I read with interest the recently published summary findings of the Lending Standards Boards’ (LSB) review of how subscribers to The Lending Code handled customers in financial difficulties.
For those not familiar with the detail, the LSB re-ran a set of monitoring first initiated in 2013. The review focused on the extent to which subscribers and their DCAs are handling customers in financial difficulties with a focus on the policies, processes and controls in place - including areas such as staff training, incentive schemes and complaint root cause analysis. Additionally, the review also assessed subscribers’ due diligence processes when selecting a third party for contingent collections or debt purchase and the oversight processes in place.
The LSB examined the governance frameworks and processes used by a sample of nine code subscribers and either a DCA or debt purchase firm used by each of them.
The results made for interesting reading. In summary, the reviews resulted in one ‘green’ rating, six ‘amber ’ and two ‘red’ ratings for the nine organisations assessed.
The report highlighted general weaknesses in a number of the firms reviewed including the adequacy of training of agents to deal with customers in financial difficulty and the completion of affordability assessments and the questioning of customers in financial difficulty. The report indicated, however, that the factors driving the red-rated and weaker amber reports were largely in relation to ineffective oversight by the subscriber over its outsourced activity and, in one case, inadequate due diligence conducted prior to the subscriber selling debt.
I think the report is interesting for a number of reasons:
- At a time when there is a lot of ‘noise’ around the requirement for financial service organisations to focus on FCA readiness it is a timely reminder that the FCA is only one part of a wider regulatory/compliance regime.
- It supports the need for creditors to learn from their peers and to benchmark their organisation against good/best practice from across the industry. Whilst the report is critical of certain organisations practices it also calls out a number of examples of good practices and rates one organisation ‘green’ (a potential exemplar for their peers?).
- Finally, with lending levels set to increase as market conditions improve, there is likely to be increased demand for both DCAs and debt purchasers to help creditors manage their debt books as they grow.
By Charlie Horner, Lead Consultant - Debt Sale and Advisory, TDX Group