Has the desire for better consumer protection, without full consideration of what is financially and technologically possible, placed both customers and the industry into a position which in the long-term is untenable?
Following the financial crisis of 2007/8, the UK regulators and particularly the Financial Conduct Authority (FCA) have sort to put consumers of finance at the centre of their regulatory response. Arguably, this has had unintended consequences for both customers and the collections industry. It threatens to further marginalise truly vulnerable customers and reduce competition in a collections industry increasingly dominated by large purchasers.
Account servicers, large to small, are currently unable to fully validate income and expenditure statements. This provides dishonest consumers with the opportunity for falsification. Smaller firms currently operating on tight margins do not have the capacity to return to customers on longer payment plans and large purchases are not incentivised to do so. There is the potential for truly vulnerable customers on such plans being masked by those that aren’t. Truly vulnerable customers are therefore not getting the support they need, since the company that set up their very long repayment plan, probably doesn’t have the capital and time to revisit the customer. Those that are not vulnerable but have set themselves up on longer-term payment plans may struggle to get financing, e.g. a mortgage, in the future. This has all the hallmarks of future miss-selling claims.
Fortunately, the FCA has recognised this and as detailed in their March 2019 thematic review expects firms to make significant improvements in how an individual’s vulnerability might affect the delivery and suitability of the debt advice given in relation to their best interests. This will further increase the financial costs of the recovery agencies, many of whom are managing a large volume of low-value payment plans.
So, could consumer vulnerability bankrupt the recovery sector?
John Willoughby, Director, elanev