Tackling the engagement gap

Here at the Credit Services Association (CSA), we have launched our latest report titled ‘Tackling the Engagement Gap Addressing the reluctance of consumers to discuss debt; which takes a closer look at the reasons for customer disengagement.

This report builds on work we started some years ago with our #heretohelp campaign, which sought to reassure customers that there was little to fear from engagement with CSA members. Engagement remains critical to debt resolution. The nature of the resolution can take many forms – repayment; forbearance; an insolvency solution; write-off – but, no matter the form, it can bring reassurance and comfort to customers to know that they are taking a step forward. However, available data suggests that millions of customers are currently not engaged in dealing with their debts.

Reluctance to engage with creditors or collection agencies is far from straightforward. It is driven by a range of factors, and the customers that do not, or cannot, engage about their debts are often facing more than a single barrier. But the longer customers go without engaging, the more entrenched their financial difficulties are likely to become.

Our report finds that customers’ reluctance to engage with creditors or collections agencies about their debt situation is often driven by feelings of fear, shame or denial. Those feelings are often rooted in a lack of information – a lack of awareness about the scale and nature of forbearance, a lack of knowledge about how to access the support and advice available to consumers, and a lack of experience that can make it difficult to discern misinformation from legitimate information.

Earlier this year, the House of Commons’ Education Committee published a report, “Delivering effective financial education”, in which it rightly criticised the current approach to financial education and set out a series of recommendations intended to bolster financial education in primary, secondary and higher education. We are calling on the new government to prioritise the implementation of those recommendations, to ensure that all young people are equipped with the requisite knowledge to manage their finances, no matter the circumstances.

Improving financial education alone will not address the problem. Too many people who have fallen behind on their credit repayments are held back from picking up the phone and having a conversation because of misplaced fears, often exacerbated by myths and misinformation. If we are to empower customers to confront their financial circumstances, more must be done to eliminate misinformation or enable customers to more easily recognise misinformation. This is particularly true of the types of misinformation that drive customers towards misguided and risky strategies, in the hope that they will not have to repay their debt. We want to see the regulator intervene more effectively in eradicating this kind of misleading information, especially where it poses serious consumer harm.

The regulator can also do more to counter misinformation by reminding the general public of the value of engaging with their creditors, collection agencies and debt purchasers. The financial services industry has just overhauled its approach to consumers, prioritising the delivery of good outcomes, in order to implement the FCA’s Consumer Duty. In November, more new rules will come into effect requiring firms to ensure customers in or approaching arrears received tailored support. So, it would be a welcome message of support for the industry and faith in its own work if the regulator were to highlight the benefit of speaking to one’s creditors.

Research for the report also found that the public tends to have an overexaggerated fear of debt enforcement when contrasted with actual levels of litigation among CSA members. The average consumer, according to our polling, perceives that 32% of debt held by collections agencies will end up in court. But data from CSA member firms indicates that this figure is closer to 7% – and those are predominantly cases where customers have persistently failed to engage. When customers learn that the chances of ending up in court are far smaller than they expect, our research suggests their fears are lessened and there is a greater willingness to have a conversation and engage in potential solutions and forbearance.

In other words, if customers are better informed, they are more likely to resolve problem debts.

Read the full report here.

Daniel Spencley is Head of Policy at Credit Services Association