Why early engagement with creditors & collections agencies is the best first step to problem solving

There’s no doubt that the pandemic has placed incredible strain on household and business finances – with the government endeavoring to provide support with some of the most extensive state finance and welfare interventions in British peacetime history. Creditors and collections agencies have continued to signpost customers towards independent and free debt advice throughout this period, and with StepChange Debt Charity marking the week of 21 March as ‘Debt Awareness Week’ and Credit Strategy simultaneously running its sixth annual ‘Credit Week’, it is worth taking stock of how thousands of customers can best address their personal finance problems going forward.

The services offered by debt advice charities have had a key role to play in helping those who had seen their problem debts compound and worsen. While we welcome the major efforts of the Money & Pensions Service (MaPS) and others to support the availability of free debt advice in anticipation of greater need, now is also a good moment to consider what more can be done to help prevent people falling into persistent problem debt in the first place. Efforts to build strong financial literacy and capability are crucial, but there is now a real need to go further and dispel outdated myths and fears around the debt recovery process and the role of debt collection agencies.

At the Credit Services Association, our member firms tell us time and again that there remains a persistent public misconception about what happens if borrowers fall into arrears or default. Anxieties are often understandably high, but the perception does not reflect the reality of how our members operate. Their role is to support those in arrears, resolving the issue in a fair and affordable way – and signposting those unable to pay to free debt advice. Our Code of Practice and Learning & Development offering ensure that members uphold high standards and implement responsible recovery strategies, particularly when it comes to engaging with customers in vulnerable situations.

Early engagement, whether with the creditor or when dealing with CSA member debt collection agencies, is vital to preventing further issues which often arise from outstanding defaults, and should therefore be a key part of the UK’s financial capability and economic recovery strategy.

The CSA continues to do what we can to dispel the misconceptions around debt collection and to reassure customers through our #heretohelp campaign and other initiatives – but our ability to influence financial education and public information is limited. That is why this week we are calling on the Government work in partnership with MaPS, the FCA and other public bodies to promote the benefits of ‘early engagement’ with creditors and collections agencies to the wider public on a larger scale.

We propose that MaPS consider embedding in its strategy for money guidance a core message to the public: that early engagement with creditors and collections agencies is the best first step to resolving financial issues and preventing longer term problem debt.

The earlier a customer can engage with their problems, the more likely it becomes that a workable solution can be found more easily, whether that is a short period of forbearance or a sustainable –repayment plan for the customer. It can also prompt the customer to take stock of their financial circumstances as a whole. But if that conversation is delayed, does not occur, or efforts to make contact are ignored or pushed aside, then those seeking to collect on sums owed will be unaware of that person’s circumstances and that individual’s stress and concern could well continue for longer than might need to be the case. Sharing the issues between all parties is most often the best route to resolution.

We believe that the message of early engagement needs to be put at the heart of public information and customer-facing marketing work. It seems wrong that the focus is incessantly on pumping resource into dealing with what happens when problems have been allowed to fester, when the better approach is to find a way to encourage earlier engagement before problems spiral out of control.

It is important to note that early engagement won’t always solve everyone’s problems, however it might help some avoid spiraling further into financial difficulty and crucially enable resource to be focused on those whose problems are much more extensive. As resources become more constrained, finding genuine efficiencies will become paramount to make funding stretch as far as possible. We know that dialogue and engagement between customers and their collection agencies can be mutually beneficial. For example, a survey of CSA member firms about their services during the course of 2020 revealed that over three-quarters of a million borrowers (773,579) received additional covid-related forbearance from debt collection agencies, over and above the forbearance and payment rescheduling they would already provide. Customers engaging quickly secured forbearance.

Conversations between customers and lenders made a big difference in 2020 - and this could be a positive learning experience from the pandemic.

That’s why during this year’s Debt Awareness Week, and Credit Week, we urge consumers to prevent any financial difficulties worsening by engaging in dialogue with creditors and our members at an earlier stage, discuss repayment plans and sustainability, and not to put off those crucial discussions. Making a phone call, dropping an email or having a webchat before things get truly out of control, could make all the difference – a message that needs to be heard now more than ever.

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