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Consumer Credit ‘A ticking time bomb’
As economic indicators falter, the UK is facing a signifi cant rise in debt, and the collections industry needs to react with the best technology
James O’Hare Managing director, Link UK james.ohare @
linkmobility.com
Infl ation is now at a 13 year high in the UK and is expected to rise above 10% by the end of the year. Some commentators have said that the latest intervention on interest rates by the Bank of England could put a detrimental squeeze on household bills that lasts for years not months.
Evidence this will be the case is mounting.
In April, chief executives from four of the big six energy fi rms told a Business Energy and Industry Strategy (BEIS) committee they expect 30%-40% of people will be in fuel poverty by October; EDF has already seen a 40% rise in customer calls from people worried about debt. History books tell us that the burden of managing and collecting debt falls to the fi nancial services sector. It seems inevitable that it will once again have to manage the pressure of dealing with vulnerable households unless more is done to intervene and reverse the current trajectory of energy prices and food costs. The situation is distressing, and not limited
to just the energy crisis. It is further fuelled by changing consumer habits such as an increased readiness to use the latest in ‘buy now pay later’ models. These make it easy to spread payments
with the click of a button at the check-out; consumers often take up the off er without really thinking through the long-term consequences on their budget. Understanding the ticking time bomb, the
fi nancial services industry is starting to plan how it will manage and collect debt on behalf of brands, while also remaining sensitive to the situation people will fi nd themselves in. At the heart of the debate, especially in
this unprecedented scenario, is the question of ethics.
18 It takes the view that it should help people
It takes the view that it should help people avoid debt fi rst, and then help people who are behind on payments in a way that’s not stressful. Within two years of the programme launch, it had already raised £798,000 in income it would have usually written off or spent taking people to court
For some time, thanks to the work of
groups like the Citizens Advice Bureau and mental-health charities, there has been a recognition at government level, that some people get into diffi culties, often through no fault of their own. In response, the government has turned its attention to fairer and more ethical debt collection approaches. Most recently it ran a call for evidence
consultation ‘Fairness in government debt management’, recognising that covid-19 would bring new dynamics to debt collection. This followed new rules for enforcement
agents in 2014; guidance for fairer government debt practice in 2017, and a ‘Breathing Space’ scheme in 2021, providing more time for people in diffi culties to resolve their debt situation. Notable examples of policy in action
include Hammersmith and Fulham council, which has led the way on ethical practices in a bid to not only bring a human empathetic side to addressing debt, but also avoid the costly process of court proceedings.
www.CCRMagazine.com
avoid debt fi rst, and then help people who are behind on payments in a way that is not stressful. Within two years of the programme launch, it had already raised £798,000 in income it would have usually written off or spent taking people to court. Bringing such structure to ethical practices,
is now being replicated by the Financial Conduct Authority, in the form of its 2021 guidance on the expectation of the fair treatment of vulnerable customers. At the time of launch, it said that around 2.7 million people show “characteristics of vulnerability, including poor health, experience of negative life events, low fi nancial resilience and low capability”. Helped by technology, brands are not only using tech to analyse who in their customer base could fall into these categories, but also communicate with them in a more empathetic human way. For example, a large European Banking and Insurance provider we have worked with has reviewed the type of communication it sends to people to remind them a loan repayment is due, and also the tone of voice used. It found that switching from email to a more friendly SMS increased payment rates by 10%, as people were more likely to open and act upon the message by following a link to pay or request help with payment schedules. This example demonstrates the value of
well-designed customer experience (CX). Where ethics and a personable tone of voice are built into business-as-usual CX processes, customers can be guided through interactions, and feel supported. There is also a value to brand equity; UK Customer Satisfaction Index shows that 60% of consumers will choose a brand on ethical grounds.
May 2022
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