Christmas is around the corner and here at Arum, we’ve been looking back on the industry shifts that have made significant differences in the collections and recoveries space this year, as well as casting an eye into next year’s potential challenges and opportunities.
Looking back at 2019
We were all expecting to finally find out what would be in store for us during 2019 with regards to Brexit, but now that we’re at the end of 2019, we are still none the wiser. Although we have just had a general election, with the result providing a direction for Brexit, if it does go ahead the implications still won’t be known for some time to come. We expect uncertainty to remain rife and some observers are talking about a recession in 2020.
Consumer debt at record high
Earlier this month, it was reported that Bank of England statistics show that consumer debt levels have risen to an all-time high of £225bn, increasing by £1.3bn between September and October 2019.
In some good news, the FCA has removed barriers that stop some mortgage customers from finding cheaper deals elsewhere. These customers are likely to have had a change in their financial circumstances that will prevent them passing a lender’s affordability checks, even if a remortgage would provide them with a cheaper deal. This becomes particularly problematic when a fixed rate mortgage period finishes and the mortgage reverts to the more expensive standard variable rate.
PPI is now at an end with respect to making a new claim, so gone are all those irritating ads, SMS messages and emails! Existing claims are still being processed, with the banks on the hook for billions in reimbursements.
High Court Enforcement is changing
Just, the UK’s only marketplace offering judgment creditors access to the best High Court Enforcement companies throughout England and Wales, launched a few months ago. It has identified five giant challenges facing the industry (set out in the Just Manifesto), and is aiming to meet them head-on by providing the most comprehensive and compliant service ever seen. In good news for debtors (and in response to the first of these five challenges), Just led research that showed VAT on bailiffs fees was incorrectly being charged to debtors, rather than to the creditors who could reclaim the VAT back through usual channels.
The fair treatment of vulnerable customers is still a problem. We have observed improvements generally in some industries, but those industries still have a way to go. In other industries, there is next to no proactive assistance for vulnerable customers and across the board there is no joined up approach amongst creditors when dealing with the same vulnerable customers. These issues can be driven by many factors, including policies, and technology and resource constraints. Research has shown that debt-related stress is causing mental health issues for a minimum of 14m consumers so it’s important that the industry works together as a whole to resolve this.
In July, the FCA as part of a two-stage consultation approach, issued a proposed guidance on firm’s treatment of vulnerable customers. This sets out the FCA’s view on what the Principles of Business require of financial services firms to ensure that vulnerable customers or treated fairly and consistently. We actively encourage firms to review their policies and procedures against the draft guidance.
As if all the political shenanigans haven’t been enough, thousands of people lost their dream holidays, and many others lost their jobs, this summer with the collapse of the UK’s oldest travel company. Luckily, Hays Travel has bought many of the Thomas Cook stores and saved jobs. There have been eight travel company failures this year, so clearly closer control of the financial performance of this type of company is required.
Rent to Own price cap
The introduction of a price cap to protect some of the most vulnerable customers in the UK’s rent to own (RTO) sector was introduced on 1 April. This will save consumers in the UK up to £22.7m a year.
Looking ahead to 2020
Brexit and record levels of consumer debt
Record levels of consumer debt and economic uncertainty are never a good mix. Companies should be undertaking portfolio stress-testing with these factors in mind and ready themselves for potential increases in delinquent account volumes.
Changes to IR35, legislation that allows HMRC to collect tax from a contractor if the contractor is an employee in all but name, are expected to come into force in April 2020, however the result of the general election may influence this. There are numerous considerations and implications around this legislation, but if it does go live it will redefine how companies use independent contractors.
Overdraft market shake up
In June, the FCA announced a series of measures to combat unfair charges for unauthorised overdrafts, with the new rules in force by 6 April 2020. In some cases, the charges levied can be more than ten times higher than payday loans, and these fees materially impact customers who are already in financial distress.
Banks and building societies have already started to simply their fee structure and some are introducing interest-free buffers (e.g. from £100 to £250). Many, however, are hiking their interest rate for unauthorised overdrafts to 39.99% EAR from rates around less than half of this. HSBC has said 7 in 10 customers who use an overdraft will find it cheaper to do so under the new pricing plan.
Principal Consultant and Delivery Lead