Christmas on credit and rise in VAT has potential to trigger rising defaults amongst most financially stressed consumers, Experian advises
Christmas on credit and rise in VAT has potential to trigger rising defaults
amongst most financially stressed consumers, Experian advises

Nottingham, 8 December 2010 — Experian®, the global information services company, today advised lenders to be prepared for increasing consumer credit delinquencies amongst the most financially stressed consumer groups throughout 2011, even though economic indicators show some stabilisation in the job market.

Simon Waller, Head of Collections, Experian UK & Ireland, comments: “Despite unemployment and redundancy levels falling, the prevailing mood amongst the collections community is that they are in the eye of a bad debt storm affecting some of the UK’s most financially stressed consumer groups. The rise in VAT means that some groups will have less disposable income at a time of year when many are already most exposed, strongly suggesting that collections departments will see increasing cases early in 2011.”

Experian’s analysis reveals that while collections departments were faced with an increase in delinquencies across all consumer groups during the economic downturn, those most likely to reach serious financial difficulty tend to be social housing tenants and families living in homes acquired from social landlords under right-to-buy schemes.

Forecasts by Experian economists indicate that these types of household are also at significantly higher risk of unemployment in 2011. Those making up the Mosaic classifications Municipal Dependency (low income families living in estate-based social housing) and Welfare Borderline (people living in social housing with uncertain employment in deprived areas) are over 50 per cent more likely than average to become unemployed.

Manual workers making up the slightly more affluent Blue Collar Enterprise (upwardly mobile families living in homes bought from social landlords) are around 25 per cent more likely to become unemployed. Experian’s analysis suggests that lenders should be prepared for increases in collections cases from these groups.

Simon Waller continues:  “Good debt management processes are vital to help companies deal quickly and sensitively with cases. It is vital for collections departments to do everything they can to ensure that their people and processes can cope with the influx of new cases. Many of those entering collections are doing so for the first time and as a result of bad luck rather than bad decisions. Operators need to fully understand the circumstances of each customer so they can take the most appropriate and sensitive measures to rehabilitate the situation, protect the customer and preserve the long term profitability of the organisation.”

Economic indicators show that:
  • There were 2.45 million people unemployed at the end of September 2010, a marginal decrease compared to the first two quarters of this year1. This level of unemployment is similar to that seen during the summer of 2009.
  • There 7.98 million people in part-time employment at the end of September 2010, up from 7.84 million at the end of June, and 7.66 million at the end of September 2009. 14.7 per cent of those working part-time were only doing so because they could not find a full-time job2.
  • Numbers of new redundancies have declined since the height of the recession but are still running at a higher level than the same time two years ago. There were 332,000 jobs lost in the first two quarters of 2010 compared with 241,000 in the first two quarters of 20083.

Quick-wins for managing a surge in collections cases

Experian offers the following advice to help collections departments cope with the anticipated surge in activity:
  • Define which customers to call first by using data and analytics to prioritise accounts according to risk and the likelihood of collections
  • Validate and update customer data with the latest contact details for every account entering collections to maximise right party contacts and minimise unnecessary cost
  • Equip collectors with credit, demographic and behavioural data at the point of interaction to ensure a more informed call that accurately reflects each customer’s individual circumstances and ability to pay


For further information, please contact:

Chantal Heckford / Jennifer Comerford / Duncan Skehens
Lansons Communications
020 7490 8828 / / 

1 Source: Office for National Statistics 
2 Source: Office for National Statistics 
3 Source: Office for National Statistics