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ombudsman news

issue 147

February 2019

debt collection - different sides of the story

The availability of credit, together with the costs of utilities, council tax and mobile phone bills, inevitably lead to some people struggling to keep up. For a small but significant number of people, the situation escalates to a point where they’re contacted by a debt collector.

So what can be done to ensure better outcomes for the people involved? We asked Citizens Advice, the Credit Services Association and Monzo Bank to share their views.

debt collection and what we can learn - Adam Burgess, senior creditor liaison policy officer, Citizens Advice

In 2018 there was a renewed focus on the problem of household debt, with reports on the subject being published by Citizens Advice, the Treasury Select Committee and the National Audit Office, and the formation of the Financial Inclusion Policy Forum.

With these debts being looked at in more detail, it is inevitable that the methods used to collect them are also examined. This leads to comparisons between the practices of ‘household’ debt collectors (such as local or central government) and commercial creditors. Money advisers are aware that how debts are collected plays a huge part in how people manage to cope with them. The way organisations chase debt can push people further into debt and turn small amounts of arrears into large, unmanageable debts.

Making these comparisons allows us to consider the progress that the commercial credit industry has made. Over the past decade the sector has made significant improvements in assessing affordability, identifying people in vulnerable circumstances, working with the advice sector and communicating with their customers. There is no doubt that improved regulation from the FCA has played an important part in this. Yet, the industry should be given credit where it is due.

In contrast, the debt collection practices of local and central government, and some essential service providers, have fallen behind considerably. Last year, of the problems Citizens Advice helped people with, household debt issues were almost twice as likely to be related to the way debts were collected than consumer credit debt issues.

As an example, the reliance of local government on bailiffs is a common problem which has knock-on effects. Using bailiffs can quickly increase a debt and make agreeing a sustainable payment plan more difficult. Maintaining payments to a bailiff can mean sacrificing other repayment plans, leaving the client in a debt cycle that is difficult to escape. Adopting some of the standard practices of the commercial sector, such as implementing the standard financial statement, would both help people in need and improve long term recoveries for household debt collectors.

There is a great deal that government and essential service providers could learn from the credit industry about debt collection. However, that does not mean that all commercial collection is problem-free. At Citizens Advice we still see a considerable amount of poor practice from commercial creditors. In the past 12 months, we have also seen a 4.4% rise in the number of issues about collection practices by commercial firms.

With the implementation of ‘breathing space’ and a statutory debt repayment plan (SDRP) on the horizon, both the commercial and household debt industries should collaborate with regulators and the money advice sector. A good first step would be for breathing space and SDRP to include debts to local and central government, particularly those which can be deducted directly from Universal Credit. This would give protection to those who are struggling short term and mean these debts are more likely to be collected in the longer term.

how Monzo approaches debt collection - Chris MacLean, financial difficulties analyst, Monzo Bank

At Monzo, we’re committed to taking a friendly, empathetic and inclusive approach to collecting on money owed. We start with a single principle, which assumes that any customer who misses a payment or enters into arrears is probably experiencing financial difficulties, and is more likely to be vulnerable.

we speak to all our customers with the same friendly tone

As we see it, customers who find themselves struggling to repay us are still valued customers, and the collections process is just another part of the overall customer service experience at Monzo. That’s why we opted to keep collections in-house. It gives us full control of the tone, content and structure of any communication with the customer.

We speak to customers in a friendly, conversational, non-judgemental tone across all stages of the collections journey. Which means we give every Monzo customer the same, high standard of support – whether they’re in debt or not.

we do what’s best for each customer’s needs

Our primary goal is to encourage customers to engage with us, so we can figure out how to help them get back in good financial shape. We can do the usual things like temporarily freezing fees, giving customers a period of breathing space, or signposting them to charities to get expert help. But we’ve also built many useful features into the app. Like the ability to create a budget, set limits and controls on spending by category, or block all gambling activity on the account. Without ever needing to get in touch with us. We want to help customers learn to manage their money better, and help them avoid getting into debt again down the road.

We offer flexible and pragmatic solutions, and we also build this flexibility into our tech and the tools we use to help customers. Which means we’re able to create bespoke solutions on the fly, offering a tailored experience for each customer’s specific circumstances. We don’t want rigid rules and processes to get in the way of the best outcome for the customer.

we’ve built the best possible team for the job

We go out of our way to hire empathetic people so our collections experience is as supportive as it can be. We have former regulators (FCA), debt advisers (CAB), addictions counsellors and healthcare workers (NHS) on our team, as well as people who’ve been in financial difficulties or vulnerable circumstances themselves. We’ve even got a member of staff who’s midway through an Individual Voluntary Arrangement (an alternative to bankruptcy for people unable to meet their financial obligations). His experiences have helped us improve our messaging strategy for customers who can’t afford to repay their debts, or are considering a formal debt solution.

we’re creating an industry-leading collections experience

We’re just getting started, but our goal is to create a collections experience that sets the bar for the industry. We'd love to have an informative, collaborative process, where our customers can weigh up their options and choose the solution that suits them best.

Eventually, we’d like to bring the full collections journey into the Monzo app. This would allow customers to select the best option for them, direct from the app. Of course, we’ll still be on hand to help at the click of a button. But by making the Monzo collections experience automated and self-driven, we can help reduce the stress and anxiety people feel when in financial difficulty and in need of assistance. And if we can do that, hopefully we can help even more people to get back on their feet financially.

raising the standard of debt collection - Peter Wallwork, chief executive, Credit Services Association

Ask a politician, journalist or average person on the street about debt collection and they are bound to have an opinion. Not many, however, would understand the sheer scale and professionalism of the modern-day debt collection agency or debt purchaser, or be able to quote their contribution to the UK economy.

The 300 members of the CSA hold something in the region of 50 million accounts, totalling almost £60 billion of debt. More importantly, perhaps, they return around £4 billion of that debt to the UK economy every year.

All members of the Credit Services Association (CSA) adhere to a strict Code of Practice, recognised by regulators, government, and our members’ clients – usually large banks or credit card companies. They want to know that their customers’ treatment is the same when in credit, as it is when they fall into debt, especially when that debt is outsourced or acquired by a third party.

Debt collection agencies today have sophisticated customer services teams, and well-established processes for ensuring any complaints are quickly and successfully managed. Involvement from CSA member organisations can be the positive catalyst to resolving complaints where debts have often accrued due to a breakdown in the relationship with the creditor.

For our members, getting people to talk and communicate has always been their core business. They try to find a mutually beneficial resolution for a customer where a creditor has failed to make that contact in the first place. Managing the repayment of an outstanding balance that could affect a credit rating, and putting money back into the economy is to everyone’s benefit. And if the customer is unable to pay or it transpires they shouldn’t have to pay for another reason, finding a solution is key. We know that when small debts are not resolved, they tend to escalate into bigger financial problems over time.

However, of all the issues around personal finances, anything labelled as ‘debt’ is still often considered taboo, even when it is easily resolvable. We still see people encouraging customers to ignore debt collection agencies in a bid to make the problem go away. Such guidance usually comes from unsolicited sources on online forums and unfortunately their advice doesn’t help and can result in things escalating in a way that is of detriment to the customer.

CSA members are not afraid of complaints; genuine issues will always be heard, disputes will be taken seriously and members will do their best to find a resolution. Our message is a simple one: if you are in debt, and are struggling, then speak to the debt collection agency or debt purchaser concerned and invariably they will find a way forward, or direct you to one of the debt advice bodies that can act on your behalf.

If you have a genuine complaint, then similarly speak directly to the agency and, if that agency is one of our members, then if you need to, you can also raise it with us if you feel you do not receive a fair outcome. We are working hard to educate consumers and stakeholders to explain our role as the trade body for the industry, and why working with our members to address debts is so important and beneficial to financial wellbeing.

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ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.