Customer Vulnerability in the Subprime Sector

  • Martin Ellingham, Director and product management compliance at Aptean

  • 14.04.2020 10:00 am
  • Lending

A surge in complaints was one of the main contributing factors to the high-profile collapse of Wonga. Add to this the recent announcement that UK lender Amigo is now for sale in light of a rise in customer complaints, as well as increasing regulatory pressures, and it’s safe to say that subprime lenders are up against it. Nowhere is this more the case than when it comes to the issue of customer vulnerability.

Increased regulation

The FCA’s growing interest in the subprime sector, in conjunction with its efforts to protect vulnerable customers, has led it to focus more intently on subprime businesses, investigating the industry thoroughly with the intent to implement new regulatory measures where necessary. However, not unlike other financial services organisations, the subprime sector is finding it increasingly difficult to put the right processes and procedures in place to protect vulnerable customers, especially when there is still a distinct lack of clarity provided on just how to define and identify customer vulnerability, particularly the notion of ‘temporary vulnerability’.

Mass vulnerability

With 7.4 million adults in the UK who are over-indebted, many of whom seek out products offered by subprime lenders, you could argue that all subprime customers are more vulnerable than most. So, should it be a case of every subprime customer being treated as a vulnerable customer? Well, in short, yes. And, this should indeed be the case for all financial services organisations, implementing robust checks and balances to carry out not only affordability assessments before making lending decisions, but putting forward a raft of questions to ensure customers understand the information they’re being given. Furthermore, if we follow the FCA’s definition of vulnerable customers as those who ‘due to personal circumstances are especially susceptible to detriment’, surely we all have the potential to be labelled as vulnerable at some point in our lives?

Due to their traditional customer base, subprime lenders are low-hanging fruit for complaints based on the ‘customer vulnerability’ angle, something that hasn’t gone unnoticed by a whole host of CMCs in the UK. This makes it more important than ever for subprime lenders to have the right processes in place to ensure as watertight a service as possible, protecting not only themselves but their customers, too.

Responsible lending

As with all financial services organisations, the subprime industry needs to embed appropriate levels of care and protection for all customers, something that should be done as standard practice anyway. A belt and braces approach to protecting vulnerable customers shouldn’t be a million miles away from standard customer service levels, with those businesses already doing as much as they can to be responsible lenders. At the heart of this best practice is effective case management, pulling together all available information about individual customers and making the best use of this data to ensure a comprehensive single view of the customer at every interaction.

In our digital age, 121s with customers are increasingly rare. Sometimes, the first 121 interaction a customer has with a business will be a complaint. That’s why it’s vital that complaints are dealt with quickly and effectively, especially if you’re dealing with a customer who’s been previously identified as vulnerable or is experiencing temporary vulnerability. Having access to all the right information and the right tools that empower employees to take the best course of action for the customer, is paramount

Standard practice

As with all financial services organisations, understanding customer needs should be the number one priority for subprime lenders, with a focus on both customer service excellence and responsible lending. For those subprime businesses with a real commitment to social responsibility, they should already have the processes and procedures in place to ensure vulnerable customers are treated fairly and responsibly. It’s only by adhering to these sound principles that subprime organisations can hope to be in it for the long haul, putting the right infrastructure in place today for the challenges of tomorrow and beyond.

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