Later Life Lending And Capacity Compliance Considerations
The importance and increasing dependence on older family members has been well documented in recent years. In fact, according to research from Legal & General, 27% of UK buyers were reliant on friends and family to help secure their deposit money in 2018.
This percentage equates to a mammoth 316,600 home buyers, an increase of 6% from the 298,300 home buyers that were helped by family in 2017.
Additionally, this lending will exceed £6billion in 2018. Nearly half of over 55s are open to equity release loans as a way of freeing up the cash to help loved ones, with an increase from 3% to 4% of equity release already being used to help a loved one purchase their home.
Whilst a wide variety of loans and mortgages are available to over 55s that help to fund their adult children’s desire to acquire property, the amount of applications from vulnerable applicants or those lacking capacity is likely to increase.
When legal service professionals are increasingly instructed by older people to work on important and large financial matters, it becomes a lot more important for the firm or legal service provider to consider the clients capacity.
Kate Burt, Senior Compliance Manager at Legal Eye, said: “From a regulatory perspective, both individuals and firms have a duty to towards vulnerable clients pursuant to The Equality Act 2010, The Mental Capacity Act and for SRA regulated solicitors, the Statement of Competence. Lawyers must also be alert to their duties under the professional codes of their regulators.
“It is important that a firm has a comprehensive vulnerable client’s policy and procedure in place. This should set out the firm’s approach to dealing with vulnerable clients. There is no set definition of what a ‘vulnerable client’ is and as such it important that the firm gives guidance to personnel of what to look for and how to respond.
“As soon as a firm becomes aware that a client is vulnerable or suffering from mental health issues or is otherwise incapacitated, the issue should be immediately escalated to the individual of appropriate seniority to determine the appropriate steps to take.
“Vulnerability can arise from a variety of situations or circumstances throughout a person’s life. It could be as a result of bereavement or as a result of suffering mental or physical abuse, undue pressure being placed upon the individual, financial pressures or problems with hearing, sight and mobility or mental issues, it could also simply be due to the person’s age.
“Firms may be informed of an issue directly by the client, have concerns of their own or be informed by another party such as a family member. Often it is support staff who have first contact with a new or prospective client and there maybe flags of a potential issue within that first enquiry.
“In such cases it is vital that these issues are identified as early as possible and that the person is treated with sensitivity. Vulnerability can arise at any stage in the matter life cycle and the risk needs to be assessed throughout the matter.
“As with any policy or procedure a firm has, they are only as good as the extent to which they are adhered to. They should be reviewed at least annually and updated where necessary. Personnel should receive regular training to ensure that the firm is not only fulfilling their regulatory duties but also safeguarding the reputation of the firm.
“Futhermore, firms should have a comprehensive policy and procedure in place for dealing with vulnerable clients which should include reporting lines should a vulnerability be identified.
“All personnel should be familiar with the firm’s policy and procedure and receive regular training on how to identify and meet the needs of vulnerable clients. A cost-effective way to ensure all staff are trained appropriately could a training webinar platform which tests understanding.
“Consider a proforma checklist on the file cover to be completed by the practitioner to ensure that key considerations of vulnerability, including mental capacity have been considered.
“Comprehensive notes recording relevant facts and key issues should be kept on the client’s file. If an issue is identified this should be set out and fully addressed in the note.
“A record should be kept of anyone the client has asked to be present with them (or that they were seen alone).
“If advice is declined in relation to a client either being accompanied or seen alone due to a particular suspected vulnerability, that advice should be followed up in writing explaining the advice and addressing the practitioner’s concerns.”
As the Bank of Mum and Dad continues to increase and more people are taking out large loans to fund either their later life or helping their adult children, it is becoming increasingly important for legal service professionals to consider the ways they monitor and record capacity concerns in the future.
Does your firm have a comprehensive vulnerable client’s policy? How do you record concerns about issues surrounding capacity or vulnerable people?