New regulations under consideration by the Financial Conduct Authority (FCA) in the United Kingdom will drive up collection costs and hurt collection rates, according to an early finding from a study being released next month by FICO.
In the survey, 67% of respondents agreed that new FCA regulations will add costs to the debt collection process. Nearly as many (64%) said that the increasing burden of regulation will negatively affect collection rates. FICO and Market Force surveyed more than 180 UK executives with responsibility for collection and recovery.
"Collection agencies and departments in the UK are trapped between a harsh economy and a tighter regulatory environment," said Nick Walsh, director of Global Business Consulting for collections at FICO. "Unfortunately, it appears that uncertainty over FCA regulation is causing many collectors to stall investments in technologies that would help them spot problems earlier and work more productively with debtors."
Bankers, who are used to a high degree of regulatory compliance, are the least worried of respondents, with just 51% concerned about the impact of new FCA regulation on collection rates. By contrast, 75% of respondents from collection agencies are worried about rising costs, and 79% are concerned about impaired collection rates.
The FCA will take regulation of consumer credit from the Office of Fair Trading in April 2014. The new regime is expected to be more rigorous, with debt collection and administration falling into the FCA's higher-risk lending category.
"Given that compliance is non-negotiable, debt collection agencies should seriously consider investing to upgrade their processes and systems to handle the new regulatory regime without compromising operational performance," said Juliet Knight, director of Marketforce. "The flexibility afforded by more advanced collections systems will serve both compliance needs and the bottom line."