With treating vulnerable customers higher on the agenda than ever before, a number of bodies have come together to create a new report, Vulnerability: a guide for lending. Jonathan Minter spoke to one of the study’s key authors, Chris Fitch, to find out more about its findings
In a typical month, the average frontline member of staff will deal with a median of 238 customers and 22 third parties during applications.
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Of these, on average four customers will have what the staff member would describe as serious problems in understanding. This could mean a number of things – including struggling to understand the credit product, or the application process.
Multiplied out, this member of staff will encounter this scenario 48 times a year.
Extrapolating further, there could be 2,400 encounters with customers who struggle to understand the information presented to them in an organisation with 50 credit staff a year, and 4,800 encounters in an organisation of 100 credit staff.
This was one of the findings from the Vulnerability: a guide for lending report, which was released in June by the University of Bristol’s Personal Finance Research Centre, and the Money Advice Trust, in association with the Finance & Leasing Association (FLA) and the UK Cards Association.
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By GlobalDataThis was the second such report of 2017, with a report released earlier in the year looking at how the collections industry should handle vulnerable customers.
For this report, the primary focus was on customers with mental capacity limitations. Gaining a fuller understanding of these issues can be helpful both for the consumer, who will ultimately be better served if their problem is better understood, and for the lender, who will be able to make smarter and more compliant lending decisions in the longer term.
Overall Chris Fitch, vulnerability lead at the Money Advice Trust, research fellow at the University of Bristol’s Personal Finance Research Centre, and one of the report’s key authors, says he was surprised that over half of the 1,500 frontline staff surveyed confused mental capacity limitations with mental health problems.
Definition
A person can be described as having a mental capacity limitation when they have difficulty understanding, remembering or weighing up information and then communicating a decision due to a medical or health reason.
Nonetheless, Fitch says that, overall, he is encouraged by the findings: “We were encouraged by the positive staff attitude towards considering mental capacity when offering credit [95% reporting it should be considered], and the positive action taken [over 70% reported routinely monitoring for mental capacity difficulties].”
Handling customers with mental capacity limitations can be a challenge. Part of this challenge comes from the fact that customers may not wish to disclose such issues. As Fitch is well aware, customers may wish not to make such a disclosure out of fear that doing so might threaten their ability to access the credit they have applied for.
These fears are generally unfounded – just 6% of staff questioned said they would be likely to refuse the application.
Also, according to the report: “If an attempt to provide reasonable support had been made, but without success, [refusing an application] could be an appropriate action to take.”
Instead, 86% of staff said they would spend more time with their application, 67% said they would ask the customer if a family member, friend or other third party would be able to assist, 63% said they would make a note on their file, and 61% said they would offer to send them information in an alternative format.
Not all the findings were positive. One negative example was that 26% of staff reported there being no organisational policy on dealing with customers with mental capacity limitations.
Regardless, customer non-disclosure is a fact of life for those selling consumer finance, and the report offers various tools to help frontline staff identify mental capacity limitations. Chief among these is BRUCE:
- Behaviour and talk – staff should monitor a customer’s behaviour and look for indications of difficulties with:
- Remembering – is the customer exhibiting any problems with their memory or recall?
- Understanding – does the customer grasp or understand the information given to them?
- Communicating – can the customers share and communicate their thoughts, questions or decisions about what they want to do?
- Evaluating – can the customer weigh up the different options open to them?
BRUCE was developed to help firms address the Financial Conduct Authority’s (FCA) guidance on mental capacity limitations and credit.
In particular, it takes the FCA’s list of potential indicators of a mental capacity or wider decision-making limitation, and develops them into a detailed guide to identification and support.
Intermediated credit
A second problem Fitch highlights is the nature of how finance is sold – namely that the credit is sold in dealerships by dealers, sometimes through brokers, on behalf of the lenders in question.
While a challenge, this is not something that cannot be overcome. “There needs to be work here to establish how brokers and lenders work together to identify and support customers who are in vulnerable situations, as a situation sometimes exists when the responsibility for this isn’t clear to anyone – including the customer – and sufficient support isn’t provided,” Fitch notes.
The principles of BRUCE are applicable here as well; however the report did note a few areas where both intermediaries and lenders said they would like to see further action taken to:
- Establish how higher-level definitions and regulations on vulnerability could be translated for the intermediated credit sector
- Develop a single training course on mental capacity that intermediaries and lenders can both access
- Address the specific practical challenges that intermediated credit faces on these issues of vulnerability and capacity
With more and more finance being bought online, questions could also be asked about how customer who might need extra time or help could be identified.
Some firms already have examples of how an online lender or intermediary can proactively help customers.
The most common example of this, the report says, is a web chat box appearing if a customer is inactive for a period of time, in case the customer needs extra assistance with the information presented to them.
While this is one example, the report suggests online lenders should look not for just one single indication of difficulty, but a constellation of indicators to point towards the need for some form of intervention.
While this may sound daunting, Fitch notes that often firms will already have much of the data required for this, collected for other purposes.
“The most important first step is to map what data you collect for administration or web design purposes – the kind of data that normally just tells you about the ways in which your customers are using your website,” Fitch explains.
“Once you have mapped that, think about whether that data could tell you if a customer was having a decision-making difficulty. Do they understand? Can they recall personal or required information?”
Asked what key takeaways he would want lenders to take from the report, Fitch says: “It is practically possible to identify and support customers in vulnerable situations.”
With the report published, Fitch says there are three keys areas he will be looking at, specifically related to lending in the near future: “Firstly, skills building and training resources on mental capacity and loans – this is a key element in CONC, and through our work at the Money Advice Trust we are going to push hard on this.
“Secondly, online lending – this is such an important area, and we have just done a year’s work with one major player in the sector, and are now looking to partner with more organisations on this.
“Thirdly, information sharing and vulnerability – we are looking at models for not only sharing within a firm, but also across a sector,” Fitch concludes.
To view the full report, visit www.moneyadvicetrust.org/vulnerability.
