Callcredit Blog

Time for ‘prudence’ to make a come-back?

Collections & Recoveries

As part of our Real World Thinking initiative, we look at how fears of another unsecured personal debt bubble are forcing organisations to focus on the income & expenditure processes they already have in place for customers struggling with their repayments.

Alex Brazier, Director of Financial Stability at the Bank of England, couldn’t have been clearer when he warned banks, credit card companies and car loan providers that they risk fresh action against reckless lending.

“Household debt – like most things that are good in moderation – can be dangerous in excess. Dangerous to borrowers, lenders and, most importantly from our perspective, everyone else in the economy…

“…Lending standards can go from responsible to reckless very quickly. The sorry fact is that as lenders think the risks they face are falling, the risks they – and the wider economy – face are actually growing.”

The increased amount of money which has been borrowed on ‘easy’ terms over the past year, as well as a number of ‘classic signs’ which show lenders believe risks are lower (following a prolonged period of good economic performance and low losses on loans) are causing Threadneedle Street alarm.

However, April’s Financial Conduct Authority (FCA) report on the credit card market estimates 3.3 million people in the UK are saddled with “minimal repayments…being outweighed by interest and charges”.

So, credit card companies need to come up with repayment plans which have a realistic chance of success; and have processes to help people in differing financial situations. Having a strategy in place which is tailored to the individual, and offer forbearance or education as necessary, would mitigate Brazier’s view that industries are not doing enough to address the issue of unsecured lending.

Balancing commerciality and responsibility
Managing personal debt is all about balance. Businesses need to realise commercial objectives, whilst protecting vulnerable customers and reducing persistent personal debt at the same time.

James Connolly, Head of Debt and Utilities, Callcredit Information Group, has already written about whether a strategy based on a holistic view of a customer’s I&E, and early arrears detection, is the future for collections.

But what can teams working in the Collections space do right now to immediately improve their strategies?

Here are three interdependent considerations which can help optimise your approach:

1 Compliance, compliance, compliance
No approach can work unless your team are behaving in an appropriate and compliant manner outlined by the FCA report.

Applying objective, uniform solutions which ensure all your customers are treated in exactly the same way every time is a key methodology in supporting your Treating Customers Fairly aims.

2 Customer first and foremost
Uniform solutions do not necessarily mean a dogmatic ‘computer says no’ approach.

It’s vital that everyone working in Collections is customer-centric – engaging with the customer, understanding the financial challenges and offering practical, reasonable solutions.

After all, if customers have a better understanding of the debt solutions available to them, and feel empowered to have greater control of their debt situation, the stigma of the process will be reduced and the likelihood of establishing an affordable, sustainable repayment arrangement increased.

Ultimately, this approach will increase compliance and positively influence consumer opinion about your brand.

3 Getting data right
There’s a real challenge in collecting truly accurate I&E data.

It can be time-consuming and expensive to precisely validate a customer’s real financial position. Different customers have different preferred I&E journeys, and agreeing a mutually acceptable repayment plan can be a delicate and lengthy process.

All these challenges make it harder to deliver clear-cut, definitive, informed decisions – which ultimately reduces the ratio of existing debt recovered.

So, collecting and interpreting the right data effectively is crucial to the success of any process.

And at Callcredit, we have developed the Income and Expenditure Hub to improve the experience for any creditor.

Customer I&E is recorded quickly and easily through a web-based portal. Information is then validated through Callcredit’s data verification tools; with creditors both able to assess a customer’s ability to pay and use this as a platform to agree a mutually acceptable repayment plan.

The customer experience is improved. The probability of reclaiming outstanding debt is increased. A better solution all round.

To receive an exclusive copy of our Real World Thinking report when it launches in September, leave us your details here.

Article by Alistair Kay

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