Compliant? Prove it.

The debt sale market in the UK is entering a new phase as sellers and purchasers all come under the regulation of the FCA. Are you ready?

There have been many regulatory changes over the years. However, the wave of change to come under the regulation of the FCA is set to be the biggest so far for our industry.

Historically, before and following a sale, there was limited interaction between seller and purchaser. The contract stated what the purchaser could and couldn’t do and it was left at that. Over time, sellers – banks in particular – have stepped up the level of oversight. It is now common for audits before and after a sale, as creditors, either for regulatory or reputational reasons, maintain some ownership of the customer post-sale.

So what impact will the FCA have on debt sale? The key difference this time is that the change affects all participants in the market. As with the FSA before them, the FCA takes a principle based approach to regulation. A result of this is that firms have some latitude in how they choose to interpret the requirements.

What is clear is that it’s not enough to have processes and systems in place – you need to evidence that they’re working. Sellers and purchasers are going to have to work even more closely both pre and post-sale to ensure that both parties can gather the evidence needed to satisfy the regulator. For the financial services sellers, this is an incremental change on top of what they have been doing historically to satisfy the Lending Code and the FSA. For others, who are now falling under FCA regulation for the first time a bigger step change will be needed.

Consistency in approach will be everything from a purchaser’s perspective – they interact with a large number of creditors so for efficiency, a market standard would make sense. For all of us who wish to see the currently buoyant debt sale market continue to thrive, our call to action to all parties in the market must be that we work together to look at how we can work collectively to create consistent, high quality information around customer journey post-sale.

By Andy Taylor, Product and Proposition Manager, Debt Sale

Ensuring those who can contribute, do contribute

The levels of unplanned, unwanted indebtedness in the UK are increasing. Ongoing welfare reform and continued decreases in real income for the least well-off in society means that a growing number are struggling to meet their financial commitments.

I have been reviewing data captured by TIX, our insolvency management platform which has visibility of over 90% of all personal insolvencies; it reveals that in the first quarter 2010 only 9.2% of IVA proposals were from consumers with more than 50% of their income coming from benefits and pensions. By 2014 this had more than doubled to 23.6%.*

 

As a result of this financial pressure, consumers are increasingly making tough decisions about which of their debts they can service and we are seeing a prioritisation of private debts over local government debts, due to the perception that private companies, such as banks, will pursue debts with much greater intensity. 

However, in the current climate, local authorities are also having to make their own ‘tough-decisions’ as they try to deal with on-going budget cuts. With the percentage of debt owed to government on the increase, the sooner Authorities address the challenge, the better.

Council tax

Although average in-year council tax collection rates in England are at an impressive 97.4%, the value of the unpaid 2.6% is, however, over £600million per year. The process for recovering this debt has traditionally been an almost exclusive reliance on third party Enforcement Agents (bailiffs). The effectiveness and fairness of the bailiff approach is the subject of much debate and it remains to be seen whether the recently introduced regulatory changes go anyway to address concerns. What is clear is that many of the innovative collection strategies widely adopted across the private sector are not utilised. When we benchmarked council tax collection performance, against that of the private sector, we found that 16 of the top 100 local authorities in England were potentially underperforming in terms of council tax collections when compared to the private sector ranking for their area. Within that 16, five of the top 10 largest local authorities by population had relatively poor actual in-year collections performance relative to their private-sector collections ranking.**

Service lines at a disadvantage

But what about those areas where the use of Enforcement Agents isn’t available? Our experience is that areas such as sundry debt, adult social care, and overpaid benefits are often reliant on internal legal service teams who do not have the resource to pursue all cases. As a result, in many areas, those owing money have learned to prioritise other debts over those owed to the council. Letters are often left unopened and council collectors have little re-course with those who are deliberately avoiding payment. In an environment where creditors are becoming increasingly sophisticated in the ways they compete for every pound, this leaves local authorities at a distinct disadvantage.

Three tips

The work our consultants have done with local authorities who are seeking to improve collection performance in order to meet growing budgetary pressures has found there are immediate and straight-forward improvements which can be made. Our top three tips are:

1. Agencies can unlock value - If your existing collections processes aren’t yielding results, don’t let the debt become old and unworked – think about engaging a debt collection agency, or a panel of agencies. You will have to spend some money, but there will be a net benefit.

2. Bureaux reporting is a proven deterrent - Consider providing credit reference agencies with data about your service users who owe you money. We have found that this alone deters those who can pay but are making an active decision to deprioritise your debt.

3. A full view of the service user and what they owe will transform your approach -   Individuals are often in debt to multiple service lines – a review we conduced of one council’s arrears revealed that 30% of its service users had debts across multiple revenue lines. By working together you can share knowledge and benefit from streamlined approaches. You can also make the experience of dealing with your council more positive in that service users can talk to one person or department about all of their debt.

 

 

 

Paul Fielder, Strategic Account Director, TDX Group

 

* TIX Q1 2014

** Analysis conducted by TDX Group in August 2013

The ‘right price’

Recently I was asked by a seller what the right price for their debt was; they wanted to know how many pence in the pound they would get. This got me thinking about how much this concept has changed over time – not only the value but also the definition of ‘right’ price. I am not going to go into the reasons that different debts are worth different prices i.e quality of origination, current debtor situation mix, how hard it has been worked to date etc., I want to comment on the ‘evolution’ of debt sale.

 

Over the years I have seen three broad definitions for ‘right’ price. Almost eight years ago when I started out in this industry, the ‘right price’ equated for what is the most I can get for my debt? This era was typified by limited data being made available to purchasers and often the debts would be window dressed for sale. High turnover of purchaser panels was common place, with buyers often being ‘stung’ on price (it still is in some of the developing markets). In this era, sellers got to a position where it was difficult to sell debt for two reasons:

1. Purchasers no longer trusted the seller or the quality of the debt.
2. Those purchasers that did come back offered more realistic prices, but creditor expectations were still at the old, unrealistic, prices. 

During the middle ages, ‘right price’ was the price that can be achieved for my debt on a repeatable basis. This era was typified by more data being made available to buyers so they could build confidence in their pricing. As a result, large relatively stable panels were common place with buyers coming back for more debt at similar prices. In this period purchasers evolved the most – using more and more data to enable them to price accurately, reducing their desired rate of returns as the move towards transparency reduced their risk and they invested heavily in operational capability to improve returns.

 

Right now, ‘right price’ is the price that will ensure that my customers will be treated fairly. No longer is it purely about price maximisation. As a seller who now retains responsibility for accounts sold, if you seek too high a price it could drive a whole host of activities that wouldn’t fit your wider customer-centric philosophy.

 

In summary, the industry has moved from limited data exchange, to pre-sale openness, to transparency across the whole life of the customer. Creditors now want to not only know how their customers will be treated, but want evidence to prove they are being treated fairly.

 

I am not sure that everyone’s expectation of the right price has caught up with the times. But this is where we are most definitely headed.

 

 

 

 

 

 

 

 

 

 

By Nick Georgiades, Director of Advisory Services TDX Group

Third party oversight

Recent results of LSB review of subscribers’ handling of customers in financial difficulties.

I read with interest the recently published summary findings of the Lending Standards Boards’ (LSB) review of how subscribers to The Lending Code handled customers in financial difficulties.

For those not familiar with the detail, the LSB re-ran a set of monitoring first initiated in 2013. The review focused on the extent to which subscribers and their DCAs are handling customers in financial difficulties with a focus on the policies, processes and controls in place - including areas such as staff training, incentive schemes and complaint root cause analysis. Additionally, the review also assessed subscribers’ due diligence processes when selecting a third party for contingent collections or debt purchase and the oversight processes in place.

The LSB examined the governance frameworks and processes used by a sample of nine code subscribers and either a DCA or debt purchase firm used by each of them.

The results made for interesting reading. In summary, the reviews resulted in one ‘green’ rating, six ‘amber ’ and two ‘red’ ratings for the nine organisations assessed.

The report highlighted general weaknesses in a number of the firms reviewed including the adequacy of training of agents to deal with customers in financial difficulty and the completion of affordability assessments and the questioning of customers in financial difficulty. The report indicated, however, that the factors driving the red-rated and weaker amber reports were largely in relation to ineffective oversight by the subscriber over its outsourced activity and, in one case, inadequate due diligence conducted prior to the subscriber selling debt.

I think the report is interesting for a number of reasons:

1. At a time when there is a lot of ‘noise’ around the requirement for financial service organisations to focus on FCA readiness it is a timely reminder that the FCA is only one part of a wider regulatory/compliance regime.
2. It supports the need for creditors to learn from their peers and to benchmark their organisation against good/best practice from across the industry.  Whilst the report is critical of certain organisations practices it also calls out a number of examples of good practices and rates one organisation ‘green’ (a potential exemplar for their peers?).
3. Finally, with lending levels set to increase as market conditions improve, there is likely to be increased demand for both DCAs and debt purchasers to help creditors manage their debt books as they grow. 

It is clear from the report that it is critical that all creditors ‘get their houses in order’ now, particularly with regard to ensuring there is an appropriate level of oversight and due diligence of third parties.

By Charlie Horner, Lead Consultant - Debt Sale and Advisory, TDX Group

So what exactly is a Product Manager?

I’ve been at TDX Group for six years this month. I know I look older, but that’s actually over half of my post-university working life. I’ve spent most of that time working within our Debt Sale business, focused mainly on the delivery of a service to our clients and becoming a subject matter expert on debt sale.

More recently, I started a project along with various internal teams on developing our new debt sale platform, VENDO. Then I got a chance for an internal move, into our Products department to formally take ownership of VENDO along with some of our Industry Solutions products. It’s a great opportunity: a chance to apply what I’ve learned over the last six years in a different way, whilst learning some new skills.

So having become a Product Manager, I thought I should be proactive and do some independent reading on product management practices. I started by looking online and Google took me to a website which was nice and clear, concise and talked about product management with a little venn diagram. It simply described a product manager as an intersection between Business, Technology and User Experience. It recommended a book which I duly bought and downloaded onto my Kindle.
I eagerly opened the book and scanned through the contents pages. 40 chapters spread over 220 pages. None of the chapters said ‘Summary’ or ‘Top three things you need to know’ or anything like that, so I put it down and thought I’d have a read later.

To appeal to someone like me, the book needs a nice summary; something to hook me in and help me to decide I want to read it. I guess it’s too late now that I’ve bought it but of course I won’t recommend it to anyone until I’ve read it and decided if it’s any good.

So I did learn one valuable lesson about Product Management from the book. You must think about your end user. I’m fairly sure I’m not unique in my desire for the five minute summary yet the author, editors and publisher failed to consider me when they created the product. They’ve missed out on appealing to a whole group of users.

I might get round to reading the book at some point. Thankfully I have a team of experienced colleagues around me who can help me learn more about good product management. But I certainly know that a good product needs to meet the needs of a range of users and that should be central to its design.

By Andy Taylor, Product Manager - Debt Sale, TDX Group

Why do we need Software Testing?

This is an excellent question, and one that regularly gets asked in organisations that have to deliver projects and software. Why can’t the developers just test it? Why can’t the end users test it? Surely anyone can test?

The growth of Software Testing as an industry over the last 20 years is a clear indication of the importance that large and small businesses place on having workable, easy to use software. It is no coincidence that this growth has accelerated as we now use software in everything we do – surfing the internet, in our cars, on our tablets and mobile devices, even typing this blog! So we, as users, should know what good looks like, and what bad looks like…..

We have all had moments when a programme crashes mid-use, data goes missing or when you’re trying to book a holiday and the web site illogically asks you to re-enter all your details again! So, by using these programmes - does this make you a software tester?

Being a software tester is  like being a food critic really – I, personally, have no idea how to make a chocolate soufflé or a fricassee of mung beans and samphire, but I do know whether or not I like the taste. However, food critics have an advanced knowledge of food combinations, an objective and consistent opinion and tend to advocate high quality food. Software Testers are similar – they may not necessarily know how to develop the next Windows or Mac operating system but they will definitely know whether it’s good or not, and their opinion in the market place affects the view of whether it is a successful and popular product or not. It can make or break a version, product or even a company. 

However, even software testing skills are changing. Testers are becoming even more highly skilled and are bridging the gap between development and testing by learning coding techniques. This allows for more automated testing and makes the testing even more efficient and effective. With software becoming ever more sophisticated, the number of test scenarios that can arise from a seemingly simple piece of functionality can be mind boggling and reach the millions - it would take a human tester years to cover every scenario, and even a risk based approach would eat resource and not cover every possible outcome. As a consequence the work of software testers is becoming much more about using clever programmes and a variety of tools to cover as much ground as possible.

We know that we can never test every possible variable - it’s impossible, why else do Microsoft and Apple need updates? Things change and change needs testing. We can however, reduce risk – recent high profile cases in the press like Amazon, highlight the fact that even the slightest mistake can cost a company millions. Data is now one of the main currencies in the world and the Data Protection Act and privacy laws mean that breaches caused by software errors are treated with the highest level of severity and mistakes are not tolerated. Cloud computing, multiple access points and internet forums are all threats to a company’s reputation and balance sheet.

So back to the question – why do we need software testing? The answer is to reduce the risk of external failure. Internal failure such as a defect is fine as we can fix it and deal with it, however if software has an external failure then the world knows and it’s too late. Testers are a different breed, some say pedantic (and they are right) but without them who will check that a button on a website does what it should do and that it doesn’t do what it shouldn’t to the nth degree?

Here at TDX Group we strive to ensure that all our software is tested following industry best practice, the tools we use are cutting edge and the testers we hire are multi-skilled. We reduce risk and think of our customers – they don’t want 300 buttons when one will do! And we will continue to do so because we build our reputation on quality. We strive to reach the impossible goal and dream of the day we can say – you know what? We have managed to test everything. So next time you use a website and you click the submit button think of how much data has been validated, stored, organised, processed and actioned to get that button to work. And of the thousands of tests that will have checked that your date of birth entered is valid and correct, your password and username combination satisfies the criteria and everything just works – that’s because we checked it all.

By Paul Sibley, Software Testing Manager, TDX Group

Cake, cake, cake

Working at TDX Group can be a challenge, and one of the biggest I’ve faced since joining the TDX Group team is all the goodies that are so regularly on offer to celebrate our success!

June saw the final round of the TDX Group cake bake off – the show-stopper round, and the celebratory afternoon tea. Now, I’m all for celebrating but it comes at a price; my diet app doesn’t like it!

Over the past 10 years I’ve been a slave to my weight. Like many people I’ve been on a range of diets, some successful and some not.  I’m under no illusion and realise that the main blocker to my success is usually me, after all, most diets are simply a controlled way of restricting calorie intake while promoting exercise. The similarity I’d like to draw between dietary habits and information security is that applying them both successful is a tricky balance between control and manageability.

During periods of over-indulgence, I’m without restriction and, quite frankly, anything can happen… Imagine a world where nothing is controlled, colleagues are left to get on with their day without security controls or restrictions. No content filtering to slow down progress, no anti-spam software to get in the way of legitimate emails that sometimes get blocked, no policies, procedural controls or anti-virus, etc. Viruses would quickly and easily get into the network, information would soon get lost or become compromised and our business would fall over; the weight gets piled on.

At the other end of the scale you could imagine something from Mission Impossible; security through ultimate control.  To access a system you enter a fort by passing through a guarded barrier with a photo ID proximity pass, you move on to another secure door with retina or fingerprint scanning, and then through a final secure door with a key-coded lock. Once inside you access a standalone system with no internet or network connectivity and use multi-factor authentication to log on to a PC which doesn’t permit removable media.  Nice and secure and there are no ways for a virus to get in, or data to get out, but the day job is impossible and the user will soon start to look for cheats and workarounds. Those 500 calorie a day diets have such strict controls in place that it seems impossible to stick to them while retaining your sanity; losing weight is guaranteed, but it’s unfeasible as a long term solution.

So, we apply a risk managed approach which compares what colleagues want to do against the long term risk of them doing it; too much control and they can’t work effectively and look for insecure alternatives, too little and things start to fall over…

My best dieting successes have come from a blend of control and balance; everything in moderation.  Losing control and having that big slice of cake won’t help with weight loss, and watching everyone eat while you stay in ultimate control may well send you crazy, but just a small slice will keep you happy and is unlikely to scupper the long term plan.

By Vicky Clayton – Information Security Officer, TDX Group