Tuesday, 21 January 2014

Where next for compliance?

As we all know, the compliance landscape for debt recovery has changed dramatically over the past decade.  Regulators have gradually been stepping up the expectations of our industry, principally since the Office of Fair Trading’s (OFT) first release of debt collection guidelines in 2003.

Initially the industry tried to carry on with existing practices and just tick the compliance boxes.  In recent years though, there has been a shift in thought, with many in the industry genuinely embracing the intent of the regulators to treat indebted customers better.  

My own view is that many DCAs have now improved their contact approach with customers to the point where the majority of calls and interactions with that DCA are dealt with well.  For example, when call listening it’s rare now to hear aggressive agents, railroading of the customer and other such practices. In a nutshell, whilst there are still gaps, many DCAs are now doing a pretty good job with the debt they are given.  

So, if this is true, where does the regulator go next?  Or do they even need to go anywhere next? To answer this, the question needs reframing from “are collections operations doing as good a job as they can” to “is there any remaining material customer detriment?”

I believe there is, and one example is the blunt instrument of recycling. Recycling non-payers from first placement DCA to next placement is industry standard practice and, in itself, is not inappropriate.

The problem comes with the way recycling operates in our industry. The standard practice is to recycle after a set number of days (typically between 90 and 180) with no payment. The assumption being that if a consumer has not paid within this timeframe, they are not going to pay and the agency has no reason to maintain interactions with that consumer.

The truth is often more nuanced. What happens if the DCA has just managed to achieve a first right party contact (RPC) with that customer, or just reached a payment arrangement, only to have the account whipped away from them by the arbitrary application of the placement expiry?  True, agencies can request that an account is not closed, or request information from the previous agency.   But how often does this really happen?

In addition, when accounts are recycled, the quality of information passed from the first agency to the second is often poor. The vast majority of accounts are returned simply as ‘efforts exhausted’ or ‘unable to collect.  In reality, the first DCA has much more information that could help the second agency to have a more empathetic and informed conversation with the customer. For instance, has a conversation with the customer taken place?  Was an arrangement reached but broken? Did the customer say they were in financial difficulty?  Does the customer have certain special circumstances that are understood?  We have all heard the impacts of this when we listen to second and third placement calls; ‘I’ve explained all this to the last company’, ‘what about the issues I raised over 2 months ago’, and other similar interactions with customers.

It is my belief that one area regulators will start to explore next (to some degree they have already started) is the transition of accounts between parties, including the originating creditor.  We need to understand more about how this transition impacts the customer, and the quality of information that is passed between those parties to ensure that, even though the debt is changing hands, the customer at least feels like some kind of joined-up thinking is going on.

Taking a more holistic view, I believe it won’t just be good enough for each party to do the best job they can for the customer within their part of the process. What will matter next is the overall customer treatment from cradle to grave. This will require originating creditors to work with their vendor network to ensure the customer experience is fluid and connected through all stages, placements and vendors.  Key to this will be provision of more and accurate information as debts are passed on through each stage in the collections and recoveries process.  

To summarise, I see two likely directions for future regulatory oversight:
  • The Financial Conduct Authority (FCA) regulatory oversight is likely to be more rigorous in terms of identifying discrepancies versus the existing requirements.
  • New requirements will look at the cradle-to-grave experience, particularly information continuity between parties dealing with the customer.

By Rob Barrett, Director of Debt Recovery, TDX Group

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