CCR-PUBLICSECTOR CCR-PS


COLLECTIONS AGENCIES OR DEBT ADVICE AGENCIES?


DCA or DAA? New FCA regulation means that the line between collections and debt advice is becoming blurred By Mark Firth


TCF and new compliance procedures


are being introduced and implemented throughout the industry, and the recent reporting of the FCA’s intentions to assess how debt collection agencies are remunerated – and, indeed, how the payment of incentives and bonuses to their employees can modify behaviour and results – will result in a major sea-change in the overall collections approach.


Assessing affordability The introduction of a customer affordability process is not only essential at the initial lending stage, but should also be incorporated fully at the default and collection stage. The uses of


debt-relief order, or even a properly constructed and managed debt plan, can resolve these issues, but to enter into any of these agreements requires a complete understanding of the customer’s financial position. Debt collection agencies continue to


be measured, by the clients, primarily on recovery rates, with some recent concession towards complaint levels, and, as such, their focus of attention is still on the ability of customers to make an immediate payment or short-term arrangement. Their employees are specifically trained in recovery techniques and in maximising the benefit for their client, with little consideration for the overall indebtedness


Perhaps the question we should be asking is: does the average customer have a clear understanding of what their choices are?


income-and-expenditure forms has long been the only way to identify what is affordable, but, as we know, these are often incomplete and unsubstantiated. Should we not be going further than this? Perhaps the question we should be


asking is: does the average customer have a clear understanding of what their choices are? Saddled with increasing debts, many see the payment of low-value monthly instalments to a multitude of creditors as the easiest way to satisfy any demands for payment. Keeping their creditors at bay, rather than having a clear plan of how they can best reduce their debt over a fixed time period without incurring any additional interest or charges, and preventing the additional worries of legal action. The potential to reduce the lifecycle of the debt through an IVA, trust deed,


June 2015


of the customer, or, indeed, in some cases, what would be the best alternative.


Appropriate advice So, are the objectives of securing the best outcome for the client, whilst providing the most appropriate advice to the customer, mutually exclusive? Not if a full affordability assessment takes place at an early stage in the collections cycle! When the FCA arranges to visit,


firms will need to be able to demonstrate the appropriateness of their affordability assessment and show that the assessment resulted in the right outcome for the customer. So how will they achieve this? The use of properly trained customer


advisors, who can take the time to assess the customer’s financial position, understand the drivers behind non-


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payment and the state of mind of the customer and then recommend a solution that is appropriate, is the way forward. Creditors need to ensure that an


interim stage is introduced in to the collection cycle, either prior to any third- party collection efforts or immediately after an initial unresolved contact that is focussed solely on achieving an accurate and robust affordability assessment. By doing so they will ensure that: t TCF principles are complied with. t The customer receives professional and independent advice. t The ability of the customer to repay the account is determined. t Any vulnerability is identified. t Repayments can be properly forecasted.


Conclusion According to Christopher Woolard, director of strategy and competition at the FCA: “If we are going to build a sustainable and healthy credit market for the future, that works in the interests of consumers and firms with sustainable business models, getting affordability assessments right could be the most important factor in helping people avoid unmanageable debt.” The use of a third-party company


that specialises in affordability assessments will allow both creditors and debt collection agencies to focus on their own areas of expertise whilst complying with the FCA requirements and providing the best outcome for the customer. CCR-PS


Mark Firth is client services director at Turndebtaround E-mail: mfirth@turndebtaround.com


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