Analysing public sector debt collection

Richard Haymes, director of Consumer Affairs, Strategy and Market Development at Indesser, explains how data and analytics is helping to build a picture of vulnerability for people in debt

Formed five years ago as a joint venture with the Cabinet Office, Indesser is a key part of delivering the cross-government debt strategy which enables the public sector to access private sector debt collection capabilities and techniques. A key part of this process is the use of data and analytics to treat people fairly.

The identification and treatment of financially vulnerable people is one example where using data that is already available to government creditors can be used to better support their customers, be more efficient and deliver wider social value. Recently I heard Steve Coppard, deputy director at the Cabinet Office, speak and his commentary drove home the importance of treating customer fairly with debt collection methods, stating that: “Intimidating actions make debt 15 per cent harder to manage, and increase the likelihood of depression and anxiety by 22 per cent. At the same time, additional charges make debt 29 per cent harder to manage and increase the likelihood of anxiety and depression by 15 per cent.”

It can be difficult to come to terms with the scale of vulnerability in this country. According to Financial Conduct Authority (FCA) research, around half of the UK population show one or more signs of potential vulnerability. For example, one in six people would struggle if their monthly mortgage or rent increased, even by less than £50. StepChange, the debt charity, report that one in five of their debt clients had an additional vulnerability and that 57 per cent of their vulnerable clients were behind on household bills. Nine million people in the UK are hard of hearing or deaf and the National Literacy Trust estimated that 5.1 million adults in England have a reading age of 11 or below – so it is clear that one size doesn’t fit all when it comes to techniques and communication for the collection of money owed.

So how do you use data to navigate the complexity of this and the obvious human realities (we all, I believe, have these stories from our own lives where things are going well and then life gets in the way with ill health, caring for a family member, the joy but cost of new addition to the family, redundancy, floods) that come with it?

For financial vulnerability we at Indesser started with the FCA’s characteristics of potential vulnerability: Financial Capability, Financial Resilience, Recent Major Life Events(s), Physical or mental Health Conditions. We started here because all of our debt collection activity for government is done to and above this FCA standard, and also because the FCA have invested and learnt significantly in this area as part of the financial service regulatory regime.

We then drilled down into the two key characteristics which most likely evidenced financial vulnerability through data: Financial Capability; and Financial Resilience.

This enabled us to build a model based on over 150 credit bureau characteristics, as well as our experience managing over nine million customers for a broad range of Government departments. Using this data we identified six behaviours which suggested a high likelihood for financial vulnerability: Finance Management; Utilisation of Credit; Hunger for Credit; Missed Payments; County Court Judgements and Defaults; and Insolvency and Bankruptcy.

The complex data that sits behind these high level behaviours meant it was possible to see with a high level of certainty the people who are financially vulnerable. With these results and a development of the models used, it will be possible to continue to expand the types and volumes of identification.

So what does this mean and how can this awareness of a financially vulnerable person be used?
Well for public sector bodies recovering debt they can pro-actively identify those with financial vulnerability and, most importantly, provide treatments which provide additional support – like referral to free, independent debt advice – or offer additional services like financial support. In all cases, it is important to be mindful of this financial vulnerability in the debt collection process, because financial vulnerability doesn’t always mean that debt can’t be repaid - the person may just need different options, such as longer to pay, some forbearance, breathing space or different types of engagement (alternative wording in letters, different types of phone calls, etc.).

The social value and impact of treating financially vulnerable people fairly by taking an alternative approach is significant. The Money and Pension Service through research commissioned from Europe Economics, show that treating debt problems holistically and in a way that is specific to the individual evidences a link between problem debt and health issues and that ‘debt advice provides up to £145 million in health benefits across the UK. The evidence also suggests that there is a casual link between being indebted and reduced productivity, with debt advice delivering productivity gains of up to £137 million. Debt has also been found to be a significant barrier to those seeking employment’.

For government debt collection this impact may be even greater, with people who are financially vulnerable more likely to be users of other services like housing and social care. It may be possible, therefore, to tackle other issues within a local authority through a more tailored and fairer approach to the collection of money – meaning not only the potential for higher collection levels, but also the possibility of falling pressures on other support services as a result.