With current projections predicting that we will see a return to falling incomes for the first time since September 2014, individuals are being squeezed as their earnings fail to keep up with inflation. This is driving them to rely more on their credit cards.
Following the Financial Conduct Authority’s (FCA) study of the UK credit card market, which found significant concerns about the scale, extent and nature of problem credit card debt, they proposed new rules in April 2017 to help customers in persistent credit card debt.
The FCA found that 3.3 million people have fallen into a persistent credit card debt spiral, with all their money spent on repaying interest, while the total debt is never lowered. Other factors such as dependence on benefits, the circumstances of other family members, health and general wellbeing also come into play, pushing up stress levels and driving people into vulnerability.
Despite Mark Carney’s interventions, it is very likely that credit card and other unsecured debt will continue to rise for the foreseeable future. This presents a business opportunity for credit card providers, but one that is accompanied by the risk of substantially increased provisions and operating costs due to the higher volume and complexity of cases for customers in arrears.
Credit card providers will need to up their game to ensure a high standard of customer care is maintained whilst demonstrably treating customers fairly. They will also need to plan how to cope with the increased volumes and values, and factor all this into a collections landscape that is very likely to change under IFRS 9.
At Arum our consultants have many years of experience in debt collection and recoveries in high volume environments. Our team includes former heads of collections and recoveries at Barclaycard, Amex and CitiBank, all well versed in current good practice. If you would like to discuss our experience in this area or need some help, please do not hesitate to contact us.
Nick Walsh, Principal Consultant