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Regulatory report card – improving but could do better 24 MARCH 2014

Regulatory report card – improving but could do better

Arum’s Director of Strategy, Operations & Training reflects on how the Collections & Recoveries industry is positioned in advance of the new regulatory powers in April.

While the FCA has recognised that for many companies it will be “business as usual” under the new regulatory powers, it has also identified considerable areas for improvement across the Collections & Recoveries industry.

Some firms and parts of the industry have had better report cards than others during the various reviews, but two improvement actions that are consistently being applied to the industry as a whole are to:

  • Empower and support front-line staff to engage with customers and make appropriate decisions at all stages of the arrears cycle
  • Provide greater flexibility to support fair treatment of individual customers, based on their specific personal and financial circumstances.

FCA’s areas for improvement

The FCA has said that “one size fits all’ frameworks and “rigid systems and processes” are preventing parts of the industry from delivering good customer outcomes.

It was highlighted at a recent regulatory seminar by law firm McClure Naismith that a “new mind-set is required by the industry” with “nothing being looked at in isolation.”  At the event Julie Devlin, Associate in the Consumer Finance and Recoveries Unit, stressed that “simply having policies was not enough; firms have to demonstrate, invest and train.”

With the FCA also expressing concerns about future risks, a more forward looking ‘future-proofed’ industry will need to emerge.  A key risk highlighted by the FCA is that posed to borrowers by interest rate rises, with lenders being urged to identify those most at risk and to have strategies in place to deal with these customers.

The FCA wants firms to take further action to strengthen their practices and invest in their systems and people to make sure that they treat customers fairly. Greater emphasis needs to be placed on delivering consistently fair outcomes based on customers’ individual circumstances, and ensuring front-line staff have the experience and knowledge to make informed decisions in customers’ best interests.

Future proofing the road ahead

Within this environment, credit professionals need to ask themselves if their technology, strategy and systems are robust and fit for purpose.  Will they stand up against the current and future regulatory and economic tests?

For Collections and Recoveries (C&R) functions the key is a mix of good C&R account management and strategy i.e. customer segmentation and prioritisation; and C&R operations i.e. communication treatments, channels, people skills and compliance. This in turn leads to better collections, at a lower cost whilst protecting the company brand.  By careful resource planning, organisation of C&R staff structure, use of appropriate systems and using intelligent and insightful data and analytics; Collections and Recoveries operations are able to adopt a high value methodology, using smart customer contact treatment strategies.

Making the wrong system decision, managing a new solution in the wrong way, or poor communication skills from C&R agents, will lead to years of sub-optimal performance and won’t measure up against regulatory scrutiny.

For many organisations this doesn’t necessarily mean spending additional budget on building operations and defences; optimising the performance of systems and processes already in place can often be done at minimal cost but maximum value to the business.

Front line staff are one of the best defences the industry currently has in place to help earn top marks in the regulatory report card.

Ultimately in the TCF quest, it is the interactions of the collections teams with customers that will drive success, which Arum believes has more to do with EQ (Emotional Quotient) than IQ (Intelligence Quotient).  Investing in and training of Collections staff in this area will not only demonstrate good conduct but create considerable competitive advantage.

Peter Maguire – Director of Strategy, Operations & Training at Arum

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