By Liz Thompson, Head of Compliance, Lending Standards Board (LSB)
Rising household expenses have resulted in many individuals feeling financially strained, exacerbating the stresses and pressures of a volatile job market and the ongoing repercussions of the pandemic. The combination of mounting household bills, economic uncertainty and lingering effects of the global health crisis has contributed to people’s sense of being financially squeezed.
In an era in which financial concerns have become the norm rather than the exception, banks and lenders are increasingly aware of the domino effect of overly stretched customers. Our utmost priority now lies in determining the best ways to support these individuals, particularly those who are vulnerable, as their well-being takes centre stage.
We know from the FCA’s (Financial Conduct Authority’s) 2022 Financial Lives Study1 that around 47 percent of the adult population (24.9 million people) in the United Kingdom have characteristics that make them vulnerable in the eyes of the regulator. This has increased in recent years, largely due to the number of people with low financial resilience: in other words, the ability to withstand financial shocks brought about by life events. Other drivers of vulnerability include poor health, recent negative life events and limited capabilities.
This returns us to the main issue: that vulnerability can no longer be considered just a specialist issue. Those experiencing these difficulties account for half of our society and, therefore, our customer base. As the landscape evolves, so do the challenges customers face. The guidance and support available from firms must keep pace with these changes.
At the Lending Standards Board (LSB), we recently undertook a project focusing on how banks and lenders, which are registered with our best-practice Standards and Codes, identify and support vulnerable customers. The resulting report is full of examples of good practice and further guidance, some of which are shared below. We urge firms not currently registered with the LSB to take action off the back of the report to raise industry standards collectively so customers can receive the highest levels of support and protection during times of crisis.
“Tell us once”: Identifying your vulnerable customers
The report highlights that a “tell us once” approach to recording information about customers’ vulnerabilities saves them from repeating themselves, as disclosing a difficulty once is hard enough. Having a record of these conversations ensures that all staff recognise all their support needs, regardless of when they interact with their customers. It also notes that vulnerabilities can be transient or permanent, and the identification methods firms use should take this into account.
Customers are often identified as vulnerable only as they enter financial difficulties. Therefore, a key area of focus for staff training throughout the customer journey should be on the soft skills needed to be empathetic whilst drawing out information through sensitive questioning and probing to ensure support can be provided at the most appropriate times.
Firms also need to ensure that processes allow for regular reviews of their customers’ circumstances to understand whether a given identified vulnerability is still having an impact and if there are ongoing support needs.
In today’s digital age, it has become commonplace for the majority of customers to interact with their banks or lenders through digital channels. However, within these digital channels, firms face challenges in identifying vulnerabilities due to the limitations of current systems. Firms must overcome this by implementing measures that allow for identifying vulnerabilities and additional support needs throughout the digital journey and enabling self-declaration without adding too much friction to what should be a highly automated process.
Communication and third-party support
Support for vulnerable customers should be available throughout the entire customer journey, whether when applying for credit, managing an account or making payments. The tone and manner of communication must encourage engagement, so customers feel supported throughout their relationships with their firms. This should include access to clear information about the available options that address their needs. Firms also need to ensure signposting is prominent, where possible, tailored to their customers’ circumstances and explaining the benefits of third-party support. This will enable customers to understand the advantages and make informed decisions on how to proceed.
Third-party support can also be equally beneficial for firms. The report highlighted how many firms recognised the importance of gaining insights from external sources in their pursuits to address vulnerabilities within their customer bases.
Examples emerged of firms actively seeking insights from charities and third-party organisations to enhance their understanding of vulnerabilities. These organisations possess specialised knowledge and firsthand experiences working with vulnerable individuals, allowing firms to tap into their expertise and gain deeper understanding of the impacts and specific needs associated with different types of vulnerability. By collaborating with these external sources, firms can access diverse perspectives and data that inform their strategies.
Moreover, external sources play a crucial role in keeping firms updated on emerging trends and evolving vulnerabilities. The dynamic nature of vulnerability requires firms to stay vigilant and adaptable in their strategies. Market researchers, technical working groups, trade bodies, charities and third-party organisations provide ongoing insights that enable firms to remain responsive and proactive in supporting vulnerable customers.
Breaking the cycle of scams
We have found that proactive identification of customers vulnerable to scams has improved since the introduction of the Contingent Reimbursement Model Code for Authorised Push Payment Scams (the CRM Code) in 2019, governed by the LSB. But given the ever-more creative methods scammers use, this is a rapidly moving space.
Due to the nature of these insidious crimes, there is a high probability that customers may be more vulnerable following a scam, not just financially but also emotionally. Worryingly, this means they may be vulnerable to becoming repeat victims. Firms should consider using specialist teams to support these customers in the aftermath of scams.
For these customers, it is important that, while the reimbursement provisions of the Code are followed, firms also look to identify if there have been any wider vulnerabilities, either as a result of the scam or that contributed to the person falling victim in the first place. If one is identified, firms need to ensure it is managed as it should be—and should have been had it been identified at a different point in the customer journey.
The initiative to do more
It has been encouraging to observe the clear focus placed on the issue of vulnerable-customer support in recent years by LSB-registered firms, with engagement from executives and customer support staff alike. This important area remains a continual focus for these firms, which have also sought internal and external help, alongside responding to the LSB’s oversight requirements, to evolve their vulnerability strategies, ensuring they remain appropriate for their business models and customer bases as well as the macroeconomic environment.
Nevertheless, there remain some inconsistencies across the industry in how vulnerability is identified and the subsequent responses and supports offered. An ongoing focus on identification and support is needed as digitalisation soars and customers’ vulnerabilities evolve. Banks and lenders need to ensure that support solutions are appropriate and effective through whichever channel the customer prefers to engage.
All firms should follow suit with those registered with the LSB’s best-practice Standards and Codes to ensure that they, too, develop cultures that place good outcomes for all customers at the heart of all they do.