Credit Management September 2019

OPINION
AUTHOR – Peter Wallwork MCICM
credit industry and the additional costs they may
be saddled with as a result. Perhaps they should
consider that even with our rudimentary analysis of
the proposals, creditors could lose something in the
region of 30 percent or more of a debt that’s owed.
And someone down the line has to pay for that loss.
Indeed, what about the macro effects of such
a proposal? What will it do to the markets? If even
smaller quantities of debt are recovered (we believe
the estimate of 90 percent is mathematically
unattainable on the facts), and interest and charges
are waived, then how will that impact future
lending, and future charges? Lending is likely to
become even more constrained, and credit that is
available will come at a higher cost to the consumer.
The few who are vulnerable will have a potentially
disproportionate effect on the many who are not,
and who will end up covering the cost.
There will be an impact too on the debt
purchasing sector who typically acquire ‘crystallised’
debt – i.e debt that includes all contractual interest
and charges but has gone into default. Although the
purchaser may have the original creditor’s rights
in terms of applying additional default interest
and charges and recovering the reasonable costs
of collecting or enforcing the debt, these don’t get
exercised. As such, the direct cost implications
of the proposal fall in a different way to those of
lenders.
Purchasers will, however, face increased costs
(or losses) from less obvious sources in addition to
potential changes in the market. Due diligence costs
on acquisition of loans will increase as a result of
the added complexity around payment histories.
And, as stated previously, inaccurate records from
vendors or consumers can affect the accuracy of
statements and notices, which in turn can affect
enforceability and potentially lead to loss of all
interest and charges.
And what about the commercial credit sector?
The proposals span both consumer and commercial
credit, but how is a sole trader, for example,
expected to cope in having to give breathing space
to a debtor? Most likely they will have to raise their
prices to mitigate the risk, but in doing so may
become less competitive and fall into financial
difficulties themselves!
The proposals should not, by any means, be
dismissed as folly. They should be welcomed as a
good start. Giving vulnerable people protection
from enforcement action from creditors is a good
thing, but identifying those vulnerable people is
not easy, and requires the collections industry and
the debt advice sector to work even more closely
together. Let us see how the story unfolds as more
detail is made available to us to discuss. And let us
not hope that the unintended consequences of such
action, is less available credit at higher cost, that
ultimately moves more people into poverty.
Peter Wallwork is CEO of the Credit Services
Association and a member of the Board of the
Money Advice Liaison Group (MALG).
It has been best-practice, and enshrined
in the CSA Code of Practice, since 2012, so
any thoughts that our industry and our
members will somehow be dragged kicking
and screaming to adopt such a policy can
be quickly corrected.
The proposals should
not, by any means, be
dismissed as folly. They
should be welcomed as a
good start.
The Recognised Standard / www.cicm.com / September 2019 / PAGE 25