A surge in credit card borrowing to a record high last month has prompted concerns that low-income households are turning to expensive forms of lending to cope with rising costs of food, clothing and fuel. Figures from the Bank of England (BoE) showed credit card borrowing jumped by £1.5 billion in February 2002 to £59.5 billion in March 2022. This is the highest since records began in 1993 and is pushing the total amount of unsecured lending up by 90% on the prior month to £1.9 billion. The BoE said the rise pushed the annual growth rate for all forms of unsecured credit from 3.2% to a two-year high of 4.4%, raising the total outstanding balance of consumer credit to £199.5 billion. Credit card interest rates averaged 18.26%, down 0.29%s, while standard credit loans fell to 6.14% from 6.23%.
This comes as inflation hit 7%.
Link: https://www.bbc.co.uk/news/uk-61090937 – inflation
Lowell / Hoist Finance UK
Whilst it may not have been a surprise, the announcement this week that Lowell is to acquire Hoist Finance UK as expansion into Financial Services collections continues.
The transaction includes the operations of Hoist Finance UK and its entire unsecured non-performing loan portfolio, comprising of over 2m consumer accounts, with approximately £585m 180 month Estimated Remaining Collections as at December 2021. The loan portfolio is almost exclusively in the credit card and personal loan sector.
For debt solution providers this is likely to mean that the penetration by Lowell in pre-existing DMPs and IVAs may be significant. My previous portfolio analysis experience identified a significant number of cases where there were multiple purchased accounts for the respective debt buyers.
On a more general note, the withdrawal by Hoist from the UK market highlights how competitive the marketplace is and Hoist don’t believe that they can achieve the type of margins they would expect in other target investments. This may be a wider barometer of how hard it may be in an expected period of forbearance as the cost-of-living crisis emerges and debt buyers, DCAs and debt solution providers all have to deal with pre-existing portfolios where contributions reduce. Portfolio monitoring and forecasting is becoming more crucial over different time horizons. This is particularly challenging is trying to determine whether longer-term formal debt solutions will complete in the manner expected, which is already a discussion point for Statutory Debt Repayment Plans (SDRPs) before the consultation paper by HM Treasury has been published. Dave Holland of the IPA has already highlighted the challenges faced by insolvency practitioners for both existing portfolios and new cases in 2022.
Completion is subject to the approval of the FCA and this is expected Q3 2022. I have attached the press release.
I responded to a post by TCC Group that Mark Hover had brought to my attention. The FTAdviser.com link is below. I agreed with the comment around how will “fair value” be assessed for brand new, first-to-market products that have no precedent to follow?
The draft FCA Consumer Duty from December 2021 placed a lot of emphasis on inclusive product design, yet we are still likely to see ‘big bang’ deployments of regulatory products like Statutory Debt Repayment Schemes (SDRPs) in May 2024 with no market testing or early adopters. We need to learn lessons from how the Debt Respite Scheme was launched in May 2021, as we come up to the anniversary from May 2021 with breathing space volumes at a fraction of the HM Treasury estimates for year-1.
I also agreed that there are mounting product governance requirements on compliance teams and also product managers in ‘agile deliveries’ with many programmes competing for resources in FY 2022/23. ESG initiatives are now becoming the new BREXIT programme to compete with. Social value, sustainability, inclusive design and continuous improvement now need to be ‘woven into’ product innovation and iterative delivery.
Dan Woodhead of IncomeMax announced the new partnership with Arrow Global Group to help their most financially vulnerable customers to maximise their income. This pilot scheme began this week and will allow IncomeMax to help these households find any extra income that they may be missing out on.
I am sure that we will more announcements like this with various specialist providers in this space. We have previously featured EntitledTo, InBest and Policy in Practice. Income optimisation is a key component of the MaPS Lot1 (national) tender, especially where there is a deficit budget. I recall discussing the training that Colin Trend attempted to deliver to me around using tools like Ferret and Lisson Grove. Thankfully, we had a specialist support unit that could use these tools.
Regardless of delivery channel, debt advice providers should ensure that all customers (not only those in deficit budgets) are supported to:
- Comprehensively maximise their income
- Maximise the disposable (DI) income they have available for repayment/savings
- Reduce or eliminate their deficit budget (if applicable)
- To agree and maintain appropriate solutions or arrangements including no or low payment arrangements
- Access available grants to pay insolvency fees
“My credit score is higher, but my affordability score is down”
I was interviewed this week by Credit Strategy in advance of several events in 2022 and was asked this question that has been covered by Sara Williams of Debt Camel. At the time of the interview, I was unaware of the context of the question. In my response we looked at the difference between a ‘credit score’ and an ‘affordability score’, which looks at both payment performance on the credit file and data from open banking. Open banking has the benefit of looking at transactional data of where you are spending disposable income. Affordability scores can be more dynamically adjusted upwards and downwards (e.g. don’t use the overdraft as often and by tightening your belt). BNPL can defer some payments to smooth cashflow measured through the accounts that the consumer allows access to.
This may be a wider question for the credit reference agencies as we prepare for BNPL data to become part of a consumer’s credit file, but the data may initially be omitted as a data source used to calculate the credit score. Undoubtedly consumer education is going to be important and I am already seeing this is an important factor for debt adviser training as consumers new to financial difficulty ask probing questions around the impact of various debt remedies on their credit file. Wider integration of Open Banking data will undoubtedly provide more dynamic transactional information, but will beg the question as to how it ‘boosts’ (or otherwise) someone’s credit score. Many consumers remain unenlightened that the bureau score itself is infrequently used by mature lenders with their own credit risk assessment processes and the factors that go into a credit approval and suitability for any given product (e.g. higher interest rate accounts with less ability to switch balances and withdraw cash). This becomes more apparent when someone with a good bureau score then progresses through the recommended partners to find that the offers they receive have limited correlation to the headline score.
I am currently refreshing the ‘how to interpret a credit file’ training that we have delivered to many debt advice providers with regard to advisers being able to effectively explain this based on the circumstances of the customer at the time of the debt advice session. This can be equally applicable for debt collection agents where they have access to data returned from one or more CRA and open banking data. This space is evolving in 2022 and the outcomes of the Credit Information Market Study will influence this going forward. It remains a topic that is close to the heart of many consumers we engage with.
I have included the link to the TransUnion guide to ‘growth opportunities in 2022 and beyond’.
Opos Youtube video on their customer approach
I picked up this video through Scott Dawson, CEO of Opos. This highlights their customer approach. Given the CSA approach to dispelling myths around engaging with debt collection agencies and debt buyers, I am sure that we will see more of this type of media as the cost-of-living crisis bites.
Supply Chain Supervision
Earlier in 2022, DEMSA responded to CP21/34 regarding the Appointed Representatives regime and increasing the supervisory requirements by Principal firms. In light of the FCA 3-year strategy and Business Plan for FY 2022/23, I have produced a thought piece around supply chain supervision more generally. I have posted on LinkedIn as well. This thought piece (one of a series) looks at some of key assessments required by regulated firms in the consumer credit sector.
This is one of the identified priorities in the Business Plan for FY 2022/23, a year which ends with the introduction of the Consumer Duty. Improving oversight of ARs to reduce the risk of poor conduct falls under the ‘reducing and preventing serious harm’ heading in the FCA’s 3 areas of focus. This is illustrative of the wider challenges for regulated firms in the oversight of the distribution chains they are involved in.
Business Plan highlights include:
- Dealing with problem firms – removing firms who do not meet FCA minimum standards
- Improving oversight of Appointed Representatives (ARs)
- Reducing and preventing Financial Crime
- Implementation of the new FCA Consumer Duty by April 2023
- Ensuring financial promotions are clear, fair and not misleading
- Testing a firm’s resilience to inevitable operational disruptions
- Shaping digital markets to achieve good outcomes
I have also touched on aligning ESG policy and strategy, where the FCA has committed to delivering their recent ESG strategy that we provided a bulletin on in late 2021.
This is aligned to the CP21/30 (Debt Packagers) consultation, where we are still awaiting news from the FCA. The direct linkage between the 2 consultations is that some insolvency practitioner firms without FCA permissions have been looking at whether being an AR is an appropriate route forward. I have highlighted in my paper that the FCA is looking at cases where the principal firm is much smaller than the AR firm.
The role of agents in debt recovery processes
I have responded to a post by Arjun Mitra, President of Global Collections and US Customer Care at Firstsource. It is a timely post, as the role of agents has been subject to many discussions of late as we ’empower’ them with more tools at their disposal. Whether these are welcomed or not may be debatable in terms of agents now only fulfilling some exception management activities in a customer journey/workflow.
As the cost-of-living crisis bites, I am seeing a greater need for agent knowledge development around the concerns raised by consumers and micro-businesses about the impact of non-payment of debts and how accessing open banking (OB), I & E tools or pulling their credit file is in their best interests. Many consumers don’t liked to be badged as ‘vulnerable’ even though there may be clear evidence that this is the case.
Business readiness for digital transformation and (in the UK) the new FCA Consumer Duty, is a major undertaking where changes in role priorities need to be mapped out and Training & Competence Schemes evolved so that agents understand the benefits of; OB, AI/ML interventions, use of robotics, NLP, bots, Conversational AI, wider use of 3rd party data providers and other innovations. Many telephone agents didn’t take well to being webchat/VA agents during the initial lockdown and handling concurrent threads.
Paul Banks of The Modular Analytics Company (TMAC) has been actively generating feedback on how contact centres protect their most vulnerable customers. This is aligned with the impact of the FCA Consumer Duty and leads into our series of articles on digital debt resolution and how we QA digital journeys more effectively as part of a holistic QA Framework. Chris Warburton and I have already commented on this post (link below). I looking out for responses from Arren Khan, Helen Lord and Chris Jones.
The speech by Brian Corr, Interim Director of Retail Lending at the FCA, delivered at Credit Summit 2022 reinforced the regulator message of ‘don’t wait until July 2022’.
The FCA 3-year strategy has been published and reinforced the outcome focus and need for inclusive design. It is one of the reasons I am supporting ISO22458 (Consumer Vulnerability) which is launched by BSI on 5/5/2022.
It will be important to assess how platforms like the Vulnerability Registration Service and VCX ltd are integrated into these journeys where this can tangibly improve the agent and customer experience. Technical ‘hand-offs’ need to be thought through, where ‘alerts’ and tailored questions from open banking, AI/ML, NLP, CRA data, VRS hits, VCX agent support and other data providers can all add value IF done well.
Risk-based QA Frameworks should be a key focal point, including how omni-channel and digital aspects of a journey fit in (e.g. Conversational AI like Inicio). This is a ‘hot topic’ given the Consumer Duty need for ‘evidence’.
Along with Aveni, TMAC recommends using speech analytics to monitor how appropriately agents are interacting with vulnerable customers. Natural Language Processing (NLP) is one of the ‘disruptive technologies’ being targeted by MaPS and was a key component of the public tender that I supported in 2021 with HMRC.
Link: https://www.linkedin.com/posts/the-modular-analytics-company_the-fca-consumer-duty-act-making-contact-activity-6918132855273353216-QQEo?utm_source=linkedin_share&utm_medium=member_desktop_web – TMAC Consumer Duty post
Link: https://www.linkedin.com/posts/aveni-ai_compliance-fca-consumerduty-activity-6919578126624702464-adio?utm_source=linkedin_share&utm_medium=member_desktop_web – Aveni 5-steps to Consumer Duty compliance
ICO article on Ransomware
The ICO has kindly pointed out that if your firm is subject to a cyber-attack, such as ransomware, then you are responsible for determining if the incident has led to a personal data breach. This is a key first step in deciding if you should notify the ICO about the incident.
The UK GDPR defines a personal data breach as “a breach of security leading to the accidental or unlawful destruction, loss, alteration, unauthorised disclosure of, or access to, personal data transmitted, stored or otherwise processed”. Where personal data is taken it typically results in unauthorised disclosure or access to personal data and therefore is a type of personal data breach. However, it is not the only consideration you should make when determining if a personal data breach has occurred. You may have lost timely access to the personal data, for example because the data has been encrypted. This is a type of personal data breach because you have lost “access to” personal data. Temporary loss of access is also a type of personal data breach. For example, if there is a period of time before you restore from backup. Therefore, loss of access to personal data is as much of a personal data breach as a loss of confidentiality.
Given the focus on cyber security/resilience this year, a review of core policies around operational resilience policies is a priority. This would have been the case for larger regulated firms subject to the FCA operational resilience requirements in March 2021.
On 26-27 April, I am attending the CCTA event in my capacity of advisory board member of the Vulnerability Registration Service (VRS), who are exhibiting. I am looking forward to catching up with a number of you. Lantern and Perch are sponsoring. Alongside VRS, Data on Demand are exhibiting.
Arum/Sigma Connected/CSA – How do your digital & voice collections strategies stack up against your peers? – 28/4/2024
Arum has teamed up with Sigma Connected to produce a report about the use of voice and digital channels.
ISO 22458 – Consumer Vulnerability kitemark – launch on 5 May 2022
As previously reported, DEMSA has registered for the launch of ISO 22458 at a venue that will be familiar to MALG veterans. It starts at 9:30 on 5 May 2022 at the Royal College of Surgeons.
This session introduces ISO 22458 ‘Consumer vulnerability’, which builds on BS 18477. Since its publication, BS 18477 has been widely referenced by UK regulators and used by firms in regulated essential services (e.g. financial services, water and energy). ISO 22458 covers the design and delivery of inclusive services, helping firms deliver fair, flexible and inclusive services in line with the FCA Consumer Duty. This event will set out the key principles and objectives of ISO 22458 Consumer vulnerability.
The Vulnerability Registration Service’s next Webinar ‘The Vulnerability Jigsaw’s Next Piece: Identification, Integration & Implementation’ on 14/6/2022
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