Creditlines Focus on Collections and Recoveries, Winter Edition 2008

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1 Creditlines Focus on Collections and Recoveries, Winter Edition 2008 And in the next six months? Welcome to the second edition of Creditlines to focus on the world of Collections, Recoveries and Debt Sale. It s been six months since our first edition. Can anyone remember such a turbulent six months in the Economy in recent history? What started as a Credit Crunch brought on by a failure in United States sub-prime mortgage lending was recently described as a near systemic failure of global financial markets. Since I wrote my last leading article in April we have witnessed the massive injection of public funds into the UK Banking sector and lenders being taken into public ownership in varying degrees. In the USA 16 banks have failed in 10 months up to the end of October Financial rocks such as Lehman Brothers, Bear Stearns, Freddie Mac and Sallie Mae have gone either through a total meltdown or fundamental restructuring. No sector of our economy can consider itself immune from the effects of the financial maelstrom, nor indeed will there be any consumer who won t be affected by it. So where does this leave our industry and what is the outlook for the next six months? Undoubtedly the strategy of both lenders and debt buyers is changing. Already we are seeing lenders withdrawing sales as anticipated prices No sector of our economy can consider itself immune from the effects of the financial maelstrom, nor indeed will there be any consumer who won t be affected by it. are not being achieved. Many buyers are talking about consolidating around existing portfolios as investors withdraw funds and demand greater returns from existing portfolios. In October, it was reported that Sallie Mae was intending to sell its international debt purchase business Arrow Global and Reuters reported in the same month that London Scottish was looking to sell or close its debt collection business. The knock on effect of not selling debt for lenders, I feel, will be quite considerable and far reaching. It will put immediate pressures on Collections and Recoveries teams and external DCAs to generate revenues to cover the loss of sale revenue. (To paraphrase Mark Twain, the death of contingency collections was greatly exaggerated 18 months ago by many industry insiders). Already many lenders are reporting a significant rise in hardship referrals from accounts in predelinquency dialler queues. The bottom line is that collecting debt is going to get much tougher and what we must guard against is following what is happening in the US, where, as reported by CNN in October, complaints filed with the Federal Trade Commission, of harassment against collectors has soared in Through these difficult times it will become even more important for collection operations to segment their portfolios, identify those customers who have funds to pay, what payment plans are sustainable and avoid putting debtors already suffering a genuine hardship in a situation which could result in reputational risk. Then there will be Debt Relief Orders to contend with in Do any of us know what effect they are likely to have? To achieve these goals our specialist Collections and Recoveries team and the tools we have developed are well placed to help our clients. In this edition of Creditlines you will find articles on our newly launched daily alert service, CallMonitor for Collections, a new enhancement to our tracing capability, Deep Tracing, and new analytical tools for assessing dormant portfolios. Please contact me by or by telephone if you want more information on Callcredit s specialist Collections and Recoveries products and services. I hope you find this edition informative, interesting and thought provoking. alan.golob@callcredit.co.uk

2 Top 50 most influential collections professional award Callcredit s Senior Business Consultant Steven Preston was awarded one of the Top 50 Most Influential Collections Professional Award 2008 as voted for by the readers of the US based Collections Advisor Magazine. Steven has been working with a number of US based collection companies, debt buyers and technology vendors over the last 12 months and was recommended for the award for his consultative and innovative ideas through the online ballot. Winter 2008 On both sides of the pond Steve is acknowledged as being at the leading edge of Collections thinking. His work involving UK lending institutions and US technology suppliers has led to the introduction of innovative Callcredit products and services. Alan Golob, Head of Collections and For more information on the awards visit Debt Relief Orders - a relief for who? It is expected in April 2009 that new legislation will come into effect resulting in Debt Relief Orders becoming commonplace within the debt industry. The intention of this legislation is to give those with no assets, a low income and no prospect of their situation improving, access to debt relief. In reality, the change in legislation means that anyone who is unable to pay, has less than 15,000 in unsecured debt, assets totalling less than 300 and a disposable monthly income of less than 50 can apply for a Debt Relief Order. This will protect them from any enforcement action by their creditors and, if the order is successfully completed, will see them free from their debts after 12 months. Debt Relief Orders will be applied for online, with an approved intermediary completing the application on behalf of the applicant. Upon receipt of the application and payment of the fee, an Official Receiver is able to make the order administratively, without the involvement of the court. It is likely that the first Debt Relief Orders will be approved from 8th April 2009 onwards. The challenge for the debt industry is now to try and proactively identify the customers who have the potential to enter Debt Relief Orders as, if these accounts continue down their usual strategy without any specific attention, the prospect exists for them to become uncollectable very quickly. The other challenge facing the industry is the monitoring of the Debt Relief Orders once they are in place as the legislation also states that a debtor is expected to make arrangements to repay their creditors should financial circumstances improve. As such, it will be important that creditors can quickly identify positive changes in their customer s circumstances and notify the Official Receiver who can consider the information and is able to revoke a Debt Relief Order if deemed appropriate. In addition to these challenges facing the whole industry, a more specific challenge threatens the debt sale and purchase environment with sale portfolios being de-valued if the perceived mix of accounts favours those more likely to qualify for future Debt Relief Orders. Callcredit are currently working with a number of lenders and purchasers in order to identify their customers whose circumstances match the current Debt Relief Order criteria. Further information on Debt Relief Orders can be found on Insolvency Services Website entitled The Debt Relief Orders (Designation of Competent Authorities) Regulations John Roche, Business Development Manager, Callcredit john.roche@callcredit.co.uk

3 Monitoring the collection performance of sold debt Once an account is sold many lenders do not have access to Management Information to track the collection performance of that customer. Such information is vital if the lenders hold more than one account for the sold customer or for tracking the relative performance of a debt purchase panel. Indeed the information has greater significance if the debt Re-Sale market shows signs of continued growth here in the UK. Both the initial lender and reseller have vested interests in knowing the collection performance of the account over a period of time, especially with regards to understanding the value in future portfolios. Few sellers know the performance of a portfolio post sale with the detail of any feedback varying significantly by seller and buyer. Callcredit now has a new suite of collections products that provide the recoveries for a portfolio post sale and predicts the likely liquidation in future periods. Our We recognise the changing economic conditions may well see our clients facing a different set of challenges in Steve Preston, Senior Collections Consultant, Callcredit Callcredit Collections Consultancy and Analytics Team is therefore pleased to announce a new service whereby a debt seller can track and monitor the overall performance of a portfolio for a 24 month period following a sale. The report is useful in several applications. The first is that the seller can have a more detailed understanding of the recoveries achieved by month post sale, so that they can fully understand the short term value of the asset sold. Each quarter the client will be presented with a portfolio performance update and analysis of the proceeding three months together with a comparative analysis versus previous quarters. Commenting on the new service Steve Preston, Senior Collections Consultant said: We recognise the changing economic conditions may well see our clients facing a different set of challenges in Our specialist team of Collections Consultants and Analysts are geared up to work with clients whose business model in terms of Collections, Recoveries and Debt sale may well be changing. We believe, from our discussions with a number of clients, that the monitoring of sold debt has an important role to play. alan.golob@callcredit.co.uk What do you think? Send your comments to info@callcredit.co.uk Recoveries at Callcredit will be speaking at the forthcoming FLA Conference on 27th January New figures show that debt enquiries to the Citizens Advice Bureau in England and Wales have hit a record high, increasing by 20% in the last year and bringing the total to 1.7 million in 2006/07. The number of debt problems brought to bureau has doubled in the last 10 years. With this in mind, Alan will be focussing on the effective use of external data in debt collection, recoveries and debt sale in the current financial climate. For more information about Callcredit events contact our events team on or marketing@callcredit.co.uk

4 Improving daily alerts for collections Of the daily alerts typically generated on a monitored portfolio around 75% of the volume would typically be for accounts in arrears. These may not all be in arrears with each lender, but those accounts that aren t represent a good step towards accurate pre-delinquency segmentation. Alerts generated on the lenders book are divided broadly into four groups: 1. Those showing an improvement on a delinquent account Callcredit have developed more daily alerts as a module for CallMonitor, which provides much further granularity into the type and extent of the financial improvements or deterioration. 2. Those showing a deterioration against a delinquent account 3. New addresses 4. Other public type alerts e.g. insolvencies These high volume alerts create an opportunity for more strategic management of the arrears portfolio, perhaps more significant than ever in the current collections environment. Furthermore, if the sequencing and volume of the alerts in addition to the financial product type are also used to prioritise each of the four cohorts, then Steve Preston, Senior Business Consultant, Callcredit the collections book can be continuously re-worked according to the changing daily circumstances of each debtor. This delivers maximum recoveries for the lender with the minimum application of resources, with the highest priority improvement cohort typically achieving over 50% payment penetration for example. Following on from these successes Callcredit have developed more daily alerts available as a module for CallMonitor, which provides much further granularity into the type and extent of the financial improvements or deterioration. Imagine if you had a daily list of accounts from all stages of your collection processes, of which more than 50% could pay you. Steve Preston, Senior Business Consultant, Callcredit steve.preston@callcredit.co.uk Give your manual trace team a solid platform with Deep Tracing Whilst a significant number of gone aways can be resolved by using Callcredit s batch tracing service CallTrace, there will always be a number of cases which require manual tracing attention. In many cases, errors in the name contained in the original input file will lead to a negative output from an automated process. Deep Tracing provides the first rung on the ladder towards manual tracing by gathering information to identify all individuals associated with an address. The Callcredit Deep Tracing function returns the names of all individuals connected to the input address and will confirm whether the individuals are living as stated at the address or can be traced to a forwarding address. Within the output file each occupier s name and address is confirmed as either being currently connected to the input address or alternatively the person may have been formally associated with the address but not recently and cannot be traced to a new address. Deep Tracing can be used as an add-on function to the existing CallTrace Batch process. A number of benefits are derived from mapping the Deep Tracing output data to the original CallTrace input file: Incorrect spelling of names in the original input file supplied to CallTrace Same surname level matches that indicate continued occupancy at the input address Same surname level matches that indicate a forwarding address Your skilled operators can then work through the Deep Tracing output with confidence. To speak to an expert in Deep Tracing contact Alan Golob on or alan.golob@callcredit.co.uk

5 Making the most of CRA data use of Account Type Debt Consolidation With continuing issues with the funding and credit markets, and with more and more households feeling the pinch due to the cost of food, utilities and other expenditure increasing, accurate data reporting and classification is more important than ever. More granular reporting of data can help with the credit assessment of individuals. Data is key to ensuring that a full and accurate affordability assessment has been undertaken. The better the data, the better the decision will be. The account type of Debt Consolidation (26) was introduced in 2005 to allow organisations to record separately the fact that the customer had opened a distressed lending debt consolidation product. These products are opened via a range of trigger routes: 1. The customer has requested consolidation as they have realised they cannot afford existing repayments and they fail scoring criteria for standard products. 2. Customers entering early collections who are requested to consolidate products in an attempt to make repayments more affordable. 3. Those customers who are in severe financial difficulties and have agreed to a strict repayment plan. It is possible to identify some of these customers through the use of other bureau data, but not all of them. As many of these customers have moved to a distressed lending debt consolidation product, no defaults will be registered and therefore, these accounts are not always identified for what they really are. As a result, other organisations (and sometimes other entities within the Group) could open additional lending products for these customers, not only unwittingly causing repayment issues for themselves, but also for the original organisation as well. Therefore, sharing this data is key. Some organisations are not supplying data in this category due to IT and formatting constraints. However, Callcredit can pick up this data from several formats. If you are interested in supplying data to this account type but are not currently doing so, please contact Callcredit and we would be happy to discuss options. Bev Houlbrook, Senior Business Consultant, Callcredit bev.houlbrook@callcredit.co.uk Rested account analysis Debt buyers are now taking advantage of their ability to access full credit data and in many cases, after a period of analysis and assessment, processes are in place at book on stage to use the data to drive collections strategies. The benefits of using the data in this way are apparent however the quickest win for debt buyers is the use of credit data on rested assets, something which is often overlooked. Having been through the initial collections process, accounts are typically rested to be worked at a later date, but with the volume of such accounts on the increase and resources under pressure, the question is how to determine which accounts to rework and when for maximum return. Callcredit offer a rested account analysis solution incorporating a range of credit and geodemographic datasets for the analysis and continual assessment of rested accounts. An initial data evaluation provides the user with a picture of a portfolio in terms of data quality and relative collectability. With results provided as a batch file and new addresses returned as standard, the solution offers an efficient method of identifying accounts suitable for reworking and also accounts from which collection is unlikely, allowing the best use to be made of available resources. Further to the initial portfolio assessment, Callcredit s daily alerts service, CallMonitor, acts as a continual call to action on rested accounts. CallMonitor alerts the user to significant changes in a debtor s credit profile, both positive and negative, that would impact on their ability to pay, thus generating improved return from these accounts in the short term and saving the operational resource associated with the periodic reworking of these accounts longer term. For further information on Callcredit s Dormant Account solutions please contact Christina Johnson, Business Consultant, Callcredit christina.johnson@callcredit.co.uk

6 In these times of deteriorating economic conditions, affordability and velocity of debt change will play a major part in segmenting those debtors who can pay from those who can t. Callcredit has harnessed their industry leading data sources to provide lenders with a powerful tool for use in Collections and Recoveries. The Over- Indebtedness Score (OIS) is a generic bureau score built by DecisionMetrics, a Callcredit Information Group company, that indicates the likelihood of a customer becoming insolvent, receiving a CCJ or defaulting on commitments as a result of over-indebtedness. The Score is available on all accounts on a portfolio and can be used to identify those customers who are over-indebted, or are becoming over-indebted, even if they have yet to miss payments on their accounts. This ensures that the OIS adds value in addition to existing risk scores on these cases. To assist further with the identification of the most overindebted customers Callcredit can also supply a flag for all customers with an unsecured debt to income ratio of 20:1 or above. This flag is based on a combination of current account turnover and application income data to maximise its accuracy. Commenting on the launch of OIS, Alan Golob, Head of Collections and Recoveries at Callcredit said: This is a Winter 2008 The Over-Indebtedness Score (OIS) a major step for effective Collections and Recoveries segmentation Callcredit have harnessed their industry leading data sources to provide lenders with a powerful tool for use in Collections and Recoveries. Richard Brennecker, Head of Consultancy, Callcredit very exciting development for our industry and shows Callcredit s commitment to meeting the demands of the collections sector. OIS is immediately available to Collections and Recoveries operations within clients currently contributing to Callcredit s Over-Indebtedness Initiative. Richard Brennecker, Head of Consultancy, Callcredit richard.brennecker@callcredit.co.uk Your Director Contacts John McAndrew Managing Director, Credit Solutions john.mcandrew@callcredit.co.uk Graham Lund Managing Director, Callcredit graham.lund@callcredit.co.uk Mike Davies Business Development Director mike.davies@callcredit.co.uk Malcolm Hanson Client Services Director malcolm.hanson@callcredit.co.uk Ed Davies Data Assets Director ed.davies@callcreditgroup.com All of the above can also be contacted on How much more credit your can balance? customer CallMonitor will let you know almost instantly If a customer s credit status changes so you can act before it s too late. Because it s the UK s first daily alert service, you get this vital information when it s needed most, rather than weeks or even months later. Helping you recover money before your customer s financial situation gets any worse. Find out more at or call