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The Credit Services Association (CSA)
Mood music - DGI data, Q3 2015
The positive mood witnessed at the recent Credit Services Association’s Members’ Meeting suggested a renewed confidence among debt collection agencies (DCAs) as a new period of regulation begins. Those that had not yet achieved authorisation were close to attaining their goal, and had the resources and investment in place to build on a more certain future under a different regime.
Such welcome confidence is no doubt a reflection too of a buoyant market with continued growth and steady increases across nearly all of the indicators measured and reported in the CSA’s Data Gathering Initiative (DGI).
For the first time since DGI records began, for example, the volume of debt placements held by DCAs rose from 18,040,160 in Q2 2015 to 19,686,436 in the third Quarter, putting Agencies back to a position last seen at the start of 2015. And while the value of debt has declined slightly (down -1.8% to £26.5 billion from Q2 and 10.2% down on the same period in 2014), the better news is that DCAs have continued to collect more.
For the fourth Quarter in succession, collections values have grown, up 10.7% on Q2 2015 from £468.7m to £518.7m. Put another way, this is now a full 12 months of consistent collections growth from the DCA sector and a staggering 26% increase since Q3 2014. As I have written elsewhere and often, mutterings of an industry somehow in crisis appear to have been well and truly misplaced!
The story of success is similar in the debt purchase arena where gross collections on purchased debt has held steady at £303.5m in Q3 2015 compared to £305.9m in Q2. This is after a period of substantial growth that has seen collections by debt buyers increase 36.7% since Q2 2014 and an amazing 57.4% since Q2 2013.
When the performance of the debt purchase businesses and DCAs are viewed together, the combined industry continues to grow with total consumer collections for Q3 2015 up 6% to £822.3m from £774.7m in Q2 2015. This is a 24% increase since Q2 2014 when total collections stood at £664.3m.
The size of the industry by virtue of people employed has also continued to grow. Staffing levels are up 2.4% at 11,511 in Q3 2015, compared to 11,242 in Q2 2015. What is perhaps most striking about these figures is the continued increase in non-collections or ‘back office’ employees that have risen to 5,384 in Q3 2015 from 5,203 in Q2 2015, an increase of 3.5%. Indeed, these non-collections staffing numbers have seen a sea change over the last few years, no doubt driven by the increasing cost of compliance under FCA regulation. The number of non-collections staff has now increased by almost a fifth in the last two years.
Behind these numbers is an interesting shift in dynamic that goes some way to explaining the reduced margins in the industry and needs to be taken into consideration when pricing for new business. In Q2 2013, revenue-generating collectors represented 60% of the industry workforce and non-revenue generating back office staff accounted for the remaining 40%. Fast forward just over two years, and in Q3 2015 revenue generating collectors have reduced to 53% and non-revenue generating back office staff have increased to 47%. Given that staff costs can account for up to 40% of a collection business’s operating costs, then the significance becomes even more apparent.
Some increases have of course been more welcome than others. The rise in the number of upheld complaints, for example, appears a concern: there were 3,598 upheld complaints in Q3 2015 compared to 3,468 in Q2 2015, an increase of 3.7%. Every quarter since DGI records began in Q2 2013 we have registered an increase and at 3,598 this is a 26% increase on Q2 2014 and a disconcerting 55% increase on Q2 2013.
The figures are, in part, a mystery because in contrast there has not been a corresponding increase in complaints about our members directly to our Association or indeed to the Financial Ombudsman Service (FOS).
It is difficult and possibly even unwise to draw too many conclusions from numbers alone without looking at the root cause. It may simply be that our members are better at identifying, investigating and reporting complaints as they occur. Firms learn from complaints and can improve processes as a result of analysing what went wrong. What is important is to understand what happened and take steps to put things right. The increased focus on achieving better outcomes at all stages of the customer journey has led to improvements in the quality of complaint handling and ensuring that remediation is offered where appropriate.