LSB review of how firms treat vulnerable customers

Business meeting Print publication


The Lending Standards Board (LSB) has published a Report (the Report) of the findings from a standards development review of how firms deal with customers in vulnerable circumstances. The Report follows from its previous review of vulnerable customers (Themed review of vulnerable customers) published in January 2014.

The LSB undertook a thorough review of the processes and frameworks firms currently have in place to identify and respond to vulnerability. The Report aimed to understand how firms in the financial industry identify customers in vulnerable circumstances and what support mechanisms are offered to those customers, in order to identify and share good practice measures across the industry. This briefing summarises the findings of the Report and highlights the key messages for businesses.

Enhance culture and business models to deal with vulnerable customers

The Report highlighted that firms should establish a business model and culture which promotes the fair treatment of all customers in different types of vulnerable situations. The LSB found that although many businesses have in place executive-level support and accountability for developing a fair approach to dealing with customers in vulnerable circumstances, there are weaknesses apparent when dealing with customers who do not fit the ‘standard mould’ of vulnerability. These particular customers require additional support.

Understanding, identifying and dealing with different types of vulnerability

The Report identified that there is a greater need to understand unique customer circumstances relating to vulnerability. Vulnerability can take various forms. Factors such as low literacy and numeracy skills, mental and physical health, caring responsibilities and life changing events can put any person in a vulnerable situation, particularly where it affects the customer’s ability to make an informed decision or maintain existing financial commitments. The Report recommends that businesses implement processes to allow staff to fully investigate individual cases and provide them with additional training to equip them with the knowledge, confidence and skills to question and explore circumstances appropriately on a case-by-case basis.

These should include:

  • Establishing dedicated specialist teams to deal with vulnerability
    • This will help ensure that vulnerable customers are more easily identified and assist consistency of approach.
  • Providing specialist staff training and support
    • Staff training is key, but so is ongoing support. The effects of dealing with vulnerable customers on a daily basis may be difficult and even traumatic for staff who should be offered support services, such as counseling.
  • Implementing mechanisms to support vulnerable customers at the point of sale
    • Identifying vulnerable customers at the point of sale is challenging in an industry where most sales transactions are non-advised and may be remote. Businesses should consider how to address these issues; for example, addressing language barriers via a database of 2nd language speakers to support customers through the sales process.
  • Ongoing monitoring to assess vulnerability
    • Transactional information can indicate potential signs of financial stress and customer vulnerability. Businesses should use their digital platform to identify customer vulnerability through transactional information to decipher trends and flag up anomalies.
  • External collaboration with organisations
    • Few firms have developed collaborative relationships with charities and other external organisations to better understand vulnerability across the industry. The Report recommends that businesses should have a clear strategy for engaging with charities and local organisations to improve and embed their vulnerable strategy, policies and processes.
  • Education for customers to understand products
    • Clear communication to customers of product risks is required to help their understanding. The Report found there is a broader need for businesses to provide effective customer education relating to banking products and services and that need is more evident for customers such as young adults coming across credit or banking products for the first time.
  • Raising flags and recording information compliantly
    • The Report found that a majority of firms do not have a code or flag to enable them to easily identify customers who required additional support even though most recognised the benefits of developing flags as markers to identify vulnerable customers. Firms also need to be careful not to breach of the Data Protection Act (DPA) in relation to raising flags where customer information is no longer considered accurate and up to date.
  • Collecting and using management information
    • The Report identified that there is a general lack of management information (MI) available in relation to customers in vulnerable circumstances. Where MI is collated, this only focuses on the identification and referrals to specialist teams and what the vulnerability is with no assessment of whether the solution offered in appropriate. There is a need to develop strong MI across businesses which is ‘outcomes focused, and forward looking’. This should include information on the number of vulnerable customers, types of vulnerability, solutions offered and what outcome was produced to allow businesses to assess the effectives of their solutions and analyse whether they need to be enhanced or reviewed.

Exploring the link between scams and vulnerability

The Report found that a customer in a vulnerable circumstance may be more susceptible to a scam. The Report recommends businesses take a more proactive stance in communicating with customers to identify scams, provide training to frontline staff to keep their knowledge of scams up to date, develop appropriate contact strategies for customers once a suspect transaction is detected, be alert to signs of customer vulnerability and delay payments to provide the customer sufficient time to reflect on a transaction which is usually not in line with a customer’s usual transaction history and where the recipient appears suspect.

Debt sale and vulnerability

Lenders need to consider the impact of debt collection outsourcing or debt sale on their customers. The development of minimum standards across creditors and their debt collection agencies (DCAs)/debt purchasers is recommended to present a best practice approach in ensuring customers in vulnerable circumstances are treated fairly and consistently. The Report identifies that vulnerability can take place at any time including post sale and so there should be clear responsibilities between the creditor and purchaser identified right from the start. The Report lists good practice measures which businesses should consider implementing. These include a DCA reviewing its vulnerable customer process for contingent collections to obtain the customer’s consent to disclose information to the creditor to allow the creditor to make a decision based on the customer’s vulnerable circumstance.

On-going monitoring of practices and case reviews

Businesses should undertake ongoing review and assessment of the effectiveness of policies, processes and training. The Report specifically suggests businesses to consider implementing case reviews for customers identified as vulnerable earlier on in the ‘customer journey’ as the information gained from these assessments may help businesses identify whether the treatments offered at an earlier stage are helpful in preventing the customer getting into difficulty. Businesses should establish how effectively their strategy is in identifying vulnerability, and where this is identified, how their control framework responds with solutions. Information gained from these assessments may help businesses identify whether the treatments offered at an earlier stage are helpful in preventing the customer getting into difficulty. 

What the findings and recommendations mean for businesses

The LSB has developed a number of desired customer outcomes relating to consumer vulnerability, and this will form the basis of the vulnerability section in the standards that it is currently developing. The outcomes will be supported by detailed practical guidance for businesses and examples of best practice to demonstrate how businesses may be able to achieve the outcomes in practice.

The Report recognises that most firms are at an early stage in developing an approach to vulnerability, but there is an acceptance of the importance of vulnerability which is an issue which extends beyond debt collection. It is advised businesses take on broad the findings and recommendations from the Report and begin to evaluate their current practice.