Lending Standards Board’s (LSB) submission to Treasury Committee Consumers’ Access to Financial Services inquiry

The LSB welcomes the opportunity to input into Treasury committee’s Consumers’ Access to Financial Services inquiry.

About the LSB

The Lending Standards Board (LSB) is a self-regulatory body operating in the financial services industry, which provides independent oversight of adherence to voluntary standards for registered firms. The standards that currently fall within the LSB’s remit are the Standards of Lending Practice for Personal Customers, the Standards of Lending Practice for Business Customers, Credit Card Market Study remedies and the Access to Banking Standard. The Standards of Lending Practice apply to loans, credit cards and overdrafts, with the Business Standards also extended to asset finance and commercial mortgages in mid 2018.  Our registered firms include, retail banks, monoline credit card providers, debt purchase and debt collection firms. The LSB’s registered firm base covers over 95% of the unsecured consumer credit market, and therefore a vast majority of personal customers taking out credit products.

The LSB’s vision is to be the prime conduct self-regulatory body in financial services, ensuring that all personal and small business customers receive a fair deal from their lender.

Our key strategic aims are to:

• Promote and help deliver fair outcomes and greater consistency for personal and small business customers
• Achieve high level of market coverage of personal and business lenders
• Demonstrate how self-regulation can deliver good customer outcomes and can complement the work of the FCA
• Be recognised as a leading, influential voice for personal and business lending
• Add value for Registered Firms.

Key to the LSB is its independence and this is achieved through its Board which comprises of a majority of independent non-executive directors and oversees the strategic direction of the LSB and its oversight.

The LSB team comprises of experienced industry professionals drawn from a wide variety of organisations with an in-depth knowledge of banking and consumer credit. Further information on the LSB can be found at: www.lendingstandardsboard.org.uk

Our response covers the following areas:

• The role of the LSB and Standards of Lending Practice
• Definition of vulnerability
• Access to Banking Standard
• Vulnerability Taskforce Principles and recommendations report

Please let me know if you would like to discuss the content of this response in further detail.

Yours sincerely,

Dave Pickering

Chief Executive

The Standards of Lending Practice

1. Both Standards of Lending Practice for personal and business customers (the Standards) focus on the customer journey from the initial product offering and throughout the product lifecycle; from the initial promotion of the product to addressing what should happen if the customer finds themselves in financial difficulty. The LSB’s Information for Practitioners, which sits alongside the Standards of Lending Practice, provides registered firms with non-binding examples of best practice and ways in which the Standards can be met. An important part of the Standards is the focus on consumer vulnerability and this section seeks to ensure that vulnerable customers are treated fairly by firms and provided with appropriate support, across the different stages of the customer journey. The LSB’s oversight model ensures that the Standards are fully embedded within our registered firms. We have designed a robust and proportionate oversight model which takes the form of relationship meetings, themed reviews (on the business lending side), research which is used to inform both the Standards and exemplars of good practice and outcomes testing. We also use a mix of data, intelligence and management information to continuously monitor how effectively firms are achieving outcomes. Further information on the Standards can found on our website.

Definition of vulnerability

2. The LSB’s Information for Practitioners recognises the FCA’s definition of a vulnerable customer, someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a Firm is not acting with appropriate levels of care, as an appropriate basis for which firms should identify and treat customers in vulnerable situations. This definition has been adopted by the industry and acted as the foundation upon which strategies, policies, processes and training have been built. The LSB’s Information for Practitioners builds upon this, stating that 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 LSB believes that it is positive that this underpins our registered firms’ interactions with their customers and has given a consistent approach for the industry to ensure the fair treatment of customers who may be in vulnerable circumstances. The wide-reaching nature of the definition along with our Information for Practitioners provides clear direction for firms as to what a vulnerable customer may look like, whilst recognising that there are no standard criteria when it comes to vulnerability. 

Access to Banking Standard

3. The LSB is responsible for the oversight of the Access to Banking Standard, a role we assumed in July 2017, applying to all closures announced after the 1 May 2017, along with those announced prior to this date but not taking place until after 1 August 2017. We have taken a risk-based and proportionate approach to the oversight of firms, with a commitment to independently reporting on the application of the Standard by the 12 firms who are signed up to the Standard.

4. The LSB has completed its first round of reviews against the Access to Banking Standard, where firms’ policies, processes, controls and governance arrangements have been assessed to ensure they are adequate in respect of the closure programmes and are operating in line with the requirements of the Standard. Due to the timings of closures, six firms were included in the first round of reviews, covering a total of 339 branches. The LSB held initial meetings with each firm to gain a high-level understanding of their closure programme, followed by detailed information requests which enabled a desk-based review of documentation to be undertaken prior to an onsite meeting with key staff members. The LSBs oversight of the Access to Banking Standard included consideration to both personal and small business customers, with particular regard given to vulnerable customers, which is explicit in the Standard, and to ensuring that the impact on SMEs is considered as part of the decisioning process.

5. Firm specific reports have been issued to those involved, and a summary report has been written, which will be published in September. The report summarises how the industry has approached and implemented the requirements of the Standard, focusing on ensuring that customers are communicated with openly and treated fairly. A copy of the summary report can be found here.

Vulnerability Taskforce Principles and recommendations report

6. Following release of the FCA’s occasional paper no. 8, the financial services industry responded by launching the Financial Services Vulnerability Taskforce, (the Taskforce) consisting of key industry stakeholders, charities and consumer groups, chaired by Joanna Elson, CEO of the Money Advice Trust. The output was a detailed report, ‘Improving outcomes for customers in vulnerable circumstances’ containing nine Principles and a series of recommendations which the industry voluntarily agreed to take forward. Following launch of the Taskforce report it was intended that further assurance work would be undertaken to understand how firms had progressed with the implementation of the Taskforce Principles and recommendations. UK Finance, its members and the UK Finance Consumer Advisory Group approached the Lending Standards Board (LSB) to conduct this review. This work was completed between April to July 2018.

7. The objective of this piece of work was to understand how each firm involved in the review is meeting the Principles and recommendations of the Vulnerability Taskforce report. This included focus on more detailed codes of practice developed under the Taskforce recommendations, namely the Bereavement Principles together with the progress being made in respect of Third Party Access Principles which firms have until March 2019 to implement. The LSB’s assessment considered vulnerability across the entire customer and product journey in consumer credit, transactional banking, savings, and mortgages; reviewing the key controls and processes that firms have in place.

8. A summary report providing an overview of the themes identified from our work, identifying areas where improvements need to be made in the application of the Principles and the recommendations, as well as areas of good practice which could be considered for adoption more widely, can be found here.

Submitted December 2018