Consumers have an over-exaggerated fear of debt litigation – new report

A new report from the Credit Services Association has found that public perceptions of debt enforcement are at odds with reality, with anxieties about talking to a debt collector about arrears out of line with the likelihood of enforcement proceedings.

The report “Tackling the Engagement Gap: Addressing the reluctance of consumers to discuss debt” finds that customers’ reluctance to engage with creditors or collections agencies about their debt situation is often driven by feelings of fear, shame or denial. The report explores some of the attitudes and psychology underlying each of these.

Report author and CSA Head of Policy Daniel Spenceley said: “Too many people who have fallen behind on their credit repayments are held back from picking up the phone and having a conversation because of misplaced fears, often stemming from a lack of understanding and awareness, which is fed by myths and misinformation. More must be done to better educate and inform not just disengaged customers, but the public at large, if we are to eliminate these misconceptions and empower customers to confront their financial circumstances.
“Our frontline staff survey suggests that 60% of staff in call centres are finding that the typical customer lacks awareness of the potential for forbearance on debt, how to get time to seek debt advice, or to agree repayment arrangements that suit their personal circumstances. 

“The average consumer, according to our polling, perceives that 32% of debt held by collections agencies will end up in court. But data from CSA member firms indicates that this figure is closer to 7% – and those are predominantly cases where customers have persistently failed to engage. When customers learn that the chances of ending up in court are far smaller than they expect, our research suggests their fears are lessened and there is a greater willingness to have a conversation and engage in potential solutions and forbearance. 

“In other words, if customers are better informed, they are more likely to resolve problem debts. Our report therefore recommends new steps to invest in financial education, and stronger regulatory efforts to correct misconceptions and misinformation.” 

Read the full report here.