultaneously, or onsite for individual Firms.

Practitioner support

A range of informal methods provide additional advice and guidance on meeting the Standards.

Supporting the achievement of fair customer outcomes

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. Our breaches management framework puts a range of sanctions at our disposal, but enforcement action is only ever used as a last resort. We will always work with Firms to support the achievement of fair customer outcomes.

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.

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.

Pointing you in the right direction

If you have a problem with your financial service provider, you should complain to the bank, building society or card issuer involved.

They will give you a copy of their complaints procedure, which sets out the timescales they are required to follow in dealing with your complaint.

If you are still not satisfied, you have the right to take your complaint to the Financial Ombudsman Service (Ombudsman), an independent service for settling disputes between financial service providers and their customers.

View the Ombudsman guide

Please note that, although the LSB investigates serious breaches of the Standards, we cannot investigate individual complaints on behalf of customers.

 

Experiencing financial difficulties? 

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

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

Citizens Advice Scotland: www.cas.org.uk

Money Advice www.moneyadvicescotland.org.uk

National Debtline www.nationaldebtline.co.uk 0808 808 4000

Payplan www.payplan.com 0800 280 2816

StepChange Debt Charity www.stepchange.org 0800 138 1111

 

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.

Check out our Insight Centre for further information and publications by the industry.

Financial institutions which sign up to the Standards demonstrate their commitment to fair lending as Registered Firms. The LSB Registration Rules are currently under review.

To access the existing Rules click here.