.svg)
The Netherlands Authority for the Financial Markets (AFM) has outlined proposals it wants to see lenders adopt to help customers manage their loan arrears. Among its solutions is the use of behavioural sciences to improve insights.
As many consumers struggled with debt due to the economic fallout of COVID-19, the Dutch regulator has re-evaluated the conduct of credit providers in terms of how they help their customers’ facing difficulties with debt repayments.
In an investigation of nine leading credit providers, the AFM asked to what extent lenders put the customer interest first in helping them deal with debt issues, including the design and implementation of their policies towards managing customer arrears.
The regulator noted “major differences between the providers” and that “significant improvements are needed for some providers to ensure that the customer's interests are central”.
It is now asking lenders to help customers, especially those facing problems, to better manage their debt.
“The AFM wants providers to provide sustainable solutions in their arrears management, making use of insights from behavioural sciences,” the organisation announced.
The Dutch are among the highest borrowers globally, according to Organisation for Economic Co-operation and Development (OECD) data based on the organisation’s 38 member states. The Netherlands ranks third in terms, with a 255 percent household debt to disposable income ratio, just behind Denmark and Norway.
A recent survey by the Central Bureau of Statistics found of the 8.8m consumers with a credit agreement in the country, 800,000 have reported problems with meeting payments.
Believe in a debt-free future
The AFM believes that the use of behavioural sciences can aid lenders by helping them guide their customers in the right direction.
“We know from the behavioural sciences that people often don't take action, even if that is actually necessary or beneficial. This behaviour is called inertia," the report claims, noting there are often various reasons why customers do not engage with their lender when in arrears, including shame, over-optimism, denial or lack of control.
The report argues that when these issues come into play, the tone of the lenders response is critical. Taking an overly harsh response, for example, can often lead to undesired actions from the customer. As part of its report, the AFM has formulated guidelines for positive communication with customers.
A major element of the AFM’s proposals is that lenders are able to show a path for their consumers to a debt-free future within a reasonable time period. The regulator has outlined five key principles to help make this happen:
- There is productive contact between lender and customer.
- The solution is based on the financial situation of the customer.
- The lender proposes diverse solutions to support different needs.
- Customer service staff are better trained in offering guidance.
- Agreements with collection partners are focused on customer interests.
The AFM pointed out that there is room for improvement among providers across all these principles.
“Many providers can make letters more constructive, take better account of the customer's financial situation and organise the management of collection partners more from the customer's point of view.”
The regulator noted, however, that it has already discussed its findings with the credit institutions surveyed and the providers have “promised or have already taken action on this”.
