Rising household bills mean many are feeling more financially squeezed than ever – with stress and pressure further piled on by a tumultuous employment market and the ongoing ripple effects of the pandemic.
In an environment where financial worries are the norm rather than the exception, banks and lenders are increasingly aware of the knock-on effects from overly stretched customers. How best to support these people, especially the vulnerable, is front of mind more than ever.
We know from the FCA’s 2022 Financial Lives Study, that around 47% of the UK adult population (24.9 million people) have characteristics that makes them vulnerable in the eyes of the regulator. This number has risen in recent years, largely due to the number of people with low financial resilience, that is: the ability to withstand financial shocks brought about by life events. The other drivers of vulnerability are poor health, recent negative life events, and low capability.
This drives home the point that vulnerability can no longer be considered just a specialist issue, as those experiencing these difficulties make up around half of our society, and therefore the customer base. As the landscape evolves, so do the challenges customers face, and so the guidance and support available from firms must keep pace with these changes.
At the Lending Standards Board (LSB), we recently undertook a piece of work focusing on how banks and lenders 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 collectively raise industry standards so customers can receive the highest level of support and protections during the crisis.
‘Tell us once’: Identifying your vulnerable customers
The report highlights that a ‘tell us once’ approach when it comes to recording information about customer vulnerabilities, saves a customer having to repeat themselves, as disclosing a difficulty once is hard enough. Having a record of these conversations ensures any support needs are recognised by all staff, regardless of when they interact with the customer. It also notes that vulnerabilities can be both transient or permanent and it is important that the identification methods used by firms take account of this.
Customers are often identified as vulnerable only as they enter financial difficulty. Therefore, a key area of focus for staff training throughout the customer journey should be on the soft skills needed to be empathetic, while drawing out information through sensitive questioning and probing, to ensure support can be provided at the most appropriate time.
Firms also need to make sure that processes allow for a regular review of the customer’s circumstances, to understand whether a given identified vulnerability is still having an impact, and if there are ongoing support needs.
Of course, we live in an age where it is usual for the vast majority of customers to engage with their bank or lender via digital channels. Within digital channels, we found firms had fewer opportunities to identify vulnerability due to systems not currently allowing this to occur easily. The challenge for firms now lies in identifying vulnerability and additional support needs throughout the digital journey and enabling self-declaration, without adding too much friction into what should be a highly automated process.
Ongoing support and communication
Support for vulnerable customers needs to be available throughout the whole customer journey, whether this is applying for credit, running an account, or making payments.
The tone and manner of communication needs to encourage engagement, so vulnerable customers feel supported throughout their relationship with their firm. This should include access to clear information about the options available that consider their needs.
Firms also need to ensure signposting is prominent, where possible, tailored to the customer’s circumstances, and what the benefits of that third-party support are. This will enable customers to understand the benefits and make an informed decision on how to proceed.
Breaking the cycle on 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 evermore creative methods used by scammers, this is a rapidly moving space.
Due to the nature of these insidious crimes, there is a high possibility that customers may be more vulnerable following a scam, not just financially but also from an emotional perspective. Worryingly, this means they may be vulnerable to becoming repeat victims. Firms should consider using specialist teams to offer support to these customers in the aftermath of a scam.
For these customers it is important that while the reimbursement provisions of the Code are followed, firms should also look to identify if there is any wider vulnerability, either as a result of the scam, or that contributed to the person falling victim in the first place. Where one is identified, firms need to ensure this is managed as it should be, had it been identified at a different point in the customer journey.
The drive 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 who have also sought internal and external help, alongside responding to the LSB’s oversight requirements, to evolve their vulnerability strategies to ensure these remain appropriate for their business model, customer base and the macroeconomic environment.
Nevertheless, there remain some inconsistencies across the industry in how vulnerability is identified, and the subsequent response and support offered. Ongoing focus on identification and support is needed as digitalisation soars and as customer vulnerabilities continue to 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 to the LSB best practice Standards and Codes to ensure they, too, develop a culture that places good outcomes for all customers at the heart of all they do.
Elizabeth Thompson is head of compliance at the Lending Standards Board