The UK debt collection market is currently dominated by the highly public news about staggering levels of banking debts, yet less widely known is that the government is owed even more than this by individual consumers. The good news is that managing such debt has long been a part of the banking remit, and the sector is geared-up to control this part of their business with a reasonable degree of efficiency. They attack the problem by a range of obvious methods seeking to stimulate business growth, and through investment in their people, yet other means at their disposal are just as valid, and can be equally effective in managing future risk.
Raising capital is one area that can deliver value directly to the balance sheet, but through disposal of risky assets, and non-profitable parts of the business instead of consumer debt. This particular issue has undergone a major period of change in the last 4 years. In arresting consumer lending so abruptly the market has been able to largely re-correct itself in this area, effectively allowing the risk to manage itself for a time, and giving the industry a temporary breather. Wescot Credit Services have seen that organisations can derive greater benefit by shifting assets in other areas.
A second area for focus in on compliance. In the wake of the banking crisis the spotlight has fallen on the concept of TCF, or Treating Customers Fairly. Internal and policies and practices in areas such as tracing, debt collection and debt purchasing need to be robust and not only meet but exceed regulatory expectations, to avoid costly financial penalties. Wescot Credit Services are pioneering a new approach to an FCA framework that is both fit for purpose and embraces TCF principles at its heart.
A third area for debt risk management centres on the requirements of Basel III. Whilst elements affecting sovereign debt are largely beyond control, ensuring that the correct spread of risk is applied across the banking business as a whole in terms of funding, lending and collection/recovery operations, demonstrates to the regulators that banks are establishing counter-cyclical buffers that are robust and effective.
Moving forwards, the purchase of unsecured consumer debt is certain to rise again, but in such a way that dovetails with the medium-long term strategies of the banks, thus making it a more sustainable and less risky proposition. Compliance is sure to figure high in the agenda too, and it is likely that standardised compliance procedures will eventually emerge. As the effects of Basel III really take hold, the demand for debt collection products and services will evolve, and the industry needs to be ready to respond.
Ultimately, if consumers suffering from debt issues can be rehabilitated and converted back to live and secure status, then the industry has done its job, and business across the board will benefit. Wescot Credit Services knows that continued strategic engagement from the debt collection community will be essential in delivering innovative solutions for client business models that support and embrace these changes.