Industry Thoughts

I’ve written quite a lot recently about the cost of living crisis and how it’s set to impact consumers in general. It was also a common theme running across all the great sessions at the recent CCTA event, so I thought I’d cover some of the work we’re doing at Lantern to help our three million plus customers. We’re not only committed to proactively helping customers navigate these tough times, but at Lantern we know that customers in collections can often be resilient. However, they still require our help and support, to ensure they remain on the road to being debt free. As all outgoings are on the rise, we must ensure customers are taking these increases into account, even if they haven’t impacted them yet. It’s still fairly mild outside so heating isn’t being used as much, but we’re striving to ensure customers are considering those future impacts and making as much preparation as possible, ready for the colder months ahead. We’re encouraging our agents to probe a little more than normal, albeit gently, to ensure that the customer has considered potential future expenditure. One of the areas we’ve reviewed is the last income and expenditure captured across a cohort of customers, to identify any changes (or lack thereof) relating to utility and fuel bills. This allows us to challenge a little more given that we’re all expecting some increase. If there’s been no change in the customers living environment, then we’ll interrogate the allowance they’ve set for food and fuel. For example, are they cutting back or are they not facing facts that the impact will happen? Our aim is to set sustainable plans to clear customers’ accounts over as short a period as possible, allowing the fact that everyday living is getting more expensive. During our engagement with customers, we’re asking additional, quite direct, questions to make sure customers are not risking paying priority bills to accommodate paying down their accounts. A typical question might be “If you’re still able to afford this payment plan, what are you changing in your lifestyle to accommodate this?” It’s important that the answer to these types of questions are not that they are having to choose between either feeding or heating themselves or their families. What is comforting, is that in many cases customers are making changes, such as cutting back on non-essentials, those daily coffees on the commute which soon add up (one customer we spoke to had realised she was saving £150 per month just by making her own!) Some customers are choosing not to eat out as often or they’re walking to destinations they would once have chosen to drive to. One of the most heart-warming changes is where we’ve heard customers altering the activities they undertake with their children. Instead of a visit to the cinema or a theme park which can soon become very expensive, they’re going to parks or museums, still spending time together, but in many ways its more focussed time to chat …

Dear Chief Technology Officer, Did you see what I did there? Have I got your attention? This is not a letter from a regulator, but it is a call to arms and, perhaps, offers regulation of a different kind. Some Chief Technology Officers (CTOs) reading this may truly feel they work in innovative industries. After all, the CCTA has a diverse membership and alternative lending is naturally a hotbed of creativity. New products and forms of lending are created and presented to market by alternative lenders. This often leads to new sectors where their innovation is replicated. Other member CTOs may recognise the staleness of their industries where, despite transforming businesses to enable operation in an increasingly digital age, the industry practices, products, and processes have not evolved since the 1970s. Is this necessarily a bad thing? If it’s not broken, why fix it? Increasingly consumers, especially younger consumers, are expecting their products to be different and also the means by which they acquire and consume them. This presents a problem in industries where the incumbents have an unconscious bias towards inertia and maintaining the status quo. The steps to change are too steep, the powerful too entrenched and the whole market becomes arrested, without necessarily realising it. In my industry, consumer motor finance, all the parties need to communicate and interoperate digitally. The customer, the dealer selling the car, the broker arranging the finance and the lender underwriting the loan application all need to seamlessly interact. The customer journey is much talked about and the goal of the industry and its regulator is to ensure that customers achieve good outcomes. This reliance on a working network of actors is anathema to innovation as, in order to exist, you must conform. Any innovation, however well received, is dependent on the whole industry adopting the technology. This could take years, be badly or partially implemented or even ignored. Established technology such as Open Banking is a case in point. Despite being around in concept form since 2015, it is still not widely adopted as an effective tool in the assessment of affordability. Some intermediaries see it is a disruption to the customer journey and lean towards lenders who do not require or have not adopted it. So we conform to survive, but even then we complicate matters. The need for interoperability means that all lenders offer Application Programming Interfaces (APIs) to enable their services. Unfortunately, they all use different methods of transport, methodology and have no common format. For a car dealer, broker or IT platform provider, these differences make each lender integration unique, and therefore time-consuming and costly to implement. This is a barrier to adoption even if they conform to the industry status quo. The obvious solution is a common platform, an open standard, for creating API suites between all firms in our industries. The standard needs to provide a framework that is future proof and does not limit or stifle future innovation. Where such standards have been created, …

Hello to all our members and associates. I hope you are enjoying the latest edition of CCTA Magazine. As many of you will know, I am the new Head of Policy and Advice at the CCTA. I had the pleasure of meeting many of our members and associates for the first time during our annual conference in Liverpool in April. The publication of this magazine presents a good opportunity for me to introduce myself and to highlight the services that fall under my remit. I joined the CCTA in April this year, making a move from Compliance Consultancy where I advised and supported many consumer credit firms in legal and regulatory compliance. As Head of Policy and Advice at the CCTA, I now manage some of the key services we provide to you as a trade association. From a policy aspect, it is within my remit to monitor key regulatory and legislative developments within the alternative lending sector, ensuring, where appropriate, we represent the position of our sector within consultation and discussion papers. Together with the wider CCTA team, we work proactively to influence policymakers to address the key issues our members face. Much of this behind-the-scenes work involves regular constructive dialogue with key strategic contacts at the FCA, FOS, HM Treasury and wider industry stakeholders. Such dialogue and engagement at different levels is vital to ensure we retain appropriate insight of both current and emerging regulatory matters. This, in turn allows us to keep our members informed and represent our sector where required. Within my advice and guidance remit, I also oversee some of the key services our members use. Working with my colleagues, we are further developing our communications services, including our Weekly News emails and quarterly publications, CCTA Inform and CCTA Magazine. This will ensure that members are kept informed of industry and sector-specific developments. We will soon also be introducing an annual member survey as we are keen to engage with members to develop and improve our services further. We’d love to hear your thoughts and suggestions. We are currently undertaking a review of all our credit agreements and statutory documents that many of our members use, to ensure they continue to remain up to date and relevant. The changes will also improve the usability and readability of our documents. It would also be a good time to mention that we will be resuming CCTA Workshops, starting with a Consumer Duty Workshop scheduled for Q3. The exact date for this is to be confirmed but it will be closer to the release of the Policy Statement, so keep an eye out for the details. We also have longer term plans for expanding member benefits such as re- introducing training & CPD and providing Guidance Papers on key regulatory topics. I’d like to point out that I now oversee our Advice Line service too. The service allows our members to seek guidance and support from the CCTA team on all matters , so I encourage members to …

This winter will be hard. We can say that with certainty. Rising costs will impact everyone. The ‘middle classes’ may have some disposable income, and perhaps some savings. However, those already financially vulnerable will really struggle. Some will turn to credit, but will credit be there? THE (RATHER LIMITED) GOOD NEWS Data suggests average pay rises in the last year were higher for those on lower incomes, both compared to the previous few years, and other groups. Whilst these will not fully counter rampant inflation, it does perhaps point to some consumers being able to retrench, at least in part, to weather some of the storm. THE BAD NEWS That said, clearly many will struggle, and credit may not be there to help. The focus on affordability will make this downturn different to those in the past. Historically many firms focused on managing risk. Prime lenders would tighten lending criteria and consumers would flow down to near-prime or sub-prime. who traded higher risk with higher interest rates. This time, with a heightened focus on proving affordability, those consumers won’t qualify for lending full stop. Whether they would have been able to cut back in order to afford a loan won’t be visible from historical banking data. Higher interest charges mean higher repayments which will be even further out of reach for those ‘falling from prime’. There will be real challenges for this group. Government doesn’t have enough money in the coffers to help, and charities will potentially be overrun. MAKING AFFORDABLE LENDING DECISIONS Knowing costs are going up, firms need to think about their affordability checks. Many rely on consumer declarations of expenses, yet consumers will naturally think about today, not six months time. Firms may ‘floor’ expenses using data, for example from the Office for National Statistics. Again, this data is based on the past, not where we are heading. Knowing what is coming, truly consumer-focused firms will build inflation into their approach, perhaps looking at particular categories, such as utilities, and factoring in forthcoming price increases to consumers declared expenses. This will, of course, impact lending volumes, but also protect consumers and firms in the long run. SUPPORTING CUSTOMERS Just like in the pandemic, once again the industry must play its part. With consumer confidence at an all-time low, we should expect customers to be more concerned about their money, want to better understand their situation, and engage more frequently. Firms should be planning now for increases in contact rates. We know from research done by the Money and Mental Health Policy Institute that the phone is the most stressful channel for consumers, even more so for those who may be vulnerable. Digital services, done well, can facilitate engagement, in particular with those who have never felt the strain of financial difficulties before. It can reduce feelings of shame and empower people to help themselves through self-serve processes. With increasingly complex requests now being handled through digital, at high volume, it can be a win for both parties. …

Increasingly members will have heard more about the importance of thinking about ESG – Environment, Social, and Governance issues. The CCTA was delighted to take part in Credit Strategy’s recent Car Finance Conference and to meet some of our members. I was asked to join some of the panel sessions and the debates. One of which was the discussion about how lenders approach ESG. Some of you may already be thinking that it is time to move on to the next article. However, even if you believe that this is not an issue of personal interest, there is one good reason why you should keep reading. These ESG issues are of increasing interest to people that are important to firms. It is a truth that drives much of our work, that our success or failure, depends on our relations with others – customers, investors, suppliers, and regulators. One of my fellow panel members pointed out that in a recent discussion with investors, the second question was focused on what the firm’s approach was to ESG. These concepts are not new. Go back fifty years and there was discussion about the impact of industry on the environment. At one stage we were all very focused on corporate social responsibility. You can trace it back to social pioneers like Robert Owen, who built New Lanark just a few miles from where I live. But in the business schools and board rooms, the ideas of Milton Friedman were very popular. He proposed that the primary responsibility of a company is to the shareholders. For many years that idea was king. Now, our regulators increasingly place a focus on social issues. We have seen a push towards more diversity amongst leadership and the directors of companies. They want to hear more about how we treat staff and also how we allow people to be more authentic. I recently read a piece by Equiniti saying that almost half of borrowers think that green credentials are important. There is support for lenders to think about who they lend to, and even whether they give better rates to those with sustainable aims. The question that was being discussed at the Conference is how do lenders approach this world of ESG? This was especially interesting when thinking about the car industry, which poses questions about environmental impact. There is a temptation to sign up for audits and checklists that have been developed elsewhere. Of course, that might be helpful, but we are at risk of not thinking this through for ourselves. There are a number of traps or misconceptions that I have seen with other firms. Simplifications of what diversity is. Or accepting current wisdom around environmental impacts. For example, in the used car world, running second-hand cars will probably be less green, and less environmentally friendly than running a new car, but what are the costs of building a new car? What are the environmental impacts of mining those components? We are increasingly using more precious metals …

Today, most financial organisations have a robust complaint management process in place, but will this be enough for tomorrow? The past couple of years in particular have resulted in not only a rise in complaint numbers but an increase in customer expectations too, creating a perfect storm of complaints for financial services organisations to manage. As well, the complaints we’re seeing escalated to the Financial Ombudsman Service (FOS), a figure that has risen 58% year-on-year, are indicative of past practices, the impact of older decisions playing out in today’s complaints. In a similar vein, what we see tomorrow, will be a reflection of the practices of today. So, with all this in mind, if you’re looking to go beyond a tick in the compliance box, fulfilling compliance obligations whilst focussing on customer experience and operational excellence, what steps do you need to take to ensure that all-important five-star complaint handling is not just for today but for the foreseeable future? REDUCING FOS REFERRAL RATES To achieve quality outcomes, mitigating against referrals to the FOS, you need to instil quality right across your complaints processes. However, defining a one-size-fits-all standard for quality is nigh-on impossible, dependent on so many different factors, many of which will be personal to your business. But that’s not to say that making some changes won’t have a dramatic impact on quality, reducing FOS referral rates in the process. Take customer communications for example. Many complaints and escalations in particular can be avoided by higher quality customer communications. Better management of customer expectations builds trust and nurtures patience in the place of frustration. Similarly, if you focus on individual customer circumstances, ensuring a more nuanced, personalised approach, monitoring interactions and making necessary corrections, quality outcomes are far more likely. NAVIGAING FIRST POINT OF CONTACT RESOLUTION We all know that speed doesn’t always equate to quality outcomes, but it’s an undeniable fact that in many cases, first point of contact (FPOC) resolutions are preferable. Research shows that 75% of customers will remain as customers if you achieve a resolution within a week. Stretch this to three-to-four weeks and there’s a 50-50 chance your customers will go elsewhere. What’s standing in the way of FPOC resolutions is a combination of factors, none of which are insurmountable. A culture of empowerment and engagement is a must if you’re to have a team of case handlers who are capable of achieving FPOC resolutions, a culture that can be built with the right training programme, not to mention the hiring of employees for behaviours and not just previous complaint handling experience. The right tools and information are crucial, such as equipping case handlers with the systems and templates (where appropriate) needed to underpin swift resolutions. Finding the right balance between speed and quality is what counts. IMPROVING RESOLUTION TIMEFRAMES Not unrelated to the issue of FPOC resolutions is how you can optimise resolution timeframes. Just because the FCA calls for complaints to be resolved within eight weeks doesn’t mean that you need …

Litigation is expensive for everyone involved. It’s unsurprising, then, that the Civil Procedure Rules (CPR), which underpin litigation in England and Wales, contain extensive provisions encouraging and facilitating settlement, both before and after proceedings are issued. One such provision is the unique and self-contained settlement procedure contained in CPR Part 36. Settlement offers made pursuant to this part are, inventively, called “Part 36 offers”. A well-judged Part 36 offer is a powerful tool in ongoing (or prospective) litigation. However, there is both an art, and a science, behind their effective use. PART 36 OFFERS – THE DRAW The primary benefit of Part 36 offers, which can be made by both Claimants and Defendants, is the cost consequences which follow. Where a Part 36 offer is accepted within the relevant period (21 days from service), the Claimant will be entitled to their costs (including recoverable pre-action costs) up to the date of acceptance. However, if a Part 36 offer is not accepted, the costs consequences can be significantly tougher. Where a Claimant doesn’t accept a Defendant’s Part 36 offer, and obtains a less advantageous judgment, the Claimant is liable to pay the Defendant’s costs plus interest from the date that the relevant period expired. Where a Defendant doesn’t accept a Claimant’s Part 36 offer, and judgment against the Defendant is at least as advantageous to the Claimant, the Claimant will be entitled to: interest on the whole or part of any sum of money (excluding interest) awarded, at a rate not exceeding 10% above base rate for some or all of the period, starting with the date on which the relevant period expired; costs (including any recoverable pre-action costs) on the indemnity basis from the date on which the relevant period expired; interest on those costs at a rate not exceeding 10% above base rate; and an additional amount, which shall not exceed £75,000, and which is calculated as a percentage of the sum awarded (10% up to £500,000). For Claimants at least, then, the potential benefits of a well-judged Part 36 offer can be substantially in excess of any costs order they might hope to achieve at trial. THE ART In order for the consequences of a Claimant’s Part 36 offer to engage, the offer must be one which the Claimant subsequently matches or betters at trial. However, pitch an offer too low and it may be snapped up by the Defendant before you realise that you’ve agreed to halve the value of your claim and throw in a fruit basket for good measure. There is no magic formula for making a successful, and well-placed, Part 36 offer. Generally, though, this writer would suggest beginning your calculations with a figure marginally below the minimum that you would expect to receive at trial, factoring in a discount for litigation risk (i.e. the unpredictability of human behaviour – unreliable witnesses, grumpy judges, et cetera). THE SCIENCE Tactics aside, in order to be valid, a Part 36 offer must meet the strict requirements …

Use of cloud technology in streamlining processes and enhancing the customer journey in the sale and maintenance of financial services products offers businesses obvious benefits, with the Bank of England (BoE) stating that “using the cloud allows businesses to work in a more agile way…from file sharing to managing fraud”. However, a changing regulatory compliance landscape, as well as cybersecurity and data privacy concerns, represent major hurdles for large-scale cloud technology adoption in the financial services sector. There has been widely reported examples of large financial services companies experiencing significant delays in adopting cloud technology transformation projects because of concerns related to managing customer information and operational resilience. At the heart of the challenge here is that, although technology and software companies offering cloud based solutions generally offer high degrees of resilience for services, such resilience is premised on a clear distinction of ‘provider versus customer responsibility’; customers bearing the responsibility for taking appropriate security measures with regards to data and system security obligations. In addition, when engaging with providers it can often feel like customers are “pushing uphill” when seeking to negotiate away from key risk positions in the provider’s “standard terms”; liability limits, service levels regimes and remedies for breach can often appear “set in stone”, and there is a resistance from providers to offer bespoke regulatory compliance warranties, audit rights or information security standards, arguing that their “hands are tied” because of the standardised nature of the services they provide in a multi-tenanted environment. From a wider market perspective, regulators have noted the significant concentration in the market for cloud providers, with only a handful of providers able to offer suitably scalable and efficient solutions for many financial service companies. Consequently, there is concern that should any of these providers fail, financial stability of financial institutions and service firms could be put at risk. Additionally, the ever present concern of management, maintenance and security of customer data continues to represent a key focus for regulators (and customers) in the financial services sector, with regulators grappling with the challenge of customer retention being based upon the level of customer data controlled by a firm. It is in this context that we can expect to see further developments in the move to adopt further regulation on the use of cloud service providers by financial services firms. Consistent with its previous initiatives on operational resilience, we eagerly await the release of the Financial Policy Committee (FPC), the BoE Prudential Regulatory Authority (PRA) and Financial Conduct Authority’s (FCA) joint discussion paper later this year, which will outline suggested plans on how to mitigate the impact of over reliance on cloud service providers for the performance of critical functions. So what does that mean for financial services firms in the meantime, especially when adoption of cloud technologies is almost a necessity in retaining efficiency of service? When using or moving to cloud based solutions here are a few issues to bear in mind: Undertake your own due diligence on data security, control …

This series looks at the enforcement options available to creditors to recover sums due by a debtor in Scotland. In a previous edition we looked at Inhibition which is similar to a Charging Order in England. In this edition, we now turn to look at how Earnings Arrestment operates in Scotland. Earnings Arrestment in Scotland is a form of diligence (enforcement) which can be used by a creditor to recover sums due from a debtor. If an Earnings Arrestment is in place the debtor’s employer must deduct sums from the debtor’s salary/wages on a daily, weekly or monthly basis, depending how often he is paid and pay it over towards the debt. A Scottish Earnings Arrestment is similar to an Attachment of Earnings in England and Wales but with one particularly significant difference. In Scotland the deductions from a debtors salary/wages are not calculated based on the debtor’s income and expenditure. Scottish deductions are calculated based on fixed amounts set out in statutory tables. This entails that an earnings arrestment in Scotland is not restricted to arresting or attaching the amount which the debtor can actually afford but will arrest or attach an amount fixed by statute. Earnings Arrestment: some key points A creditor must have firstly obtained a court decree (judgment) or have an equivalent document (e.g. Summary Warrant or registered document of debt). The debtor must have been served with a Debt Advice and Information Pack (DAIP) and a Charge for Payment (a final formal demand for payment). At least fourteen days must then have passed since the Charge for Payment was served without the debt having been satisfied. Sheriff officers can then be instructed to serve an Earnings Arrestment Schedule on the employer of the debtor. The Earnings Arrestment Schedule orders the employer to make deductions from the debtors salary/wages every week, month or day, as appropriate whilst he is employed or until the sums are fully repaid. There are consequences for the employer if it fails to comply and make the deductions, including the employer being found liable to make payment of the sums which should have been paid. If an Earnings Arrestment is already in place and another creditor wants to recover monies from the same debtor from his wages/salary then a Conjoined Arrestment Order application can be made via the court. If granted the court then collects the deductions and pays them out to each creditor. The Debtors (Scotland) Act 1987 sets out how amounts to be deducted are calculated, which includes a minimum level of income which is protected. The current statutory tables of deductions applicable to weekly and daily earnings, as well as monthly earnings, are available within The Diligence against earnings (Variation) (Scotland) Regulations 2021. Whilst the deductions are set at a statutory amount, if a debtor engages following implementation of an Earnings Arrestment and/or a creditor has concerns about the affordability and sustainability of the deductions then, in practical terms, an informal payment arrangement is often reached with the debtor …

ANALYSIS OF A RECENT CASE BROUGHT ON THE BASIS OF ‘UNFAIR RELATIONSHIP’ Liverpool, the location of the 2022 CCTA conference, is also the backdrop for a recent decision on the boundary between regulated and exempt agreements, and on the ‘unfair relationship’ question. A couple (since divorced) wanted to borrow £250,000, secured by a second charge over their home, with interest rolled up for six months. They declared the capital was to repay business debts, but not whose ‘business’ this was. Using the ‘business purposes’ exemption, the lender advanced £250,000. Evidence later showed the husband had a business partner and the loan was to pay that partnership’s debts. The wife subsequently brought a case against the lender claiming the relationship was unfair. BORROWING FOR BUSINESS PURPOSES The loan was taken out in 2014, when borrowing above £25,000 for business purposes was exempt from regulation. However, declaring a business purpose in the agreement was not enough if evidence showed the lender knew, or reasonably suspected, the loan was not to be used by a business run by the borrowers. The court held that a debtor (in this case the wife) must prove a loan agreement is regulated and that the business exemption does not operate. Holding that business exemption can only apply if the loan was taken for a business run by all borrowers, the court decided this loan was to repay existing borrowings of a business run by the husband and his business partner, not his wife. As the lender knew this, the business exemption did not apply. Accordingly, the loan agreement was regulated – and being improperly executed, could not be enforced without court order. UNFAIR RELATIONSHIP The issue was whether the loan was unfair if the wife was not borrowing to benefit her own business. The wife complained her relationship with the lender was unfair to her, as the lender: knew she was inexperienced in obtaining loans did not carry out affordability checks knew her marital difficulties and concern about losing her home did not advise her to obtain independent legal advice appointed receivers who conducted a ‘restricted marketing campaign’ colluded with her ex-husband to seize and develop the home for its benefit. DECISION Where a debtor alleges an unfair relationship, the lender has to disprove it, but the debtor must still identify facts supporting that allegation so the lender can respond. Here, had the money not been made available, the bank would have repossessed and sold the matrimonial home, with no surplus being available. Dismissing the wife’s complaints, the judge also noted the funding allowed the borrowers a breathing space in which to try to sell the property. In summary, the court decided the wife had signed the ‘business purpose’ declaration despite realising she was not borrowing to support any business of her own, because this was the only way of getting funding which might preserve her matrimonial home from imminent repossession by the bank and a forced sale. While the court found the loan agreement to be …

MORNING SESSIONS We held our first conference since before the pandemic, on the 27th April in Liverpool. Here we pick up on some of the themes and discussions from the speeches and panel sessions that made up the agenda. After our Chief Executive Jason Wassell opened the conference, we began our first panel session, A mile in their shoes: understanding the alternative lending customer, sponsored by Lantern. The purpose of this panel was to look at customers and understand how they manage their finances. Panellists told how the pandemic had different impacts on different segments of consumers. It had also driven change in how customers want to interact. Customer engagement is therefore increasingly important via digital channels, but there are some that still prefer face-to-face interaction. After our morning break which included a visit to the exhibition area for many, the keynote session of the day was delivered by Brian Corr, Interim Director of Retail Lending at the FCA. We are very grateful that Brian was able to attend the entire conference and dinner to hear from members. In his speech Brian talked about the role alternative credit can play within the wider market. He also referred to the regulator’s three year strategy document which sets out the importance of reducing and preventing harm, while promoting competition and positive change. Access to credit was also cited as borrowers need to have access to affordable products which meet their needs. Lastly, Brian talked about how the Consumer Duty measures are expected to allow the FCA and lenders to become more adaptive in delivering good customer outcomes. We then moved on to a panel session that looked in more detail at some of the regulatory measures, sponsored by Themis Consultancy. There was a general consensus among the panelists that the financial services industry had reacted quickly during the pandemic and became part of the front line approach. The Consumer Duty was described as the biggest challenge for lenders moving forward and it was suggested that firms would benefit from starting to prepare now. This could include asking ‘do we understand our target market’, reviewing the customer journey and conducting a gap analysis. AFTERNOON SESSIONS After lunch, the third session of the day commenced with a presentation from the Illegal Money Lending Team, delivered by Cath Wohlers. Cath updated the conference on the current state of illegal lending, talking about loan sharks that are increasingly operating online using social media to entice and exploit new victims. She also mentioned the recent report from the Centre of Social Justice that highlighted that one million people are believed to owe money to an illegal lender. It was then time for a panel on technology, looking at new innovations in lending, kindly sponsored by Aryza. While ‘a well-regulated successful credit industry can only be a good thing’, the provision of open banking and digital customer communication have provided more options to the credit industry to explore as part of the customer journey. We heard that the …

For UK consumers, the current economic climate continues to create challenges. As the cost of living increase continues to intensify, many are concerned that they will no longer be able to keep up with their regular monthly outgoings. In fact, the Office for Budget Responsibility, predicted that UK household real income in 2022 would contract at the sharpest rate since records began in the 1950s. Recently UK consumer price inflation has risen sharply and significantly impacted the price of food, durables, consumer goods, fuel, and energy. Fuel costs are recognised as one of the biggest contributors to this rising inflation, with average petrol prices increasing by 12.6p per litre between February and March, the largest monthly increase since records began in 1990. The war in Ukraine is also contributing to this uncertainty. For lenders, these unpredictable times are a cause for concern, significantly impacting the consumer’s ability to pay back credit. Creditors are looking for ways to not only mitigate risk, but also support their customers. Before businesses can support struggling consumers, they need to identify them. According to one study, almost a third of businesses admit that they are ineffective at identifying at-risk consumers, while an inability to spot ‘early warning signs’ was a critical challenge for 27 per cent of respondents. By running far more sophisticated affordability checks that factor in a range of credit, open banking and transactional data, lenders will benefit from greater insight around a person’s true financial position, allowing action to be taken immediately. Should any at-risk factors be flagged, lenders then need to be able to proactively monitor these cases on an ongoing basis, regularly engaging with the individual to understand if their circumstances have changed and then taking the most appropriate action. This has been a long-standing challenge for those reliant on legacy technology or manual processes, especially as case volumes increase. Specialist systems can digitally guide consumers through their money management journey, explaining their options in an easy to understand and step by step format. By utilising open banking data and smart software, these systems connect customer accounts, cards, debts, and assets, identifying the most appropriate and helpful offers available. These tools can be applied at all stages from acquisition through to recovery and should provide early warning of a customer struggling with their situation. With the cost of living continuing to spiral, it’s crucial that banks and lenders are taking action to ensure positive financial outcomes for consumers and prevent a tidal wave of debt. For the consumer, knowing that they won’t have to have a difficult conversation over the phone or in-branch will also remove a hurdle that might previously have delayed them from seeking help. To find out more about Aryza’s solutions visit www.aryza.com.