Managing arrears while retaining a social conscience

29 March 2010

While policy makers are busy regulating for a more sensible approach to arrears management, prudent lenders must also adopt a more sensitive approach to dealing with customers in arrears, as the one-size-fits-all approach is no longer relevant.

When it comes to a more intuitive arrears management process for loan and mortgage providers the term social conscience is often bandied about.

Lenders use the phrase to describe the need to cut the impact of the recession on customers and their attempts to keep them in their homes.

At Target, we define social conscience as an appropriate attitude of sensitivity and responsibility towards customers. This is the definition that lenders and servicing companies should adopt as an ethos for best practice.

With an all-round view of customers, lenders can decide if the tolerant approach is appropriate

We apply this principle in the following areas:

• Data and decisioning: In fostering a greater social conscience lenders and their servicing providers must ensure they have a strong analytic capacity that enables them to correctly interrogate customer data. This data may be proprietary or from a credit reference agency.

Good customer data and trend analysis is a cornerstone of behavioural modelling techniques that can drive pre-delinquency strategies, enabling lenders to support clients who show signs of stress before they hit a tipping point.

Only ongoing refinement of this approach will deliver results, ensuring that customers are treated firmly but fairly.

• Understanding and educating customers: Developing an empathetic approach when working with customers to help control their finances will pay dividends in the long run. It’s all about counselling clients on an individual basis rather than taking a rigid approach to missed payments.

We are already exploring the benefits of corporate neurolinguistic programming training among our client-facing arrears account handlers to provide a more personalised service.

• Tolerance: With an all-round view of customers’ financial circumstances lenders can decide if a tolerant approach is appropriate for individuals, considering ways to support them while ensuring a repayment plan is met.

Increased patience and flexibility around offering assistance - including income and expenditure reassessment - has been successful for us.

• Support and action: For customers where repossession is the only answer social conscience should still come into play.

Assisted sales programmes or sale-and-rent-back schemes are two useful options by which lenders can continue to support customers through the arrears process.

Hindsight is a wonderful thing. Would we do things differently if we knew then what we know now? Of course we would. Most lenders would have managed their arrears differently.

There’s a responsibility on customers to work towards meeting their commitments but it’s equally important that lenders should treat them fairly and compassionately when circumstances merit this.

Developing a customised approach to arrears management is the only way to deliver results for lenders.

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