Brian Holden, Global Director of Financial Services at SAS UK & Ireland, explores the potential of the UK Government managing debt collection in the wake of the pandemic
The UK lending sector is facing a tsunami. As a result of the pandemic, banks loaned large sums of money to millions of customers who seemed like a low credit risk before the crisis – and they will soon need to start the collections process.
Many of these people will now be struggling to pay bills, and the manual processes currently used for debt collection simply won’t be able to cope. While debt agencies have been suggested as a short-term solution, the pandemic has underlined the need to overhaul the current approach to managing customer collections given the scale of decisions which need to be made.
How well do you know your customers?
Many of the customers who now find themselves in arrears don’t fit the traditional profile of people who fall into a bank’s collections process. For example, they may have significant property equity or other assets. While they may have capital, it’s tied up in longer-term investments.
For these types of cases, the current collections process used by most lenders makes no sense. The usual aggressive collections campaigns will only add to the customer’s stress levels and damage your future relationship with them. Moreover, they may start to feel that they can’t cope with the situation, declare bankruptcy and walk away from their debts altogether.
Foreclosing on too many customers at once isn’t a good option either. Most people’s assets are tied to their homes, which presents a moral and PR disaster. Also, it’s not even a good commercial decision. Banks don’t want to suddenly have thousands of repossessed properties on their books. If they flood the housing market, property prices go down and expected capital is lost.
Centralising the collections process
Traditional collections processes are extremely resource-intensive: You need large teams of people to call and discuss payment options. With a huge rise in the number of customers falling into arrears, existing collections teams won’t be able to cope. If each bank and lender has to hire hundreds of additional collections agents, we’ll find ourselves in a situation where everyone loses.
Is there a better alternative? What if banks realised that the best way to handle collections was to work together? Instead of each institution running its own collections process, there could be one central authority responsible for collecting all debts from all customers.
This would not only massively reduce duplication of effort for the banks, but it would also be a far better experience for customers. Instead, customers could have one constructive conversation about how to manage, service and pay off their total consolidated debt over time.
Besides, a longer-term approach would benefit more customers. The central authority could help them arrange better big-picture solutions with all their creditors (such as using some of their equity to pay off immediate debts in exchange for increasing the term or size of their mortgage).
Supporting society throughout the pandemic
Introducing a central authority to manage collections would be no easy feat, and would require an overhaul of the country’s financial system. So, who would take on such a responsibility? The existing resources of gov.uk and HMRC mean central government would be well placed to coordinate the collection of any debt relating to COVID support loans.
Repaying debts in a similar way to Pay As You Earn (PAYE) income tax would provide customers with one single mechanism through which they could repay loans in a financially responsible way. The Government introduced its COVID support loans in a bid to protect society, and employing a central authority to manage collections would work towards the same goal, and help
