A Better Way of Collecting Regulated Debt?
It has been a while since I have put pen to paper. Things have been a bit hectic over the last year after Town and Country gained full authorisation from the Financial Conduct Authority back in August 2016.
A year on has seen fast-moving changes to the way we recover regulated debt. In that time we have come up with the concept of 'debt filtering', and I would like to explain this to you in this article.
Regulated Debt?
If you are a bank, mortgage company, credit card or store card company, money lender, motor finance company or sell goods or services via hire purchase, then your financial services are regulated by the Financial Conduct Authority, commonly known as the FCA.
The move was first announced by the Government back in January 2013. However, it stems from the need, back in the 1980s, to create one central body from the wide range of regulatory agencies, with a huge variety of titles, that each covered a separate area of the financial services industry.
The FCA has set out how 'customers' must be treated by regulated firms concerning debt collection. Failure to follow the practices set out in the FCA's conduct rules in the 'Arrears, Default and Recovery' section of the Consumer Credit Sourcebook (CONC 7), can result in fines and other methods of enforcement as set out in the FCA's Enforcement Guide.
The truth of the matter is that regulated firms have been reducing their investment in collecting debts. The fact that less than 5% of a typical unsecured loan book defaults, it becomes to them a matter of customer priority. Defaulters are often less of a priority than profitable ones. You would think that debt recovery would be a significant factor in any business model. But pursuing debt is complex; it requires activities such as trace, affordability analysis and negotiations. These skills are not always within the Regulated Firms internal credit control departments, and increased regulation by the FCA has seen out of control collection costs.
So this has left needs to be fulfilled, and currently, those needs are being satisfied by Debt Purchasers. The specialist nature of Debt Purchasers and their ability to drive higher returns than internal credit control departments has allowed the Debt Purchasers to collect debts more profitably.
The debt purchase industry has grown expediently over the last 20 years. Small companies backed by financial muscle such as overseas investors or venture capitalists have become juggernauts of the market mainly due to the regulated financial institutions selling their portfolios at a handsome price.
Is there a better way?
Well, we at Town and Country Legal Services LLP feel that there is a better method and have the case studies to back our claim up. What we are advocating is a 'debt filtering' system. How it works is that we do not purchase debt, but act on behalf of the regulated firm, as we are regulated ourselves, and therefore can filter out the debt before it is sold on.
Debt Filtering is pleasing to the FCA as it shows that the lender has acted responsibly and has given the customer every opportunity to come to an affordable arrangement. At the same time, any such portfolio being managed by us will be divided into categories. Such management skills enable us to advise our regulated clients of any potential complaints, vulnerable customers and those where no contact has been made even after tracing. While at the same time yielding a significantly higher return than the mere sale of the debt ever would.
Debt Filtering is therefore pleasing to the regulated firm as the debt stays as an asset on their books. By filtering the debt, the regulated firm can then make an informed decision as to what part of the portfolio they will sell. They will then be clear in the knowledge that everything has been done to apply the principles of 'Treating Customers Fairly' to their customers. If there is any complaint or difficulties, the lender can demonstrate the consideration they have applied to their customers by using a fully authorised FCA compliant contingent debt recovery agency to filter the debt before sale.
By adopting 'debt filtering', our regulated clients have found that the value of the sold debt after filtering to be comparable to pre-screening.
We have many satisfied regulated clients who adopt this approach as it makes a huge amount of sense on every level.
If you would like any more information on 'Debt Filtering', or some of our case studies, then please do not hesitate to contact me, Kevin Bishop on 01883 212107 or you can email at kevin@tclsllp.com.
By Kevin Bishop - Senior Partner at Town and Country Legal Services LLP