For consideration
Review of Scottish judgment (diligence) enforcement

Published 10 October 2022

The Scottish Government’s ministerial forward to Scotland’s stage two diligence review cites a number of factors for its necessity including the pandemic and cost-of-living crisis. Those with problem debt, including those with mental health issues, need greater support. There are also helpful suggestions to make some of the current enforcement options more effective for creditors. Following the consultation, a stage three review will take place. The proposals include the following: • The current temporary embargo of six months on diligence for those in financial difficulty should be made permanent. A specific mental health process should also be introduced. • Those debtors who want to enter a trust deed should be given an information leaflet explaining its implications. • The “Debt Advice and Information Pack”, which explains the implications of debt and available advice, should be modernised. • The Minimal Asset bankruptcy process stipulates that it will be unavailable if a debtor’s cumulative assets exceed £1,500. This is to be removed as it disqualifies several debtors from being able to benefit from the debt relief which the procedure offers. A debtor is also excluded should assets be greater than £2,000 with a single asset having value of greater than £1,000. It is proposed the single asset provision be removed. • To maintain consistency throughout the UK, the current “Standard Financial Statement“, which is already being used, should be permanently adopted. • No change is suggested to the successful “Debt Arrangement Scheme” with the proposal for an early exit from it, should creditors accept composition of their debts by the debtor, being rejected. • The current judicial rate of interest on accrued debts should be reduced from 8% to 2%. • Provisions should be introduced for an “Information Disclosure Order” (IDO) o Creditors must first consider whether it is possible to proceed without an IDO. If not, then they must seek advice from a professional advisor and be in possession of a decree or equivalent with a charge for payment having been served. o The Sheriff Officer will have three months to submit the application if information is required from a third party. o To prevent asset concealment the debtor will not be notified in advance of the application. • Exceptional Attachment Orders, which permit the removal of property from the debtor’s home, will be unaltered other than increasing the value of sentimental assets, which cannot be attached, from £150 to £500. • Inhibitions, which can prevent the debtor from selling or mortgaging their heritable (freehold) property for five years, will remain. • Employers will be obliged to advise creditors within 21 days whether an earnings arrestment has been successful. • All arrestees, including banks, will be obliged to advise creditors if an arrestment is unusual.

A bumpy flight?
Legally represented claims: The perils of paying direct

Published 10 October 2022

Iain Campbell explains the unwelcome implications of a recent decision in the UK supreme court. INTRODUCTION A firm receives a claim from its customer, represented by solicitors. The claim seems justified. The firm decides to pay it. The solicitors tell the firm to send them the compensation. The firm sends the compensation directly to the customer. What happens next? This question was considered by the Supreme Court in the judgment delivered in March 2022 in Bott & Co Solicitors Limited -v- Ryanair DAC. It concerned passenger compensation claims against airlines, due to flight delays, but applies equally to claims brought on credit or hire agreements. THE FACTS The solicitors used an online tool to promote flight delay claims, offering to limit their fees to a percentage of any compensation won. The tool was successful, with up to 1,000 claims a month registered. The solicitors passed the claims to Ryanair and told Ryanair to send them the compensation. They intended to take their fees out of the compensation, then pay the balance to the customers. Ryanair paid the compensation directly to the customers, preventing Bott from deducting their fees. Nearly one third of the customers kept all the compensation, leaving Bott out of pocket. EQUITABLE LIEN In proceedings against Ryanair, Bott asked the court to order it to stop paying customers directly, whenever Ryanair knew Bott were acting, and to make good the missing fees which had been kept back by some customers. The legal basis for this was the ‘equitable lien’. Designed to protect solicitors’ rights, this gives them an interest in receiving claim proceeds, where the party making payment knows of their involvement in a claim. THE ISSUE Ryanair argued it had introduced its own online claims tool, so there was no need for customers to use Bott to notify claims. Ryanair pointed out that customers could receive 100% compensation by using its own online tool, so it was unfair to make Ryanair pick up Bott’s fees where the customers had been paid directly in full but kept all the money. The equitable lien is not new, but the court wrestled with whether it could be used where: • There was no real dispute (the passengers were clearly entitled to compensation). • The solicitors had only used an automated system to notify theclaims. The Supreme Court held it was fair to make Ryanair reimburse the fees, rather than to force Bott to claim them directly from their clients. Equitable lien was a way of protecting solicitors’ claims to their fees, enabling them to take on work they might not otherwise risk, and so it promoted customers’ access to justice. This principle applies where the party paying compensation was aware of the involvement of the solicitors, in connection with a claim, even if the claim was undisputed. Work by the solicitors did not need to employ much skill. Their steps could be largely automated. This lien even applies to very early stages of work to prepare a claim, such as …

Laying the groundwork
The path to the Consumer Duty

Published 10 October 2022

In its 2022 – 2025 strategy paper, the FCA stated that “by acting earlier and more assertively we will prevent harm and intervene before problems become systemic”. Consumer protection is at the heart of this and the FCA’s increasingly assertive supervisory approach is likely to put significant pressure on retail lenders and other firms operating in the consumer credit sector. Indeed, with inflation predicated to reach or even exceed 14%, many consumers will see a reduction in disposable income and some may experience financial vulnerability for the first time. In this context, the FCA is concerned about the potential for an increase in reliance on credit, and is likely to take a strong stance against firms which seek to take unfair advantage of these difficult economic conditions. In this regard, the FCA has at least been transparent about its expectations. On 16 June 2022 it issued a Dear CEO letter to around 3,500 retail lenders reiterating the importance of treating borrowers fairly. In particular, the FCA emphasised the need for lenders to ensure that their approach to new borrowers takes account of their financial pressures, to consider their treatment of vulnerable consumers, to ensure that fees charged are fair and to direct consumers to money guidance or free debt advice services as necessary. The FCA followed this up with a further Dear CEO letter, on 27 June 2022, aimed specifically at mainstream consumer credit lenders. In this, the FCA reiterated its concerns about the potential growth in demand for credit and confirmed that ensuring consumers in financial difficulty receive fair and appropriate support remains a key priority. The FCA indicated that firms should not seek to increase business, or otherwise benefit from increased demand, by reducing the stringency of affordability checks and should continue to apply reasonable and proportionate checks on applicants, including taking steps to determine or reasonably estimate their income, as required under the existing Consumer Credit Sourcebook rules. Firms will also need to consider and review their affordability and creditworthiness policies, and to assess what management information they will require to monitor this effectively. In assessing the industry generally, the FCA has previously expressed concerns about levels of engagement with customers, in particular that firms may not always take sufficient steps to understand individual customer circumstances and may not consider an appropriate range of forbearance options. To alleviate the regulator’s concerns about this, firms should ensure that staff – particularly those in customer facing roles – are sufficiently experienced, and have appropriate training and support, to cope with a potential increase in customers who may be in financial difficulty. Perhaps most significantly, on 27 July 2022, the FCA confirmed plans to bring in a new Consumer Duty requiring firms to deliver “good outcomes for retail customers”. As part of the new Duty, firms will need to focus on supporting and empowering customers to make good financial decisions, and there will be specific requirements to make it easier for consumers to switch or cancel products. As part of …

Balancing creativity and clarity
Creating engaging content in a regulated industry

Published 10 October 2022

The role of a marketing professional requires creativity and innovation. In fact, one of the sacred rules of brainstorming is that ‘no idea is a bad idea’. However, for those working in highly regulated industries this can often be far from the truth. For marketers in financial services, their priority must lie with ensuring they are clear and transparent with their audience, following carefully structured regulatory guidelines, which are there to protect consumers. Natalie Gomez, Marketing Manager at GAIN Credit discusses how working in a regulated industry has changed her outlook on her chosen profession. “I’d say I had a largely stereotypical view of what finance related content looks like. I thought it would be a little vanilla and very formal”. After writing content for the hospitality and travel industries for almost a decade for Natalie, complacency was a risk. The decision to challenge herself and her writing led her to fin-tech consumer lending. Natalie says her role at GAIN Credit “opened my mind and completely shifted my perspective on content creation”. GAIN was seeking a marketing professional from a non-finance background to bring in a fresh new perspective to content creation. The mantra, ‘if you don’t understand what you write, no one will’ led to this requirement. The mantra holds true across all industries, but is especially important in the consumer lending space, where clarity and transparency are so important. “There were a lot of unfamiliar financial terms thrown out initially – I had to double check the meaning of APR when I joined! I’ve asked hundreds of questions along the way, and have worked closely with the compliance team to write in a way that’s most helpful for our customers. Most of our customers would mirror my limited understanding of financial terminology, so putting our heads together to write content has dramatically increased the quality. I’m able to put myself in the shoes of the reader and strongly believe that if we speak clearly and with transparency, we build better relationships with our customers.” “As a marketing professional, it’s always been important to stay up to date on trends. It’s an ever-changing industry. As a marketing professional in financial services, I’ve found it equally important to stay up to date on the regulations. With the support of compliance, this ensures I can communicate with our customers in a way that protects them from unwittingly entering into a decision they may not fully understand.” “This has only developed my content writing skills. The best writers will break down information, to make it easy for consumption.” For people facing a challenging financial situation, seeing an ad that promises ‘We are here to help, instant unlimited cash that you can pay back anytime’ can be tempting. However, there are key details missing here. Many companies in the consumer lending space will fulfil regulatory obligations using finance specific terms without clear explanations. GAIN Credit believes in avoiding financial jargon in favour of simplicity. Natalie explains, “speak to customers, as you’d talk in …

Stark challenges ahead
Social enterprise lender launches second social impact report

Published 10 October 2022

Lendology CIC, working with council partners, is a Social Enterprise Lender providing access to low-cost finance for homeowners who may typically be excluded from mainstream lenders. Their second annual Social Impact Report has been prepared to evidence how their lending translates into tangible improvements to individuals, communities, and councils across the UK. This report documents Lendology’s activities across 2021/22 and provides an independent assessment of the benefits this has generated. It has been reviewed by the Financial Inclusion Centre, a not-for-profit research firm by combining: • analysis of data for the 226 loans delivered during this period; • structured surveys sent to 180 borrowers via email and post, and completed by 70 customers (representing 39% of clients during 2020/21); and • 19 surveys conducted with representatives from 14 of Lendology’s 18 council partners. With over 51% of households in the South West not having access to emergency savings, over 11% of households in fuel poverty and 24.2% excess winter deaths each year, the Report highlights the stark challenges already faced in the region, even before the energy and cost-of-living crisis hits this winter. Healthy homes are critical to the health and wellbeing of its occupants and reduce the impact on local services, such as the NHS. Housing is a ‘social determinant of health’ that can dramatically impact physical and mental health inequalities throughout life. Ensuring homeowners have access to fair finance to maintain their homes means that homes are kept healthy for the families who live within them. Emma Lower, CEO at Lendology, said: “The Social Impact Report that we produce each year goes some way towards highlighting the fundamental need for the service that we provide. Without the funds provided by each of our council partners, we would not be able to help these homeowners from across the region. The assumption that the inhabitants in the South-West are affluent and do not require assistance has to be changed. “Each year the council enables us to support clients who have a variety of needs, however, we are still talking to some homeowners who have no central heating or hot running water in their homes. I am delighted that yet again we could make a positive difference last year, and whilst we had a record lending year, it is not the money that drives us to do more, but the impact that the loans we provide have had. This report enables us to show the difference that a council loan has made to the family, the home, and the community as a whole”. Read the full Social Impact Report here.

Bringing it all together
Improving performance management

Published 10 October 2022

Martijn Groot, Collections Control Specialist at Aryza, discusses how technology can help credit managers in banks and other institutions to drive efficiency and improve performance management processes. With many consumers cutting back on everything but the essentials and businesses grappling with lower consumer spending, alongside rising costs, the number defaulting on their pre-agreed payment arrangement is only set to increase. To avoid cash flow problems and businesses falling into debt themselves, credit managers are striving to become more efficient at managing debt. BRING EVERYTHING TOGETHER FOR GREATER VISIBILITY Managing an arrears portfolio of credit records is far from an easy task. With recording handled by a range of different collection partners, the information provided and formatting of these documents can vary significantly. Alongside this, accounts are all at different stages, and each is assigned to an individual with their own, unique circumstances. Overseeing the collections process for each of these accounts (whether there are ten or 1,000) requires significant resources. Those unable to keep the debtor informed of their position and options will, over time, damage their reputation and potentially lose business. This is where technology can help with performance management software as it is able to provide banks and other companies with full visibility of the entire process, rather than having staff browse through several disparate sets of information. The ethos of these systems is to bring all the information from multiple collection partners, databases, and locations into one centralised place. It can then be displayed in a consistent and easily understood dashboard with predefined KPIs. HAVING A HANDLE ON YOUR COLLECTIONS PROCESS Healthy cooperation along the credit management chain depends on shared ideas and understanding. Aryza Control creates a uniform view of case data and offers powerful tools for analysis and cooperation – all vital elements for an effective partnership. Gaining insight is the key to achieving an optimum spread of the benchmark portfolio and improving yield. IMPROVED REPORTING One of the most time-consuming tasks in any business is the creation of reports. In the sensitive and tightly regulated field of debt recovery, it can take even longer. Through the deployment of specialist technology, businesses can generate more than fifty different types of reports in a matter of minutes, depending on the information that’s needed. These can be generated automatically or in line with each client’s requirements. This data is automatically monitored and can provide powerful insights to enhance the decision-making process. For example, it allows businesses to see how their relationship with individual collection providers is faring in terms of a cost-benefit ratio, and whether that company is in line with standards for socially responsible credit management.

Navigating a volatile environment
COEO, collections and current consumer trends

Published 10 October 2022

Keeping in-line with customer trends is crucial when it comes to collections. When we understand how events, such as the cost-of- living crisis, will likely impact customers, we can prepare and adapt strategies to create better outcomes for all. This article shares a selection of customer trends we’ve uncovered and what to expect next. CHANGING WAYS OF CUSTOMER ENGAGEMENT The most significant shift we’ve noticed is the incredible growth of digital adoption. Digital engagement has become the norm for all stakeholders (including clients), with the need for information and action to never be further than a few clicks away. It is more important than ever to offer customers more flexible ways to engage with us and address the consumer shift to digital channels. CHANGING BEHAVIOURS It will come as no surprise that there has been an increase in financial vulnerabilities due to the cost-of-living crisis, resulting in difficulties for customers trying to maintain contractual payments. UNDERSTANDING VULNERABILITY IN COLLECTIONS It is vital to understand when a customer is vulnerable, as, in collections, it often directly impacts their ability to manage finances. Continuous vulnerable customer training, alongside coaching and testing, ensures customer-facing staff and specialist support teams are equipped to deliver good outcomes for customers facing a variety of temporary or permanent vulnerabilities. Examples include: • Having prescriptive, efficient, and effective methods for identifying vulnerable customers. • Actively listening to be thoughtful, consistent, and clear in agreeing to an appropriate way forward. • Segmentation that can be translated into appropriate action has also increased as a more profound analysis of vulnerable customers allows us to find targeted solutions for specific circumstances. This investment in developing a greater understanding of customers and the nature of their vulnerabilities has helped develop strategies that create consistently better outcomes. WHAT WE EXPECT Considering the impact on affordability, we anticipated and are now experiencing a reduction in instalment values; (and an increase in payment plan lengths). As previously mentioned, digital journeys also play an increasingly significant part in the lives of people today. We expect this will continue to rise across all sectors; therefore, it becomes essential to have high-quality digital journeys that are continuously reviewed and improved based on customer feedback. FINAL WORDS As with many things, there is no single solution. Short-term intervention needs to be balanced with longer-term solutions. For example, better education has a part to play. In addition, a more significant focus on financial literacy from a younger age will help prepare individuals with the tools they need for a more financially savvy future. In the meantime, the focus in collections shall remain on making solutions simple for consumers and creditors in an ever-volatile macro-environment.

Feeling the shock
Sharing data to protect vulnerable consumers

Published 10 October 2022

The potential impact of the cost-of-living crisis has sent out shockwaves, maybe because we are all going to be really hit in the pocket, but have we been limping towards this for years? Have we been unwittingly making people’s situation worse while patting ourselves on the back for talking about vulnerable customers and achieving the right outcomes? There is no master plan to identify those in society who are the most vulnerable nor is there a government champion spearheading the quest to make sure that we are targeting those in the most difficulty, to ensure they have access to the help that is available to them. We have known forever that mental health and financial difficulties are intrinsically linked; we know that there are millions of pounds of unclaimed benefits; we know that ‘thin credit files’ and financial exclusion have been a fact of life for decades; we know that it is almost impossible to justify that the most financially disadvantaged are the ones that have to use pre-payment meters. We can trot out endless facts but what have we really done to address it? We have appointed lots of people who have responsibility for vulnerable customers and we have done plenty of talking. But do these people have the mandate to make changes? Simultaneously, we have made life much more difficult, we have moved people to digital channels who are ill-equipped to deal with them. We have strengthened our authentication processes to meet data protection expectations while rendering it almost impossible for carers to act on someone’s behalf. We have stripped out regulated credit options with the demise of numerous high-cost short-term credit providers and, with them, many people’s first foot on the credit ladder has vanished into the ether. Jargon and terminology have evolved to such a degree that only the most financially capable have a chance of keeping up to speed. Little has been done to identify who needs help, who is vulnerable, who should be targeted for support or who is likely to fall victim to a loan shark or coercion. If a person can navigate their way through complicated websites, manage to hit on the right person to speak to, then maybe they will be lucky in getting help, that is if they are brave enough to put their head above the parapet. Meanwhile, we have people spiralling into debt and becoming increasingly inert because of the stress and stigma attached. We need to share data about vulnerable people centrally. Currently, there are small pots of information held about certain aspects of their circumstances. This needs drawing together to complement the financial status information we can already access so that we can support people in the right way and form a more complete picture. Financial hardship can be coupled with many different factors such as mental health, coercion or addiction. How can we treat people in the right way if we don’t know the facts? How can we lead people to gain the specific support …

Attack of the sludge
Explaining and avoiding sludge practices

Published 10 October 2022

We are sure that by now you are knee deep into the final Consumer Duty and your brain is saturated with new terminology from manufacturers, distributors and Sludge Practices. So, what are Sludge Practices? The FCA defines them as: an excessive friction that hinders consumers from making decisions in their interests, by taking advantage of their behavioural biases. We will set the scene. On Friday at 3.00pm, Mr Smith applies for a loan on your website. The site is simple to use, explanatory and he has completed his application in under ten minutes. You run all your affordability and creditworthiness checks and approve his loan in under an hour. You notify him that his loan will be paid out the same day and Mr Smith receives the funds by the end of the day. Over the weekend, Mr Smith does a bit more shopping around online and sees that he could have got his loan at a cheaper interest rate. He looks at his contract and sees that he can withdraw from the loan and repay it by either calling, emailing, or writing to you but notes there are no bank details for him to repay the money. He first visits the FAQ page of your website to see what is says about withdrawing from the loan. There is no information. He then visits the Contact Us page. His choices are to write a letter, email, live chat or telephone. The live chat is offline so he decides to call. He notes that the lines close at 12.00pm. At 11.30am a recorded message informs him that wait times may be slightly longer than usual due to the bank holiday. At 11.55am he gets cut off. His next step is to send an email, to which he gets an immediate response stating that you anticipate responding within three working days. Mr Smith tries to log into his account but there does not seem to be a ‘Pay Now’ button. By this point, Mr Smith is ready to submit a complaint. He reads your complaints policy and sees that he can only complain by post. He is now well and truly in the sludge as the relative ease of applying for a loan has been countered by the obstacles of withdrawing. The FCA expects you to review your product and practices under Principle 12 and PRIN 2A, including the cross-cutting rules and outcomes. This means you are expected to ensure fairness and continually test and monitor to ensure that the customer is receiving a fair outcome. When creating any Consumer Duty reports, it would be vital that this is listed, and any updates recorded with full root and branch analysis of any changes. Reviews should include every aspect of the customer journey, websites, and all communications. This list is not exhaustive. With this new mindset, sludge is easily spotted. Remember that there are many opportunities in the complete loan process where sludge can be created. ALPH L&C Limited are an Associate CCTA …

A whole new world
Helping customers who aren’t used to needing help

Published 10 October 2022

We have all talked a lot about the imminent rise in utility bills and the cost-of-living crisis that is happening all around us. We have referred to how we are helping existing customers in arrears, those who have sought advice from debt management companies or who are being managed by specialists like Lantern or Sonex to help identify their vulnerabilities and set them on their way out of problem debt. But what about those customers who have never experienced debt, who still believe it is a bad thing and something which should not be talked about? These are the new types of customers we are likely to see in this whole new world we are about to enter. As humans, we tend to live to our means; secure a promotion at work? Get a better car. Got a new job that pays more? Move to a bigger house. It is commonplace, it is how the world goes round. But now with all the price hikes coming from several directions it is likely that consumers who were once able to live comfortably, and within their means, are now facing financial problems. It may well be that the first changes affect the more ‘luxury items’, meals out, treat trips away, but it is very likely to start impacting the necessities quite quickly, and soon we could be seeing a new type of customer in collections. To support this as an industry we need to be visible. We should all talk about debt to our families, our friends, to the taxi driver bringing us home, in fact anyone who will listen. It is more important than ever that we put a stop to the stigma of debt, to help people feel comfortable seeking support when they find themselves in debt for the first time. Here are some of the things we have done at Lantern to become more visible should we start to see this new kind of customer enter financial difficulties: • Active use of TrustPilot It is a go-to for most of us and, with our score of 4.3 (Excellent), should someone look up debt collection they will see we are a company who they can approach safely and do not need to avoid. • Continued development of our portal and online capability Whilst some people will never want to talk about debt, we can enable them to acknowledge and deal with it by having a slick digital offering. • Make it easy Our Single Customer View ensures customers only have to tell us things once, we then know their circumstances. Whilst it seems like common sense, it’s surprisingly uncommon. So, ask yourself; are you doing everything you can to ensure that when we start to see these new types of customer, they will be encouraged to engage, to deal with their new found situation, enabling them to get our help faster? We all need to adapt to these changes and quickly.

Right help, right time
Connecting customers with debt advice

Published 10 October 2022

Whether it is having that difficult conversation you have been dreading or visiting the dentist the first time you get a tooth ache, addressing a problem earlier tends to lead to a better outcome with most things in life. We feel better once we have just done it, and invariably the outcome is better than our worst fears. The same is true when dealing with our finances, and more importantly our debts. At StepChange, we provide support to people who are in financial difficulty and struggling with debt. Unfortunately, our recent research demonstrated that over 50% of our clients delayed seeking debt advice for over twelve months. This can have devastating consequences, and it is not surprising to see that the same research showed 92% of our clients wished they had sought help sooner. Heading into winter amidst a cost-of-living crisis, more and more people are at risk of falling into debt. Compounding this, many of those who are finding it tough have no experience of financial difficulties, and therefore don’t know where to turn. This is obviously concerning, and it is important that as an industry we continue to address the stigma of money worries and talking about debt. That’s why this autumn, StepChange are working with our partners to encourage anyone who is struggling financially to reach out for help as early as possible. Our ‘Don’t Wait to Get Help’ campaign speaks directly to consumers, encouraging them to ask for help, to get a holistic and objective view of their financial situation, and to access the support they need before their situation and the consequences escalate. It is crucial to recognise the role that creditors can play in identifying customers who are at risk of financial difficulty. As we approach a winter where energy prices and inflation will create significant challenges for millions of households, creditors need to identify and support those customers who might be in danger of falling into debt and direct them to the help they need before their situation gets significantly worse. We are working closely with our partners, including the UK’s largest banks and lenders, to do exactly that, building new tools which enable them to refer their customers more effectively to debt advice across our omni-channel services. These tools include e-learning modules for customer-facing colleagues at creditor firms, and our new digital referral tool, StepChange Direct. StepChange Direct was developed in partnership with a major UK lender to address the issue of consumer disengagement when they were advised by the lender to seek debt advice. It is a digital tool that can be embedded on creditors’ websites, mobile apps, and digital collections journeys for consumers to use. By embedding this in the existing service, StepChange Direct significantly reduces dropouts by keeping the consumer in the native page or app. The tool asks a short series of questions before directing them to the most appropriate solution based on their individual circumstances. The lender observed an eight-fold increase in the number of customers completing …

Comment from Chief Executive Jason Wassell on the death of Queen Elizabeth II

Published 09 September 2022

Like so many, we are sad to hear of the passing of the Her Majesty The Queen. I know that I speak on behalf of CCTA members when I pay tribute to her loyal service to our country and her sense of duty. Our thoughts are with the Royal Family at this difficult time. We have seen six monarchs since we were founded in 1891, and we send our best wishes to King Charles III.