Look and Learn
29 November 2019
By Peter Wallwork, CSA CEO
What can the public sector learn from the private sector in terms of best-practice debt collection?
The UK government has been building closer working partnerships with the debt collection and debt advice sectors since 2016 when it established a ‘Fairness Group’ to support a wider mission of reducing debt-related mental health and suicide.
The Fairness Group brings together central and local government, debt advice organisations (including StepChange
, Citizens Advice
, and PayPlan
) and the debt collection industry, represented by the voice of the UK debt collection and debt purchase sectors, the Credit Services Association (CSA). In May 2019, the Group released a joint public statement on how the Fairness Group will continue to work together to continually improve how government interacts with people in debt, particularly those in vulnerable circumstances and/or experiencing financial hardship. This includes applying the Cross-Government Debt Management Strategy’s Fairness Principles which are aligned to the Financial Conduct Authority’s (FCA) ‘Treating Customers Fairly’
guidelines, and which are in turn in line with sector best practice.
Speaking at the CSA’s annual UK Credit & Collections Conference
in September, Steve Coppard, Deputy Director of the Cross-Government Debt Policy & Strategy at the Cabinet Office, talked about the challenges faced by government and local authorities and said that when it came to ‘fairness’, the public sector could learn from what he described as an ‘unlikely hero’ – the private sector debt collection industry: “If we can deliver on the recommendations of the National Audit Office (NAO) and the Treasury Select Committee, we can bring public sector collections in alignment with the private sector best practice adopted by CSA members,” he said.
But why do local authorities, the government and the wider public sector have to pursue people for government debts such as Council Tax? Steve says that such collections are essential to fund the delivery of public services: “However,” he says, “when we look at the facts around the small proportion of truly vulnerable customers (both those that get into debt because they’re vulnerable, and those who become vulnerable because of debt), there is also a strong financial case for treating them fairly.
“The long term, collaborative, affordable approach to repayment results in fewer interventions than attempting to recover more than the customer can afford in each instalment. Unaffordable repayment plans inevitably don’t work and result in failure and rework into the system. Government’s debt management interventions work perfectly well in the majority of cases, but for a minority of people, those same interventions can have a disproportionate impact.”
To put this into context, Steve states that the Government’s debt balance is circa three percent of income. Of that three percent, just over half (57 percent) is household debt and only a small proportion of those households will be vulnerable i.e a fraction of one percent of government’s income: “This one percent if pursued in the same manner as the rest of the population, can have a disproportionate impact – both on those people’s lives and on wider society. We need to fine tune the approach,” he adds.
Few would disagree that the public sector should be finding alternative interventions that minimise the social cost and maximise revenue flows: “By investing time and money in pursuing these people using standard strategies, they end up costing government more when we could better invest that effort in treating them according to their circumstances,” Steve continues. “This will build financial resilience and get people out of debt, rather than getting debt out of people.”
So where do we go from here? Both the NAO and the Treasury Select Committee concur that government, as a whole, lags behind private sector best practice, particularly in the accelerated use of bailiffs. This was echoed by the Money Advice Trust’s Chief Executive, Joanna Elson, who said in response to the publication of the Fairness Group’s public statement: “Public sector debt collection practices should set the gold standard, but it has been widely recognised that there is a significant amount of work to do to realise this ambition.”
A key piece of the puzzle is to ensure the legislation that underpins collections activity actually supports organisations today. The reality is that some legislation forces a counter-intuitive approach to collections. For example, a 27-year-old law dictates that those with Council Tax arrears will quickly be subjected to a liability order, adding a court summons (and a further £130) to the debt. Once the liability order is in place, the next intervention is to take the debt directly from the person’s wages (if they earn enough) or send in a bailiff. The NAO found that such actions make debts anything up to 30 percent harder to collect. These regulations need to be brought up to date. Three decades ago, when these regulations were first introduced, we didn’t have a household debt problem in this country, but today there are 8.3 million people with at least two household debts.
As Steve says, and we would agree, this is not about vilifying the enforcement industry; there is a place for enforcement action, but we should be identifying those people who genuinely cannot pay or are vulnerable. Enforcement action should not be the default position. The Ministry for Housing, Communities and Local Government recognised this in a recent announcement which committed to improve how local authorities recover unpaid Council Tax and end what they deemed as aggressive enforcement tactics. Likewise, however, this is not about being ‘soft’ or taken for a ride – those people who can afford to pay but choose not to should not be given leniency if they are prioritising lifestyle over debt.
The Cabinet office has a number of case studies which flip KPIs around council tax recovery rates on their head and show that when debt advice is given it can result in higher repayment rates and fewer interventions. Local Government Minister (and the current Chief Secretary to the Treasury) Rishi Sunak recently said: “The experiences of some innovative councils show that Council Tax collection rates can be improved without resorting to the unfair treatment of vulnerable people.”
At the same time, the private sector is also funding free-at-the-point-of-access debt advice through a variety of channels including Fairshare, because it recognises not only the ethical case, but also that the investment maximises the value in a debt book that would otherwise be written off. (To put the level of funding into context, in 2019 the debt collection industry will contribute more than £30 million of Fairshare funding to the debt advice sector – more than half of the total figure provided by the whole of the financial services sector). The Cabinet Office is working with the industry to see how this best practice can translate across to government.
Steve Coppard does not believe that addressing government treatment of people in debt is about wholesale reform; he says it is more about fine tuning what is already in place: “The FCA’s ‘Treating Customers Fairly’ guidelines completely revolutionised the consumer credit markets so if you have a model that works then why change it?” he says.
This doesn’t make implementing the changes simple – there is plenty of work to do to reach organisational maturity – but by working closely with the advice and private sectors, Steve believes the public sector can replicate a one-size-fits-all model by putting fairness first, for both ethical and financial benefit.
A good starting point is to change the narrative. The debt collection sector has come such a long way in recent years. Many Local Authorities now actively seek and learn from the best practice demonstrated by the private sector debt collection agencies. The CSA has developed specific courses and even apprenticeships for a Local Authority’s own in-house collections teams in areas such as credit control and collections, which includes specific units on vulnerability.
We still need, however, to overcome the stigma associated with debt. Some online forums continue, unhelpfully and often to the detriment of the consumer, to quote industry practices from a decade ago, but the reality of private sector debt collection is streets ahead of its perception: “We need to get the message out that we want to get people out of debt, not get debt out of people; that we prioritise debt resolution over debt collection and that we recognise the need to work with people and not against them,” he explains.
As the debt collection industry has shown, by seeking the right outcomes and treating people according to their circumstances, collection comes naturally and the money flows without the need to impose unaffordable repayment plans. The case for fairness stacks up time and time again.
“The Fairness Group’s priorities are to create a robust vulnerability strategy for government collections, further improve communication with the debt advice sector, and define what good looks like in terms of collections KPIs,” Steve concludes. “We’re looking to the private sector debt collection and examples of best practice across government for how to do it and the CSA’s Code of Practice and FCA principles on Treating Customers Fairly as common denominators, which is a good a place to start as any.”
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