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LSB launches new Standards of Lending Practice for business customers

29 March 2017

The Lending Standards Board (LSB) has published new Standards of Lending Practice for business customers, its voluntary code of practice covering lending to small business customers. The publication of these Standards of Lending Practice (the Business Standards) follows the LSB's review of the current Lending Code.

The Lending Code has already been replaced by Standards of Lending Practice for personal customers, which have applied since 1 October 2016. The Code will continue to apply for business customers until the Business Standards come into effect on 1 July this year. Until then, firms need to continue to comply with the applicable provisions in the Lending Code.

 

What's the main point to note?

The protections set out in the Business Standards have been extended from micro-enterprise customers (under the current Code) to include small business customers with a turnover of up to £6.5m as long as they do not have a complex ownership structure (such as businesses with overseas or layered ownership structures). This means that, where firms are lending to partnerships or limited liability companies with turnovers of less than the £6.5m threshold, the Standards will apply even if most of the legal and regulatory rules governing consumer credit do not.

 

What are the main areas covered in the Business Standards?

           Product information

           Product sale

           Declined applications

           Product execution

           Credit monitoring

           Financial difficulty

           Portfolio management

           Vulnerability

Governance and oversight is also covered; the Business Standards set out a framework which firms should put in place to make sure the Business Standards are implemented and operate effectively.

Each section sets out a 'customer outcome' with an overall statement of how firms will achieve that outcome. This is accompanied by a more detailed set of standards to enable firms to demonstrate how they achieve the required outcome. The idea is to allow more flexibility to reach the right result in light of each customer's individual circumstances. The LSB highlights the fact that this is a change from the current approach under the Lending Code, where the focus is more on compliance with relevant provisions than on customer outcomes.

 

What products do the Business Standards cover?

The product scope for the Business Standards is the same as for the existing Lending Code, namely:

  • Loans
  • Credit cards
  • Overdrafts
  • Chargecards

However, there are plans to extend the scope to encompass asset finance, P2P lending and other forms of lending offered to business customers in due course.

 

Who will monitor compliance with the Business Standards?

The Business Standards will be independently monitored and enforced by the LSB.  Similarly to the Lending Code, the Business Standards are being sponsored by two industry trade bodies, the BBA and The UK Cards Association.

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