Last week, following its year-long review of the payday lending sector, the OFT announced it is giving the leading 50 payday lenders, accounting for 90 per cent of the payday market, 12 weeks to change their business practices or risk losing their licences. While much of the report (which makes for salutary reading) is concerned with lending practices, one of the key areas of concern highlighted was the use of "aggressive debt collection practices" and "not treating borrowers in financial difficulty with forbearance".
It would be easy to dismiss this as a problem associated with this niche of the lending market only, but it can be seen as pertinent to our entire industry. In its report, the OFT acknowledges that the complaints relating to debt collection practices only related to a small minority of firms - yet they accounted for a significant share of the market. Regardless of market share, it is clear the poor practices of a few can impact the reputation an entire industry.
The majority of businesses in this industry would never knowingly have poor or unfair practices and policies, but it remains feasible that insensitive treatment could occur in error because information still doesn’t flow effectively within and between creditors, debt collection agencies and debt puchasers. Even if you have the best front-line practices you cannot guarantee fairness if you do not have the full information about every interaction with your customer (what conversations have taken place already? Are other agencies involved? Why is the individual in debt?). Today, the technology is available to facilitate this flow, ending unnecessary recycling of accounts and enabling informed and effective contact.
Economic Secretary to the Treasury, Sajid Javid commented in reference to the new powers and agenda of the FCA that, "bad practice will have no place in the consumer credit marketplace." I think it's safe to say that means credit in its fullest sense: collections as well as lending. We, as an industry, are being held to higher principles of fair treatment than ever before so it’s time to take a proactive approach and take control.
The bottom line is, not only are bad collection practices unfair and unnecessary, they are also inefficient and costly.
By Kirsty Macpherson, TDX Group