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Debt Collection Agencies Can Help Financially Vulnerable Customers

How Debt Collection Agencies Can Help Financially Vulnerable Customers

Delia Jones

Debt collection agencies are often seen as the wolf at the door, but they don’t have to be. Rather, they can take the role of shepherds to guide financially vulnerable customers. Though the question is “how”, as debts still need to be paid, and during this time of increased financial stress, more and more people are falling behind on their payments. 

As a debt collection agency (DCA), you can carry out your debt collection with empathy and still be effective, even more effective than when hounding a debtor. The first step is to identify who is vulnerable. 

Who is a financially vulnerable person?  

There’s no official definition about who is vulnerable, but this explanation by the Lending Standards Board, UK, sums it up: 

A vulnerable customer is someone who, due to their personal circumstances, is especially susceptible to harm.”   

The situation is made worse if debt collectors are insensitive and act unfairly. 

In short, vulnerability covers people facing adverse circumstances, like homelessness, serious illness, job loss, low income, being disabled, a loss of loved one or relationship problems. Moreover, it is not a fixed state and people can move in and out of a vulnerable place. 

As you can imagine, when a person is struggling financially, they are also more susceptible to exploitation or falling into more debt.  

Debt and mental health 

Unfortunately, mental health problems are exacerbated by debt problems. According to the National Debt Line in the UK, “1 in 4 adults in the UK experience mental health issues in any given year” and 50% of people who have debt problems also have mental health struggles.  

Even more concerning is the increased suicide risk seen in people fighting mental health as well as debt. 

How to identify a financially vulnerable customer 

Now let’s take a closer look at what signals reveal someone is in a vulnerable state. 

The simplest way is if they come right out and tell you, but this is usually not the case. More often, you need to read between the lines of their communication to find what they are really saying.  

For example, they may say, “I have lost my job.” Or “I have been evicted from my flat.” Customers may also use terms that show they are anxious or not well, like, “I don’t know how I am going to manage this.” 

Additionally, DCAs can also use credit reference agencies to analyse a person’s payment patterns and profile to see is they can be classed as vulnerable. 

Another source is when a third party, like a doctor or a social worker, informs creditors of the vulnerability of a person in their care. In these cases, you need to check for their appropriate authority levels. 

How software helps identify vulnerability 

Technology brings in a new avenue for identifying financially vulnerable people.

Collections agency software 

Recently, digital debt collection tools have started using propensity engines and advanced Natural Language Understanding to pick up signs of vulnerability. The AI engines are taught to understand intent within a context and can pick up if a person is, say, anxious, using text analysis. 

Open Banking and data science 

Open Banking allows customers to share bank account information with third parties (with consent), which gives insight into risk levels. 

A powerful tool to add to the mix is spending analysis using data science software that recognises red flags, such as out-of-character missed payments or borrowing money to cover everyday expenses. 

Debt Collection Agencies can help people in financial difficulty 

At the heart of it all sits customer care. Here is how that is fleshed out. 

Open communication 

Listening, asking, understanding – these are all foundational to good communication, especially in an emotionally charged situation. If you engage early with your customers, you can pick up those who are potentially vulnerable and can step in and help having gathered the information you need to go further. 

Staff training and care 

Agents need to be trained properly on: 

  • How to identify financially vulnerable customers
  • How to have a difficult conversation about debt
  • Which questions to ask 
  • The policies in place 
  • Where to refer them for help 

Agents also need to be taught how to cope themselves as they face troubled people on a daily basis. 

Referrals and partnerships with debt management organisations and charities 

It’s in the best interest of all to work together with debt charities and agencies, such as StepChange, National Debt Line and MoneyHelper. These organisations are experts who know how to deal with specific problems. 

In-house guidelines and policies  

DCA’s should all have policies that agents need to follow as well as adhering to government regulations that protect vulnerable people. Some collection agencies also have dedicated staff who focus on helping people in financial trouble. A good place to start is The Standards of Lending Practice (Lending Standards Board, UK). 

Payment options 

Practically, DCAs can offer help, such as:  

  • Debt management plans 
  • Interest freezes/reduction 
  • Negotiating longer repayment periods 
  • Negotiating lower payments 
  • Pausing collection for a period for a time 

In some cases, as with terminal illness or debilitating mental health, a DCA might right-off the debt. 

Conversational AI for debt collection using multichannel communication 

To start with, using digital channels that your customers prefer, like WhatsApp and SMS, lowers the barriers to communication and helps customers feel less threatened. 

AI chatbots need not be cold, in fact, they can be taught using Machine Learning and Natural Language Understanding, to engage empathetically with customers in two-way conversations. People feel they are being heard and supported which opens them to working with collectors to make a plan. 

Debt Collection Agencies’ obligations to vulnerable customers 

What does this mean? DCA’s are regulated and obliged to follow government policies put in place to protect vulnerable customers. 

For a deeper understanding of the rights and obligations of both consumers and creditors, read Debt Collection Regulations & Compliance: What you Need to Know. 

If you want more information, dip into the Financial Conduct Authority's trusted guide on the fair treatment of vulnerable customers. 

Conclusion 

Society has traditionally placed a stigma on anyone who falls into crippling debt, and this often prevents people from seeking help. Contrary to what many people believe, DCAs are not the enemy, and they are in a position to help. Also, the software available, like conversational AI, comes alongside the agents to enable them to excel at customer engagement. 

Ultimately, the collection agencies benefit by helping financially vulnerable people: you see better response rates, better engagement rates, better brand perception and more debt recovered. 

Chat to an expert in conversational AI messaging to find out how you can positively engage with your customers with multichannel messaging.

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