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The Credit Services Association (CSA)
Blog: The Standards of Lending Practice: Putting the customer first
David Pickering is Compliance Director and soon to be interim Chief Executive (from 1 October 2016) of the Lending Standards Board, which promotes fair lending by overseeing Registered Firms’ adherence to the Standards of Lending Practice. He and some of his colleagues will be attending and exhibiting at the Credit Services Association’s UK Credit & Collections Conference #ukccc on 15 September 2016.
The Lending Standards Board (LSB) and the wider industry had grown accustomed to the structure of the Lending Code, with its focus on detailed provisions and because of the value it added to financial services firms before the Financial Conduct Authority (FCA) introduced the Consumer Credit Sourcebook (CONC). Professor Russel Griggs’ independent report on the Lending Code last year, while highlighting its positive aspects, concluded that change was necessary if a Code was to have relevance when co-existing alongside the statutory regime.
Putting the customer first
We wanted to put the customer at the heart of lending practice to help firms truly embed a ‘customer first culture’. By having the customer as our ultimate reference point and then constructing a set of standards and principles around this, the new Standards of Lending Practice provides firms with greater flexibility to innovate and use their business models to achieve good customer outcomes.
From static provisions to evolving outcomes
Moving from provisions to outcomes and principles, underpinned by an oversight model that is forward looking and proactive, has caused a mindset shift, which has enabled us to broaden our thinking in terms of what can be achieved through the new regime and how voluntary self-regulation can help firms to achieve the right outcomes for their customers.
Unlike the Lending Code which was a static document subject to three yearly review, the Standards will be much more dynamic and continue to evolve. As the pace of technological advancements in the industry increase we need to ensure that the Standards keep track and, where possible, set the agenda for firms in terms of effective and pragmatic consumer protection.
We believe that the Standards and revised monitoring regime will benefit both firms and customers. Firms will see a much more efficient alignment between our work and that of the FCA, which will be truly complementary. For customers, they will know that we will retain our independence and will continue to challenge firms, holding them to account if they fall short of the expected standards, but not burdening firms with a costly and onerous monitoring regime that does not reflect current and emerging risks.
Good practice in the debt collection sector
We have seen a lot of good practice from debt collection firms who are becoming increasingly proactive in their approach to helping customers in financial difficulty and looking at ways to increase customer engagement and ensure that repayment plans are affordable and customers are able to maintain them. The overriding principle for managing customers in financial difficulty is that firms should know their customers in order to ensure that they receive the right outcome; if the best solution is a repayment plan, then a firm needs to obtain sufficient information to make sure an affordable plan is set and that this is in the customer’s best interests. One area which we are regularly asked for is our view on how firms should approach the affordability assessments. We will shortly be publishing research we have undertaken in this area which we hope Firms will find helpful.
Lending in the digital age
We’re also currently undertaking research focusing on developments within digital across the wider industry. This is an area which we know is a major challenge for firms and particularly for the debt collection sector. Credit Services Association (CSA) members, by virtue of their work, are at the back end of the customer journey and which has traditionally been focused on engaging with the customer on a one-to-one basis. When, for example, a vulnerable customer finds themselves in financial difficulty, there is a need for a firm to speak to the person so that they can fully understand their circumstances but the challenge is that the customer may not want, or may not be able to cope, with this kind of interaction. At the moment, the Standards of Lending Practice are channel neutral but we would like to provide something help inform Firm’s thinking on what ‘good’ looks like when a customer chooses to engage via a digital channel.
Sharing good practice
We are about to publish a series of documents to support the Standards called Information for Practitioners, these are non-binding examples of good practice and ideas which Firms may wish to take into consideration when developing their approach to adhering to the Standards and achieving the right customer outcome. The Information for Practitioners is owned by the LSB and as we conduct our research into emerging areas, we’ll update these documents to reflect further developments.
Reassuring the customer
In conjunction with the industry, we have developed a simple one-page document which sets out, at a high level, both the customer’s and the firm’s responsibilities under the credit agreement. In due course we will also develop a similar document which is more closely tailored to the debt collection world. We’re increasingly seeing firms across the spectrum wanting to draw attention to the fact that they are signed up to the Standards of Lending Practice. In response to this we’re developing a logo which firms can include on websites and literature, should they wish to do so.
The ‘Standards of Lending Practice’ have a key role to play in taking the industry forward and we look forward to talking to collections professionals, creditors and others at the UK Credit & Collections Conference on 15 September 2016 about how we can all work together on continuous improvement of customer outcomes.