Understanding sludge practices

Sludge practices create unnecessary, irritating and detrimental barriers for customers. These can include confusing payment portals, excessive paperwork, a lack of transparency, repetitive processes and overly complex language. They can lead customers to disengage entirely or miss crucial payments, worsening their financial struggles. 

While these issues affect everyone, they disproportionately impact vulnerable individuals, including those with low literacy or numeracy skills, English as a second language, learning differences, or those experiencing mental health challenges.

Sludge practices directly contradict the principles of Consumer Duty, which requires financial firms to act in good faith, avoid foreseeable harm and empower customers to manage their finances.

Under Consumer Duty, firms have a responsibility to:

Communicate clearly

Take an audit of your customer-facing processes and ensure you are using straightforward language that’s easy for everyone to understand, avoiding internal collections jargon, tricky numerical calculations or complex terms that could confuse customers.

The simplest approach is to make information accessible to people of all abilities. This helps customers to make informed decisions without feeling overwhelmed or lost in technical details. It reduces barriers and supports better outcomes, which is in line with Consumer Duty principles.
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This webinar shares expert advice on how to improve communication with customers in debt.
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Simplify processes

Simplify your repayment and contact processes to remove friction, so customers can easily engage with you using whichever channels they prefer.

While having plenty of channels is great, make sure your information is stored in one place. This prevents it from being lost across different systems, causing customers to have to repeat themselves or resubmit information.  It's far harder to re-engage customers who've had a bad experience before.

Offer sustainable solutions

Offering flexible, personalised solutions tailored to customer circumstances helps customers to manage repayments without feeling overwhelmed. This could include options like adjusting payment amounts, extending repayment terms or exploring temporary payment pauses during periods of hardship.

You will need the data to understand each customer's unique situation, including their income, expenses, and other financial obligations, so you can create sustainable plans that set them up for success.

Be proactive

Modern collections software makes pre-arrears management a realistic option. It helps you to anticipate challenges that may cause customers to struggle and provide support in advance, reducing the chance that things will escalate.

By being more proactive, you help customers avoid decision fatigue, which may complicate or delay their decision-making. This aligns with the Consumer Duty of helping customers avoid detriment and make decisions in their best interests.

Monitor and adapt

Compliance is never a one-off activity. It's helpful to schedule regular check-ups to identify any sludge elements that may delay or complicate the customer experience.

Ask for customer feedback and conduct frequent audits to pinpoint areas where improvements can be made, ensuring all processes align with Consumer Duty requirements.

By creating a feedback loop and being adaptable, you can quickly address challenges, refine communication, and get rid of friction points.

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Avoiding sludge helps build trust and credibility with customers. When they start a journey, they're more likely to complete it and get a resolution. That's a win-win scenario for all parties involved.