Gone without trace: The value of debt data

At the end of 2011, the total value of unpaid consumer debt held by members of the Credit Services Association (CSA) for collection stood at just over £58 billion, comprising £31 billion placed by creditors with debt collection agencies (DCAs) to collect, and a further £27 billion of purchased debt owned by Debt Buyers.

The total volume (i.e. number) of consumer debts awaiting collection by CSA members stood at a staggering 32 million as at the end of December 2011 - the equivalent of at least one significant debt for every UK household or £1,000 of uncollected debt owed by every man, woman and child in the country.

Six months earlier (H1 2011) the total value of unpaid consumer debt stood at £52 billion across 28 million cases – so both the volume and the value of debts are rising, a fact that we can attribute to a range of different factors.

The economic environment has undoubtedly become more difficult, and so it is no surprise that debts are rising. But there are also other reasons, including ‘new’ creditors within the private sector and parts of the local and national government who no longer see an issue with outsourcing debt for collection to professional and highly regulated agencies capable of recovering monies vital to the public purse.

Cost of debt to government

Indeed the government has gone on record recently (as part of its Fraud, Error and Debt initiative) as reporting that overdue debts cost it between £7-£8 billion – 95 percent of which resides with the Department of Work and Pensions (DWP) and HMRC – and part of this has now been passed to CSA members for collection.

That the government and various bodies within the public sector are active users of outsourced debt collection agencies is perhaps not widely known, although there is evidence that our profile and our contribution are gaining greater recognition. But that’s not to say that our relationship is not without its challenges, and one of the greatest challenges we currently face is around the issue of ‘mis-trace’.

A misnomer
Now the first point to stress is that the word ‘mis-trace’ is something of a misnomer. The pre-fix ‘mis’ implies a deliberate and perhaps even sinister mistake has been made (as in ‘mis-selling’) and the error rests with the collections agency, when actually a genuine attempt has been made to contact a debtor at an address that has been provided either by the original creditor or one of the many credit reference agencies. No nefarious activity has taken place; an assumption has been made in good faith and based on a probability that the individual at that address is the customer with whom the agency wishes to communicate.

But even some of the cleanest data can be flawed, and when an individual is contacted in error, there is nearly always a good explanation as to how that error came about. But that is not to belittle the impact in any way; false positive traces are the bane of everyone working in the consumer collections space, and fundamentally come down to inaccuracy of data. Indeed regardless of who is to blame, the outcome is still the same: disgruntled consumers using the press rather than the Financial Ombudsman Service (FOS) to voice their complaints.

One of the various tools used by agencies and specialist trace businesses to determine the accuracy of the data is the Edited Electoral Register (EER). Until only a few weeks ago, the government was calling for the abolition of the EER on the grounds of improving voter registration rates. For the debt collection industry, such a move could have proved most problematic, and there was a palpable sigh of relief from the industry with the announcement that the EER would be retained – an achievement in no small way attributed to the formation of a Cross Industry Working Group that found a listening ear in the form of Minister Mark Harper.

The decision has indeed served to re-invigorate the industry’s call for access not only to the edited version of the Register, but also the Full version. The industry has argued, with understandable justification, that it is somehow strange and perhaps even unfair that creditors can use the electoral roll for lending money, but CSA members are denied access to the roll for collecting it and helping individuals resolve their financial difficulties. Put another way, at a time when protecting vulnerable consumers is paramount, it seems incongruous that the full Electoral Register should assist consumers into debt, but not be available for us to assist them out of it.

So what is the difference between the two? Why is access to the Full Register so important? And could access to the Full Register achieve the CSA and the industry’s ambition to all-but eradicate mis-traces?

The two registers

The Full Register is a complete list of all the individuals eligible to vote in the UK, and their current addresses. In the broadest sense it is used by government and law enforcement agencies to prevent and detect crime, and by financial institutions to offer credit by verifying that the person applying for credit is living at the address stated.  MP’s are also allowed access to the Full Register for election purposes.  All of these purposes are enshrined in The Political Parties and Elections Act 2009.

The Edited Register, meanwhile, is as the name suggests: a list of those individuals who have NOT opted out of appearing on the Edited Register. To opt-out, the voter is obliged to tick a box on their voting form.

The key difference between the two is that the latter is available for sale to anyone who wishes to purchase it, and for any means, and is used widely by the direct marketing industry, charities and the financial services sector. It is unlikely that when it was first introduced, it was ever thought that it would be so widely used for commercial purposes.

So why is the Full Register so potentially useful? Many believe that access to the Full Register would all-but eradicate mis-traces overnight.  As it is an offence not to Register to vote, all individuals in the UK over the age of 18 will appear on the list, along with their current address. The Full Register is updated annually, and therefore the information contained on the list could never be more than 12 months out of date. A search therefore for a Mr Peter Wallwork will provide you with my current address. The information on the Register must be accurate, and so the likelihood of an error (a transposed house number for example) is minimal. (Another distinction between the two is that the Edited Register holds historic data, so even if I’ve opted out in 2010, but forget to do so in 2011, my 2010 address will remain!)

Everyone wins from change
What everyone in the debt collection industry is agreed upon is that access to the Full Register will mean that the likelihood of mistraces will fall dramatically. No agency wants to spend money on trace when a trace isn’t required. Similarly, no agency wants to deliberately contact an innocent third party who happens to share a common name, or who now lives at a property once owned by the debtor the creditor seeks. A change will mean that everyone wins; agencies will be able to focus their efforts more cost-effectively and consumers are less likely to be caught up in an issue that is not of their own making.

The achievement in getting this far cannot be overstated, but access to the Full Register is not in itself the panacea. There will still be some instances where a financial link may have been attached incorrectly to a creditor file and so the problems begin, but these will be the exception and not the rule.

The debate still has some time left to run. The Electoral Commission appear keen on making sure that the ‘opt-out’ is permanent, so voters will have to ‘opt back in’ if they want to appear on the Edited Register. The danger of this is that over time, the effectiveness of the Edited Register will dwindle to the point that it might ultimately become useless, and the data out of date. It makes the industry’s focus on gaining access to the Full Register ever more urgent.

About the CSA
The Credit Services Association (CSA) is the only National Association in the UK for companies active in relation to unpaid credit accounts, debt recovery agencies, tracing and allied professional services and has a history dating back to 1902. For further information visit www.csa-uk.com