Momenta recently partnered with Credit Strategy to host the first-ever Credit Strategy Question Time focussed on the topics of Collections and Compliance – Balancing the challenges of COVID loan repayments and impactful compliance.
As UK banks and other lenders seek repayment of the £75billion issued in COVID loans, repayment collections teams must gear up to start or strengthen their collections efforts.
However, lenders must tread a delicate path were trying to limit losses for themselves and taxpayers whilst also being cautious to avoid a repeat of the aftermath of the 2008 financial crisis.
Our Question Time event explored an array of topics around risk, compliance, and the importance of placing your customer at the centre of your businesses collection efforts.
The event addressed new challenges banks and lenders may not have historically planned for, as well as asking how they have been conducting their Covid backed loans collection efforts thus far.
Our industry leading panel for the event comprised of:
- Simon Green, Head of Unsecured Risk, Santander
- Jason Wassel, Chief Executive, CCTA
- Richard Stevens, Chief Executive Officer, Momenta
- Amber-Ainsley Pritchard, Group Editor, Credit Strategy
Below is a summary of some of the key discussion points during the event, along with a selection of questions which were posed to the panel from live audience members.
What are some of the best collection strategies lenders are using now vs. pre-Covid?
Panelists noted that there has been a change in approach in terms of understanding the position their customers are in. This has meant moving quite radically to create new touchpoints via which customers can connect.
The pandemic was a catalyst in accelerating this process, as customers have moved online at further pace, and those physical contact points that have been there in the past have been removed. This has influenced the way collections teams conduct calls to customers. The scale of the length of these types of collection calls that needed to occur has meant affordability checks and information extraction have needed to be more intricate in detail.
The ability to underwrite and perform due diligence in those loans issued during the height of the pandemic was also very limited. Many are playing catch up from a lack of underwriting in the beginning and putting it now into their collections efforts, making those calls and that type of dialogue even more drawn out and complex.
What are the implications of weak customer due diligence during onboarding for a Covid related loan?
In the early stages of the pandemic, the amount of KYC performed, and information collected was low, given the time constraints lenders had to distribute funds when it was most needed. The rigor of the KYC process would have been therefore diluted. Now lenders and banks are trying to play catch-up to try and collect all the information they were unable to at the time when many of these loans were issued.
Panelists agreed that due to the scope of an individual’s circumstances change, the extent to which information could be collected, and the extent to which lenders can re-engage with borrowers to agree on an accurate and affordable repayment plan, would be key in ensuring that moving forward, both lenders and borrowers can be in harmony.
How will a lack of KYC affect the sector moving forward?
Panelists noted that as circumstances have changed so much, many loans will be difficult to collect. An empathetic approach will be needed to collect the relevant information and developing a coherent plan is a real challenge for the banks and the lenders.
Organisations need to understand that none of their customers had a pandemic in their business plan. This is an opportunity for financial organisations to be there for the customer – reinforcing that empathy point and providing time, tools, and forbearance that is appropriate for each individual circumstance.
What will be key is identifying who will be in need most, and as there was so little checking done at the time, lenders and banks will now need to go back and check that those individuals and businesses in receipt of these emergency loans were indeed entitled to receive them.
This of course places a question on the future, and how does the industry get into a position where they understand the impact at the macro and micro levels.
The furlough scheme is coming to an end in a couple of weeks, so have banks and lenders been recording this data in terms of how many people have been on furlough for their I&E-checks?
Lenders and banks have been asking questions about trying to get more detail and information on their client’s financial circumstance – what their position is, what is the risk of redundancy as well as furlough.
Acquiring this type of insight needs people. This has led to an increase in the number of staff in collection teams. Understanding what a customer’s financial situation will look like in the future will be key and will inevitably take more time because the data points that have been used in the past are less useful as they are not a predictor of what the customer’s circumstances will look like within a future business perspective.
In terms of having to scale up operations, most providers in the industry did scale up their operations, which has enabled them to have really good quality conversations with customers without investment in the efficiency of other tools and techniques.
Going forward, as the industry begins to understand more on how to take account of a customer’s situation, this will be key to providing the seamless customer journey that many still want to retain.
Two-thirds of those who have received bounce-back loans think they will default and never pay the loan back at all. How likely do we think that is, and what implications could this have?
Inevitably, there is going to be an element of borrowers who took advantage of these emergency loans for not the right purposes, but in most circumstances, unless the business folded, the delinquency in those sorts of loans won’t be as bad as some may fear.
People understood the criteria in which the loan was taken, some of them have taken advantage of the Pay as You Grow scheme, and some have extended the loan period if they still have a challenge.
Ultimately, more serious legal action could be taken. the government will want to see those best endeavors were made by the lenders to recover those loans. Yes, there is a balance between empathy and engaging with the client, but ultimately there is always a more formal process that can be adopted.
How can lenders place affordability testing at the forefront of organisations collections teams?
Many customers coming through now are coming through because of life events such as the pandemic. A real detailed assessment of what that circumstance looks like and what the future looks like for that individual is important. The industry needs to get better at ascertaining what information accurately describes the customer’s circumstance and the error ranges, but also work in line with the regulator.
The pandemic has opened the talent pool in terms of who we can hire. How important will it be to hire a collections team?
The move towards remote working has led to a draw from a much broader geographic range. This has meant that the type of experience and knowledge that these collections individuals have are more widely available, so being able to source the right type of people relatively quickly has become much less of an issue.
Next steps
Balancing the collections challenge will be one lenders and banks will need to grapple with for the coming months as collections efforts are increased. Customer centricity will remain key as well as formulating better ways and processes in gathering data that places a realistic depiction of the customer’s circumstance, and not just for months to come, but for the future as well.
The industry needs to get better at ascertaining what information accurately describes the customer’s circumstance and the error ranges, but also to work with the regulator. No one had a pandemic in their business plans, so a real empathetic and supportive approach will need to be adopted by all collection’s teams moving forward.
In terms of compliance and collections, it will be in the best interest of banks and lenders to ensure that adequate CDD was conducted for any Covid backed loan, which means a game of catch could be at play for many.
Ensuring you have the right talent will be essential for the type of collections interactions required, so you will need to ensure these individuals are skilled, have the right empathy and expertise. Collections teams will need to build rapport with the client, so there is harmony between the individual and lender.
Get in touch to see how we can help your business as you manage the post-COVID landscape and tackle the challenge of responsible and effective customer lending reviews and repayment collections.
