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Consumer Duty: meeting the closed product requirements 22 JANUARY 2024

Consumer Duty: meeting the closed product requirements
3 minute read

In a recent blog, I outlined the FCA’s two key focus areas for the next Consumer Duty deadline of 31 July 2024.  

One of the key focus areas is ensuring closed products now meet the requirement of the Consumer Duty, meaning firms should avoid foreseeable harm, offer the right support at the right time, have suitable communications and channels, and provide fair value to all customers, just like open (live) products need to do today.  

The FCA also called out that they will be interested in how firms are handling SME customers (usually sole traders). In my opinion, this is a logical step as this consumer population is often categorised as business / commercial and not consumer, and perhaps does not receive the same consideration as consumers with regular consumer finance. I would expect firms will already be including SME customers in their open and closed product plans, but SMEs are usually held on systems with quite basic functionality and managed by different teams with a commercial focus, compared to the regular consumer finance accounts. This may be an area of more focused FCA scrutiny in the future. 

This got me thinking about the collections impact for customers specifically with closed products and SME customers. So, I wanted to look at how this can affect collections operations and what firms need to consider for the 31 July deadline. 

Closed products and the issue of legacy collections systems 

At Arum, we have a lot of experience working with clients who have acquired other brands in the past and/or still have sizeable portfolios with their own closed products.  

A common scenario is these products are held on legacy collection systems that lack the functionality of newer systems, and we have seen firsthand the difficulties that legacy systems can create. There are many constraints that will make it difficult for a firm to remain compliant with the expectations of the Consumer Duty and could lead to customer harm.  

Common issues include: 

  • Poor compliance and governance capabilities can create an environment that is highly manual for regulatory and policy compliance review and control. It could be very labour intensive to ensure regular customer interactions (as well as exceptions) are managed appropriately and with the best interests of the customer in mind. 
  • Unsupported and outdated architecture leading to frequent system outages which prevent customers from being serviced. 
  • Inflexible and rigid functionality which can create, for example, a lack of income and expenditure capture capability and inflexible repayment plans, as well as issues with the production of important documents, such as the NOSIA. 
  • Limited ability to introduce change due to lack of internal knowledge and skillsets. This leads to users having to put up with a system that does not work for them, with a lot of reliance on manual processes that add human error into the mix. 
  • Inability to interface easily (real-time or otherwise) to other systems, channels, and portals, which limits customer interaction. 
  • Lack of data and information within the system means operational teams may be unable to serve customers correctly and consistently, and key data cannot be stored in fields that are used for decisioning and other rules-based activity. 
  • Arrears and/or interest not calculated correctly which can result in incorrect credit file reporting and other financial impacts. 
  • Inability for customers to transfer to another product. 
  • Lack of system functionality and holistic customer view causes key processes, such as handling customer vulnerability, to be impacted. It can also duplicate customer contact as a legacy system’s contact strategy will be held separately to the core systems. 
  • SME customers more likely to be housed on a legacy system or something even more basic - we’ve frequently seen them managed on spreadsheets. Typically, SME customers will be consumers or sole traders who have a business but who are not a limited company and therefore require the same types of protections as regular customers under the Consumer Duty.  

Each of these examples can lead to customer harm and many firms will be stretched to be compliant, as their internal tech teams will likely be focused on their core systems rather than the systems housing these closed products.  

With the introduction of the Consumer Duty, it is becoming increasingly apparent that firms cannot rely, and remain compliant easily, on legacy technology and manual workarounds.  

What are the alternatives to legacy systems? 

  1. Continue to invest in outdated technology that has a limited shelf life - this is definitely not advisable and can quickly become a money pit, especially if it has reached end of life. 
  2. Migrate all the closed accounts onto core systems – this is technically a viable option but usually firms keep these closed accounts on a legacy system for several reasons. This could be because the product is no longer offered or supported, the cost is prohibitive, or business as usual and ongoing compliance changes for core products on core systems are taking priority (or a mix of these reasons). 

  3. Implement a modern collections platform for closed products and SMEs – for most firms, this would be the most sensible and viable option. A modern collection solution, that can interface in realtime with other systems for a joined-up approach, out of the box leading edge technology providing comprehensive functionality, controls, reporting and ease of regulatory compliance and significantly better use of data. As well as the “free up” of labour-intensive, manual overheads and the capability to make decisions and implement them quickly, a firm’s bottom line will also be positively impacted from an OpEx and impairment perspective.  

 Firms only have until the end of July 2024 to do this which might seem like a stretch, but at Arum we know it’s feasible.  

Upgrading your collections platform for closed products 

Arum has unrivalled knowledge of the collections technology landscape. The Arum Managed Service can standup a modern collections system, from any number of different vendors, in a fraction of the time it would take a firm to do this themselves.  

We provide all the resources to gather requirements, test, build, configure and support the best solution to meet your requirements, and can do this in as little as six months. And as we are independent, we will only consider solutions that best suit your requirements. 

This option may not be as expensive as you think. Why not contact us for an informed chat? 

Ensuring full compliance with Consumer Duty 

Our experienced collections professionals have worked extensively in collections operations and can support you on your journey to Consumer Duty compliance.  

We can review your preparedness for the Consumer Duty for closed products and SMEs, identify additional considerations, and explore opportunities to improve your customer contact strategies to ensure your effectiveness is optimised and generates more customer contact, resulting in more good outcomes.  

If you’d like to discuss any of the points raised here, feel free to contact me directly.

Read an overview of Consumer Duty

Read our comprehensive guide to Consumer Duty

Find out the difference between TCF and Consumer Duty

About the author


Nick Walsh
Principal Consultant

Nick is a collections and recoveries professional with over 30 years’ experience, domestically and internationally. He has enabled many organisations, large and small, across multiple sectors, to fast track to an optimal operating model designed specifically for each organisation, taking into account their constraints and with due regard to regulatory compliance and customer experience.

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