There is real momentum behind the Money and Mental Health campaign to revisit the Consumer Credit Act (1974) and replace what is considered to be outdated and potentially unhelpful wording in ‘debt letters’ with alternative phrasing less likely to cause or exacerbate mental distress. No one is disputing the importance of setting out the legal consequences of court action (not least for the protection of the consumer) but debt advice bodies argue that the tone and structure of these letters are counter-productive for those experiencing mental health difficulties or other vulnerable circumstances, sometimes with a very high human cost.
Many creditors, however, feel that these strongly worded communications can have a galvanising effect on the debtor, bringing about a realisation of the full seriousness of their position and often motivating previously uncommunicative customers to start resolving the situation when other means have failed. So what is the compromise? How does society balance the right to collect an outstanding debt with an approach that ensures that the steps taken do not cause harm? It’s a discussion all interested parties are participating in.
As the debate continues, there are steps lenders can take to protect their reputation and ensure fewer customers end up at the sharp end of collections. Here are three considerations:
Has every opportunity been proactively offered to help customers manage themselves out of debt?
After a prolonged period of austerity with wages not yet recovered to pre-2008 levels, many customers are experiencing a genuine squeeze on their finances. In times of difficulty, steady support and helpful options can make the difference between coming to an arrangement or a damaged customer relationship. Many lenders already provide this and some excel at it. Indeed, it is a point of value between competing credit providers, where the lifetime value of the customer is balanced against the costs of a more immediate debt episode. Debt collection processes are evolving quickly and moving more towards a customer service model, where customers are valued as long term clients with a sustainable, loyalty driven relationship at the heart of all actions. In a culture of switching providers and vocal opinions, it pays to play the long game.
Secondly, has the creditor taken all reasonable steps to provide a safety net to prevent vulnerable customers from reaching a treatment that may cause them additional detriment?
The stigma and secrecy that surround our mental wellbeing are beginning to be challenged but it will take some time before this filters through society and normalises disclosure. Meanwhile, many collections operations have noted and acted on the prevalence of phone and letter anxiety by offering diverse communication options that take advantage of the omnipresence of computers and smartphones in our lives. The online journey can produce multiple overt and subtle opportunities for disclosure as well as context-sensitive machine learning algorithms to filter customers exhibiting signs of potential vulnerability to the most appropriate treatment. The evidence for online communication has already proved compelling to crisis helplines such as Childline and The Samaritans who moved some time ago to provide an online service that complements their traditional phone services.
As the discussion about digital debt collection moves away from the issue of adoption and more towards optimisation, the next generation intelligent solutions are using augmented intelligence to identify potential difficulties earlier and to segment based on individual characteristics as early in the process as possible.
Finally, how do we support creditors to collect from persistent and determined non-payers?
The wording and layout of letters may change but the legal process to uphold the right to collect is unlikely to be weakened as it protects all borrowers from bearing the cost of unpaid debt. Whatever the changes, persistent debtors will still face due legal process if they refuse to resolve their account. Meanwhile, with improved preventative measures embedded earlier in the collections cycle and a more prominent description of options and help available on any formal communications, the risk of collections activity causing harm or panic will be reduced.
At the end of the day, it has always been more effective and less costly to collect debt or make sustainable arrangements early in the process through inclusive and collaborative methods that motivate customers to communicate and act. As debt collection systems become context-sensitive, there will be more chances for customers in vulnerable circumstances to communicate with their credit provider, more chances that non-disclosing customers will be picked up and treated appropriately and fewer of these customers reaching the final stages where serious measures have to be taken.