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In July 2017 the Money Advice Service (MAS) released Working Collaboratively with Debt Advice Agencies: A strategic toolkit for creditors, which perfectly complements the latest Financial Conduct Authority (FCA) regulation regarding consumer credit.
Whilst the FCA seeks to instruct creditors on good practice when assessing consumers’ creditworthiness, the MAS’s Creditor Toolkit also provides a wealth of information on the less-commonly employed tactic of Debt Advising, in order to facilitate successful repayment.
The toolkit identifies three themes for improvement: 1) creditor assessment of affordability; 2) creditor referral strategies to sources of independent debt advice; and 3) creditor engagement and/or partnerships with debt advice agencies.
In March 2017, the Standard Financial Statement (SFS) was launched as a tool through which debt advice agencies are to assess affordability within the framework of repayment proposals. Bringing together, income and expenditures, one set of guidelines for spending, and a savings category to “build financial resilience” under a single statement, the implementation of the SFS should create a consistent method for affordability assessment. The toolkit advises creditors to adopt the use of the SFS themselves in their own assessments thus developing a regularised standard across the industry and increasing efficiency.
The toolkit also recommends that creditors provide an initial breathing space of 30 days to customers to allow customers to demonstrate progress in implementing a debt management plan (DMP). Creditors should also carefully consider the circumstances of customers with multiple creditors where that it appears they can pay, but that is not reflective of what they can actually pay.
Debt advice referral is sometimes undervalued by creditors as a genuine and effective strategy for increasing collections, however it is in the interest of both creditor and the customer that the situation is well-managed, the likelihood of which is greatly increased by creditor debt advice referral.
Debt charity, StepChange has determined six indicators of financial difficulty which creditors may train their staff to look for in clients. Once a person in financial difficulty is identified, a firm may then begin the process of referral. Importantly, the toolkit has recognised that since some customers will withdraw from the process if they are simply handed a list of advice agencies, a “warm-transfer” is often more productive. This refers to a creditor immediately connecting a customer with an agency via telephone. Alternatively, sign-posting (passing on the details of debt advice agencies) or indeed the recommendation of the Money Advice Service itself as a resource, may be more appropriate in some cases.
The toolkit highlights the importance of creditor- agency relationships and with eight steps to good practice. It is recommended that there is a structure in place to recommend the agency, and that the relevant team has a senior sponsor who is in a position to engineer partnerships with such agencies. It is also important to implement both external strategies in order to engage with advice agencies and internal strategies which monitor the success of such referrals. Facilitating a dialogue between the creditor and agencies is essential, with the two-fold benefit of ensuring that advice given is of a satisfactory quality, and as a source for feedback from customers.
Through the Working Collaboratively with Debt Advice Agencies Toolkit, the Money Advice Service has created a much-needed supplement to the extensive regulation suggested by the FCA. It not only identifies three distinct areas for improvement, but demonstrates to creditors the specific ways through which these goals can be achieved. It should therefore be recommended wholeheartedly to creditors so that they can improve the lives of their customers, while themselves profiting financially.