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UKRN Joint Debt Collection Statement: Best Practices for Engaging Vulnerable Customers
In June 2023, the FCA, Ofgem, Ofwat and Ofcom published a joint letter underscoring just why it is so important to enhance support for customers in financial difficulties. In March 2024, these bodies published a joint debt collection statement, highlighting that many customers who are in arrears or default will be vulnerable because of their financial situation.
The joint letter came just as the Consumer Duty was introduced. The letter, the statement, and the Duty together highlight that it is important to support customers who may be both in financial difficulties and vulnerable as a result. The regulatory framework might be the foundational reason, but there are several compelling reasons for firms to take the effective support of vulnerable customers and customers in financial difficulties very seriously.
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Debt can perpetuate a cycle of financial hardship. The concern here is that ongoing financial strains that face a really significant proportion of the population risk leading them into arrears. The end product could be a substantial rocking of the economy – if customers are unable to repay credit, then it could impact liquidity.
Simply supporting customers before and after they start to experience difficulties could help stabilise the broader economy. We’re all familiar with the fact that the 2008 financial crisis stemmed from a series of practices that, while not always significant on their own, collectively led to substantial consequences. The updates in the FCA’s CONC Handbook, to now offer proactive support to customers approaching arrears, aims to avoid another buildup of risk.
When customers are given assistance to manage their debts, this reduces the risk of widespread defaults. In an increasingly competitive market, firms that demonstrate genuine care can build strong loyalty. This works for debt collection firms too – high levels of successful repayment will be more attractive to business clients.
Addressing the needs of vulnerable customers can drive innovation. By developing new ways of working, products, and services that are tailored to support those in financial difficulties or who are vulnerable, firms can differentiate themselves and potentially open new markets.
Recognising that customers undergoing debt collection are likely to have characteristics of vulnerability, the statement stresses the need to communicate with these customers with sensitivity; some collections approaches could exacerbate their vulnerability. Overly frequent contact can negatively impact mental and physical health where someone is anxious.
A fine balance needs to be struck here. Where the customer needs the communication – either because it is required under legislation or because it contains information that will support good outcomes – it should be sent. The key is to balance the frequency of contact with the likelihood of achieving the aim. If the aim is to encourage the customer to engage, sending a stream of communications is not going to achieve that, but is more likely to overwhelm someone who is vulnerable, and the most likely outcome here is that they will pull back.
Some of what we need to communicate to customers is, necessarily, not good news. To comply with laws, we need to keep them fully informed about their situation and rights. Some aspects are facts, for example the total amount owed, the consequences of non-payment, and the consequences of ignoring the debt. What we can do here is to amend the tone of the communication.
Empathetic language quickly gets the message across that the firm cares and has the customer’s interests in mind. This builds trust. It also helps to reduce anxiety and the fear of judgement. Any individual is more likely to communicate openly, express their concerns, and discuss their situation honestly where the other party is empathetic. For vulnerable customers it can make the difference between paying and not paying, and between improving their financial wellbeing, and making it worse.
A regular review of both standard and ad hoc communications is what’s needed here. Reviews should take into account how words and phrases will be interpreted by the actual customer base. When a reader without anxiety reads ‘it is crucial that you address this debt immediately to avoid further consequences’ they may not have an emotive response, after all, it is fairly factual. But someone who is anxious will read a demanding tone and threatening consequences and see an impersonal and generic message that isn’t telling them they’ll be listened to and supported to find a plan that works for them.
The new CONC rules and guidelines come into effect on 4 November 2024. Whilst there is some crossover between support that needs to be offered to customers in financial difficulties and those who are vulnerable, they aren’t the same thing. Customers who are vulnerable won’t necessarily be in financial difficulties, but the statement highlights that customers who are in financial difficulties may also be vulnerable.
Firms that deal with customers in financial difficulties need to train their staff on identifying indicators that someone might be vulnerable, and how to support them. We offer a dedicated online training course on the Fair Treatment of Vulnerable Customers. Priced at just £20 per user, the course is accessible at the delegate’s convenience and provides a certificate upon successful completion, allowing firms to track and record each user’s progress.
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