The recent final report on the motor finance industry from the Financial Conduct Authority has raised concerns about the assessment of affordability for customers at the point of sale. However, assessing affordability at the collections and arrears stage is equally important, says managing director of Intrum UK Eddie Nott.
The growth in motor finance has been strongest for lower risk customers who are less likely to face repayment difficulties, according to the FCA. Arrears and default rates have generally remained low but have increased somewhat despite a benign economic environment. This is especially the case for higher-risk customers who have lower credit scores.
As a global credit management group, Intrum works with several OEMs in the UK, including Vauxhall, collecting debts on a third-party basis or purchasing portfolios of defaulted accounts.
While lenders know they have the security of the asset to recover in the event of default, concentrating only on this can result in lower returns when accounts run into difficulty. The lender may have recovered the principle and the balance sheet is not showing a loss, but the opportunity to recover the shortfall has been lost, with interest and fees written off.
There are other ways to handle arrears and retain customers in the long run, or to recover interest and other sums when a vehicle is repossessed.
Specialist teams work with customers on an individual basis to establish their financial circumstances and assess affordability. It may be that the agreement can be restructured in a way that enables the customer to keep the car and the lender to retain the customer. This has financial benefits, increases customer loyalty and is less traumatic for a customer who may be relying on the vehicle for work and family life.
Only by making contact with an individual and establishing the circumstances that have led to default, can the best course of action be established. It may be that illness, family bereavement, relationship breakdown or job loss have temporarily damaged the customer’s ability to pay, or there may be a permanent change that affects the viability of the agreement. Working with individuals in early arrears raises the likelihood that the situation can be restructured and a greater proportion of the arrears recovered.
Of course, contacting customers can be difficult. Specialist collections teams use state-of-the-art analytics and technology to give customers choice and control in the process. Analytics establish the best times of day to contact people, depending on their profile, while online portals and chatbots offer alternatives for those who don’t want to talk to a team member. These technologies have the added benefit of being available 24 hours a day, enabling a customer to choose when they give their income and expenditure information.
In the call centre, speech analytics is used to flag potential vulnerability in customers, either by the words they use (such as cancer, hospital) or by recognising distress in their tone of voice.
The aim is to establish an affordable and sustainable repayment plan – a realistic arrangement that the customer can meet and does not have to be renegotiated multiple times.
Traditional views of the debt collection industry as aggressive are outdated. In fact, Intrum has extremely high levels of customer satisfaction – with a +62 net promoter score and a string of industry awards for customer service – no mean feat considering individuals do not choose to become customers of a collections firm.
Customers give feedback on their experience in real time and a highly-trained specialist team is available to help those in vulnerable circumstances. The experience often surprises consumers: “I had been afraid of getting in touch but if I ever hear of anyone being in the same pickle as I was I would encourage them to phone as it gives you peace of mind after doing so. Thank you so very much,” said one.
Another commented: “Very understanding conversation with the agent who I spoke to. So relieved to pluck up the courage to speak to someone. It’s been a weight off my shoulders to finally get myself going in the right direction.”
Across financial services, businesses are changing their view of the collections experience. Earlier intervention allows for restructuring and customer retention, with more recovered in the long run, including interest and fees that were previously written off.
In some cases, Intrum is purchasing this shortfall debt, giving clients a guaranteed balance sheet boost and using its expertise for longer term recovery. In others, it establishes contact with customers on a third-party basis.
While it is easy to focus on the front-end lending side of the business in the quest to raise sales and boost business, collections advances also deserve attention. Getting it right when a customer runs into difficulty makes all the difference – to the individual and the bottom line.
Ian Davies, client & sales director: firstname.lastname@example.org