The CSA represents 90% of the UK debt collection and debt purchase industry and has over 400 members, holding up to £60bn for collection at any one time.  Compliance with the Code of Practice is mandatory for members. The aim is to build confidence in debt collection by making the entire process clear, easy to understand and less stressful for those involved. The Code therefore covers activities common to all members such as fair and clear communication, dealing with vulnerable customers, complaints and data protection.  It also looks at more specialist areas including tracing, debt sale and debt purchase, field collections and litigation.

Link Financial were pioneers in taking a compliant and ethical approach to business, for example, since the foundation of the company we have always referred to our “customers” as such and put their interests at the centre of our activities. Treating Customers Fairly was therefore nothing new to us when the FCA introduced the concept and others in our industry began to follow our lead.

The revised Code of Practice is effective from January 2018 and continues to promote best practice in the collections industry in line with new regulations and standards from industry regulators. It contains greater detail about the potentially vulnerable situations which customers may be in, and there are updates to take into account changing data protection regulations with the upcoming GDPR, and the increased importance of  due diligence when purchasing debt.

We are proud not only to be early members of this trade association but to continue to demonstrate its ethos – strong financial stability, employing people with the right skills and training (2017 saw Link win the national CAI award for the third consecutive year) and, most importantly, working with customers, recognising their vulnerabilities and always treating them with respect in a professional and understanding way.

The post The CSA revised Code of Practice appeared first on Link Financial.

Participants from the event included:

Andrew Hughes, Head of Credit Management, Severn Trent
Andy LaPointe, Public Affairs Manager, QuickQuid (AL)
Anthony Sharp, Proprietor, Anthony Sharp Associates
Chris Ball, Head of Collections and Recoveries, Nationwide Building Society (CB)
Connie Smith, Head of Collections, HSBC
Frank Horvath, Managing Director, Link Financial Outsourcing (FH)
Ian Potter, Collections Operations Lead, AVIVA
Jan Smith, External Affairs Director, Callcredit (JS)
Joe Gash, Head Of Collections, Shop Direct Financial Services
John Preston, Head of Billing, collections, risk and assurance, Tesco Mobile (JP)
Karl Wise, Group Operations Strategy & Commercial Director, Virgin Money (KW)
Lucy Swannell, Senior Recoveries Manager, NewDay (LS)
Pradip Raval, Global Chief Financial Officer, KGB (PR)
Richard Wilson, Chief Credit Officer, OneSavings Bank & Kent Reliance (RW)
Saima Hansraj, Compliance Manager, Lending Standards Board (SH)
Stuart Sykes, Group Head Customer Operations & Debt Recovery, MyJar (SS)

Do you have the appropriate data that you need to guide and improve your collections processes?

JS: There is always room for more data; the better data and
analytics you have, the better decisions you can make. One of our challenges, as an industry, is that we would always like access to data from wider sources, such as government data. There are also some interesting new sources, like big data, which are being used to help consumers with thinner credit files and a lot of that is proving as predictive as traditional credit data.

SS: We use a lot of front-end scoring, from when we make a
lending decision, and put that into our back-end collections for
decisions on issues like propensity to pay. That gives us an ability to target better.

CB: I do not think that you ever have enough data. Data is like
management information, however much you have, you always want more, because you get a certain level of insight which allows you to think that it would be good to be able to drill down even further. I do think we have sufficient data, but it is traditional risk data, which is very good, but it is interesting to look at what is the best data for us in a customer-outcomes environment, which is about how we can make sure that the plans that we set are affordable and sustainable for customers. For example, instead of having a manual income-and-expenditure (I&E) statement, is there data that can be used to validate it? So I think that Collections’ data requirements are changing and will continue to do so.

RW: I do not think that it is a question of the usefulness of the data that we have – we all have high quality data – it is how people’s spending dynamics are changing. The social-media point is interesting: will it change the dynamics of how we use credit scoring?

Are some of the ways that we have traditionally measured scoring right for outcomes and propensity in the future?

PR: There is also a question of whether the information providers are themselves receiving data in a timely manner, from borrowers and lenders, because one of the issues that we are currently wrestling with is how we get information, from our debt collection agencies and debt management companies, so that we know what the current situation is with our customers.

JS: We worked with clients for a long time to develop our product because all the indications coming from the regulator were that they would require real-time data sharing. It was mentioned in all their CONC consultations. We now provide it to the short-term sector and have had interest from retail and monoline credit providers, but the Financial Conduct Authority (FCA) appears to be taking a monitoring position over the coming months so there is less of a focus.
For lenders, where you have a product that requires a monthly
payment, you would not necessarily need a daily update. Technologically, new entrants have systems which are more recent and can work with the daily updates, for older legacy systems it can be a five or 10-year IT project just to change it.

AL: Over the past 18 months, I have seen the Financial Conduct Authority go from being very hawkish on universal real-time data, to now backing off. The issue no longer seems a priority.

RW: It is also a question of cost – committing to a regular daily feed is not without cost, so lenders and collectors will decide whether they need a daily feed or whether something less regular is fine for
them.

FH: Perhaps this is one of the reasons why more companies are starting to use social media data – it is free and can provide a different view of the customer. Whilst Link does not use social-media data, there are some companies that will take their standard information from a reference agency, that they need in order to do their fraud, identity and basic underwriting checks, but for the additional information, they will pull data from social-media sources.

Are consumers now more aware of the need to give their creditors and collectors information?

LS: I think that some customers assume that companies have access to more information than we actually do. For example, there have been customers who believed that we had access to their health records and, therefore, they did not  recognise the need to inform us of any related changes in circumstances that may impact their financial situation.
So, there is still a need for some education on the types of information companies, in the sector, actually have access to but, overall, customers are much more understanding of the need to provide detailed information on their income and outgoings.

SH: The challenge for firms that pre-populate I&Es with information from various internal or external data sources, for example credit reference agency data, is whether that information is still accurate. Whilst this does not negate the need for a proper conversation with the customer to assist in the validation of that information, it can work as a useful starting point for discussions. It is a question of trust – customers know they need to disclose their financials but they also want to know what it will be used for. It is important that creditors explain this clearly, whilst also reassuring the customer that any information gleaned will be used to assist their own understanding of the customer’s circumstance, with a view to setting an arrangement that is both affordable and sustainable for the customer.

CB: The conversation with a customer would be a lot easier if you can have it with some information that is pre-filled because you can say ‘look, we think that you are spending this’ or ‘last time we spoke you were spending this amount’ rather than having to go through every I&E from scratch. The problem is that the customers who are in this situation can be having this same conversation 10 or 12 times with different lenders, and we need to do something about that because that is not the best customer outcome or experience.

Are consumers more aware of their rights in regards to data protection today?

RW: The people who want to engage will engage with you and will go through the process and fill out the form. It is a question of those who will not do so – how do we get those borrowers to engage?

SS: The technology that we have today does help with this. I can see that an e-mail has been received, exactly when it has been opened, and whether they clicked on the link to look at the I&E. Everything is in my hands and I can tailor my strategy, maybe sending a text a certain number of days later saying ‘we saw that you opened the e-mail and the payment is now due’.

What are the key pieces of technology that are playing an increasing part in the industry?

PR: We want to provide our customers with multiple communication channels – whichever way they want us to communicate with them. We find that people change their habits, so today perhaps e-mails are convenient for them, while tomorrow, for whatever reason, they might only want us to use the text medium. We will communicate with them using any form that they want.

JP: We have the challenge that, of course, the way that we communicate with all our customers is through their mobile phone and then, when they are in debt, one of the earliest things that we do is switch it off. We do go through processes whereby we allow people to receive inbound calls, but the ultimate sanction is to cut them off and then you have lost that technology.

Find out more about CCR Magazine.

The post Data, technology, and the future of collections appeared first on Link Financial.

There’s no denying that affordability is one of the pre-eminent issues in financial services: it forms the main pillar of the FCA’s investigation into the credit card market, has been a defining issue in the debate over short term lending, and is central to the development of credit information resources across Europe.

In the world of collections, it is a dominant concern – the industry’s focus on conduct and customer outcomes has made gaining a correct view of affordability essential. What’s more, assessment has become perhaps the single most time consuming element of the collections process, and so has a critical effect on commercial performance.

With conduct standards still evolving under the FCA regime, and commercial pressures shifting at a similar pace, it’s safe to say that affordability checking will remain a hot topic. But what can we say for sure about how collections businesses will approach the issue in future?

1. One way or another, there has to be an Income & Expenditure check

As in any industry, the vast majority of a collections business’ customers are honest people – they want to repay their debts, and are keen to tell you the truth in order to get to a fair outcome. When dealing with people some time after an initial default, like Link often does, their circumstances may have changed, sometimes for the better, sometimes for the worse. Some Vulnerable customers are easy to identify and treat appropriately; others will only be identified through the use of an affordability checking tool. A good system will allow the company and customer to reach a fair outcome, which is generally done by setting an affordable and sustainable plan for those customers who can afford to pay something and that way, help them to get out of debt. It should also identify the outliers – those who will try and paint too bright a picture of their finances in order to get a debt paid off more quickly, or will exaggerate expenses to avoid paying. In these situations, the more customer data the agent has access to, the more likely an anomaly will be spotted. And as such, an affordability checking tool of one kind or another is essential. At the moment, an Income & Expenditure (I&E) check by telephone (or better still assisted by detailed forms filled out by the customer), supplemented by data held by Credit Reference Agencies, is the best tool available. While there is an argument over how fit for purpose I&E is in its current form, it’s a good place to start from.

2. I&E can sometimes help prevent the customer overpaying

As stated above, I&E isn’t about “catching out” customers who can afford to pay – in many cases, the check may indicate one thing, yet the customer is more optimistic – maybe they are confident of getting more work in the near future, or overtime, and are insisting on paying back a certain amount each month. Naturally, it’s hard to turn those funds away, and even harder to go against what the customer wants, but it’s important to remember that affordability checking cuts both ways, and can be a prompt for forbearance. Of course, compromises can be reached: maybe, in the case of a customer whose stated desire to repay overshoots what an I&E check recommends, no payment could be taken, with an agreement to speak again in the future and see if circumstances have improved before setting an arrangement in place.

3. Nevertheless, sometimes a completed I&E form should be taken as the start of a journey and not the end

An I&E check can alert an agent to the fact that a customer’s circumstances may be different to those presented initially, but it should not be a substitute for intuition or human judgement. Sometimes, an experienced agent will know that an arrangement isn’t sustainable, through picking up on clues in conversation with a customer that an automated process would miss or key words that would indicate the need to signpost the account for Free Money Advice. If an agent works through an entirely automated process with no recourse to their own judgement, there is a danger of a “Computer Says Yes” situation, where a customer is signed up to an unsuitable plan based on meeting a tick-list. So long as everything is clear and documented, there is nothing to fear in allowing human questioning and judgement into the affordability checking process.

4. I&E isn’t always convenient for customers

It’s not practical or desirable to undertake a full I&E at every instance of customer contact. For example, when making first contact with a customer by telephone, an attempt to conduct a full I&E interview may not be well-received. Repetition is not in a customer’s best interest, either. While it is important to keep track of a person’s changing circumstances, it’s still important to choose the right moment to conduct an I&E interview and do so thoroughly, to avoid frustration for all concerned. Giving the customer time to prepare often produces a better result, but some customers still refuse. Again, documenting what has happened and why is key.

5. Affordability doesn’t mean the minimum payment possible

Treating Customers Fairly does not mean always taking the most lenient approach possible – this is a fundamental misconception. As mentioned already, most people in debt want to get out of it and pay off all their creditors in a fair manner so that debts are cleared. It’s not fair on them to keep them there longer than they need to be. One criticism historically levelled at debt management companies is centred around the tendency to put customers on tiny monthly payments solely to keep them in debt management plans for longer and extract higher fees.

6. There is very little industry consensus on the calculation of affordable payments

Even once a company has accurate I&E information on a customer, or is using a standard approach like the Common Financial Statement, there is no rulebook regarding the appropriate level at which to set repayments. For example, how much “wriggle room” does a customer need above fixed expenditure? How much money should be left for unexpected expenses? Should this be calculated via a fixed or percentage amount? Indeed, what counts as income – do benefits count, and if so, which ones? What about temporary versus permanent income? Every organisation will have its own view on these issues, and it makes an industry-wide approach difficult.

7. Social and political change will alter the way we look at income

As society evolves, there are huge changes to the structure of peoples’ incomes, and this should prompt commensurate change in the way we look at incomes. Changes to benefits and tax credits, especially coming ahead of the minimum wage increase, should be on everyone’s radar. Furthermore, the increasing prevalence of “zero hour” contracts, while not the social evil some people make them out to be, is certainly having an impact on income patterns. Not everyone has a fixed salary every month these days, and that means there will often be a level of regular renegotiation in customer accounts – but the more thorough the original assessment, the more flexibility the customer should have to absorb month-to-month changes.

8. Affordability judgements may be affected by changes in the balance of commerciality against prudence

While at the moment, the advent of the FCA regulation of consumer credit has made conduct and forbearance the singular priority for many lenders, it’s not unrealistic to suggest the pendulum might begin swinging towards a more commercial stance as the economy improves. Basel III, and the UK’s other banking regulator the PRA, will demand prudence from creditors, maybe leading (among other things) to a different stance on recovering debts. While there is no danger of the collections industry returning to the cash-driven model of years gone by, it is more than possible that the culture will continue to evolve.

9. Development of vulnerable customer strategies will help

Development of the industry’s ability to identify and look after vulnerable customers will do a lot for best practice in affordability assessment for the wider population. If collections businesses are able to continue the progress they have made towards offering breathing space, signposting debt advice and providing specialist support to vulnerable customers, they will be left to address those customers who have only temporary problems, and to whom a short-to-medium term repayment solution is viable.

10. Financial education is vital

Finally, it can’t be ignored that affordability assessment would be much easier if customers had a more accurate understanding of it – and indeed financial management in general – themselves. Link itself regularly contributes to the Money Charity, helping to fund financial management workshops which, to date, have reached over 90,000 young people and adults. More needs to be done in schools: the national curriculum should teach about simple budgeting, bank accounts, direct debits, credit cards, credit scoring, and the implications of not paying off debts. In the collections process, we try to explain things to customers as well as we can. But that is hard to achieve on a phone call – and especially on a call that customers often find so uncomfortable. For most people, a call discussing debt is less welcome than a trip to the dentist, and to expect someone to be attentive to the finer points of financial management through all of that is a lot to ask for.

The post A suit that fits – 10 things you should know about affordability appeared first on Link Financial.

If you’ve already taken the decision to look for a loan servicing partner, here are some factors to consider in your search:

Industry experience:

Whilst the loan servicing process is fairly similar across products, specialist experience and capabilities in asset finance is an advantage worth seeking out. Searching for experience in managing and servicing loans tied to assets will help you to determine which company has enough expertise to handle your portfolio.

A good servicer within asset finance should also have relationships with relevant third parties such as repossession agents and auctioneers that can dispose of recovered assets effectively and minimise any losses.

Reputation & track record:

Remember that a servicing partner should represent your company in a responsible and professional manner as well as also maintaining and protecting your brand. Whilst your organisation will want to derive maximum return from your chosen partner, in the case of loan servicing, this needs careful consideration. Price is an important factor but experience, quality of service and performance should also be high on the agenda. Giving your business to the lowest bidder can lead to poor results or worse, damage to your own reputation which can be costly to restore.

Invest the time to dig deeper into an servicer’s track record and accreditations. A reputable company will not only have an established management team, but will have been in the market long enough to have proven its worth – years of experience in the industry, success rates, strong industry ratings and feedback from past clients. Take a visit to its premises and meet key people to assist with your decision. In addition, understanding training programmes can help confirm that compliance and operational training is up to scratch.

Technology:

Technology has allowed the industry access to square the circle of simultaneously increasing cost efficiency and customer service. A sound and established servicer will pride itself on its loan management platform and a true expert will have a system that allows it to store details of multi asset/multi loan agreements and interrogate and report on the data at customer and asset/loan level.

Finally, data protection should be considered carefully. A breach can result in severe consequences so ensure you closely examine the security policies and compliance of your servicer in this area.

Scale & capability:

Servicing partners range in size from small local companies to large multinational firms and one size certainly doesn’t fit all. The scale of your chosen partner should reflect that of your company; if you’re a smaller organisation, then a provider with strong local contacts will be able to handle your accounts just fine. However, if on the other hand you handle nationwide or international assets, look for a servicer with expertise across the UK and other countries where you do business.

Value added services:

Rather than searching for a pure servicing firm, find one that has end to end capabilities including origination, servicing, collections, trace/asset investigation, litigation and debt purchase. For example, at some point you may decide that you’d prefer to sell the portfolio or part of it. It is therefore advantageous to use a servicer that has the capability to purchase portfolios as well as service them under a white label brand as required.

These “value adds” are often a signal of an outsourcer’s experience, commitment to the industry, and ability to provide quality service.

The post What should an asset finance provider look for in a loan servicer? appeared first on Link Financial.