The Challenge of Litigation
Published Thursday 16 July 2009
By Nick Ramsden, Litigation Manager, The Lewis GroupOnly in recent years have credit managers begun to truly recognise the impact of litigation as an integral part of the debt collection process. Many of the previous objections, primarily centred around cost, have been overcome, and smarter collectors see litigation as an effective tool with a very high chance of recovering even the smallest of balances outstanding.
The figures speak for themselves: last year, The Lewis Group handled c100,000 cases; in 2008, that figure has already been reached, and is likely to exceed 110,000 before the year is out. The team has also more than doubled in size over the last 18 months, with more than 70 staff now dedicated to the task of litigation.
Before we get carried away, however, such growth has not been universal across the industry, and our own success is as much to do with the growth of our debt purchasing portfolio as anything else. But nevertheless there is still an appetite for litigation, especially for those that have the right information at their disposal and use it intelligently. That is what makes the difference between success or failure. Information will determine which cases should be taken to litigation, and which should not.
For example, an account where the debtor has the means to pay and assets of value, but clearly no intention of paying is worth taking to court. Conversely, those without the means or any assets could end up costing you dearly. In short, there is little point in throwing good money after bad.
So how will the recent turmoil in the markets and on the high street impact on the use of litigation in the future? There is always a lag between what is happening in the economy, and how that feeds down the line. To date, and for the immediate future, we expect the volumes of new litigation cases to remain high. This will no doubt be fuelled by the banks, wishing to offload debt just as fast as they can. What we also expect, however, is that debts will become harder to collect as the full effect of the recession, redundancies and business closures begin to bite.
This difficulty will be compounded by further factors: inconsistencies within the courts means litigators need to pro-actively manage the process to achieve best results. The regulatory burden is also increasing as the last phase of the consumer credit act comes into force requiring creditors to provide more information to debtors at each stage of the collections process. Although there is a slim chance that this may ultimately improve collections performance, it is unlikely that any such improvements will offset the cost of the additional administrative burden.
The lesson for those still keen to engage in litigation is to continue to be highly selective before deciding which cases to pursue. Litigation is demonstrably a cost effective collection tool provided the right cases are sued, a relatively simple litigation "score card" is an essential aid to decision making. The lesson here is to work closely with your collection agency in defining the right decision criteria for your accounts.