Judging by the response we have had regarding last month’s article on the subject of Contingency Fees, No Win, no Fee, No Asset, we have certainly hit on a subject that generates considerable interest.
We were genuinely overwhelmed by those of you that took the time to communicate your thoughts on the subject, we received telephone calls and email postings from the UK, Mainland Europe and the United States, from various stakeholder parties including asset owners and service providers.
Owing to the response we felt compelled to advance the debate by informing on the types of response we received. This in no way is designed to form any kind of empirical study into the subject matter and is merely a précis of comments made to us.
Basically the responses fell into to broad categories, one justifying contingent fee arrangements and one condemning them, these basic responses were also broadly and equally drawn from either the lenders or the service providers point of view. Most interesting is the theme drawn from the lenders perspective was the introduction of the question of trust.
Service providers (or at least the ones that contacted us) were very generally against the provision of contingency fee arrangements and following is some examples of the comments made.
- Contingency fee arrangements do not provide and environment for a sustainable business model that develops and improves services provided.
- Contingency fees encourage some providers to act in a non professional way.
- We have concerns about the transparency of instructions provided and felt that lenders were sometimes chancing occasional successful outcomes in the knowledge that there were limited chances of success.
- Contingency fee arrangements provide a risk to public safety in that some agents may be encouraged to act illegally in order to secure their fee.
- Contingency fees cost agents, lenders want to save money by cutting repossession costs but agents have to stay in business to provide services.
- You get what you pay for; professional fees get professional services carried out correctly with higher rates of return.
- Not paying agents for the sincere effort they put into an assigned account leads to a future unwillingness to go the extra mile.
- Insurance and good staff do not come cheap; asking agents to work for free is demeaning.
- The absence of any due diligence opportunity prior to being offered contingency fee arrangements exists in no other industry.
In some extreme examples we were informed that one agent had been provided basic contingent fee assignments for cases involving serious and organised criminality where the issuer was aware of this and failed to inform him, and one respondent vigorously questioned the sanity of some instructions he had received which were as he described 3rd placement voluntary repossessions, stating that if the asset owner and the two previous service providers had been unsuccessful in organising voluntary arrangement then what prospects were there for him to succeed.
Finally, from an agent’s perspective Kenny Leon from Albany creatively stated:
“The fishing rod has a price right. No one fishes with that rod if they don’t pay for it. The screw up is when the rod is placed on the shelf without first knowing the price and then allowing the customer to fish without paying for it. Oh thats right, use the rod and if you don’t catch any fish you don’t have to pay for it. How many fishing stores do we think will still be in business operating this way?”
However, largely expressed by the lender community was the theme of trust:
- Why should we pay any fees when we do not know that the instruction is going to be worked properly
- Paying on physical results confirms that we are getting value for money.
- Agents boast of their recovery rates prior to contracting and never quite live up to the expectation they set for themselves, contingency fees insulate us from this effect.
- It is not up to us to incentivise the agents, it is up to them to do this for themselves.
- We have such a variable experience in agent performance that contingent fees are the only way to keep our suppliers keen.
- We have never been offered an alternative, every agent who has ever visited us has only offered a contingent fee based service.
- We offer 2nd and 3rd placement repossession instructions on a no win no fee basis because by the time the account has passed through our process anything left outstanding is unrecoverable.
- Good agents are so difficult to find, and even when you do find one they can go off the boil, remunerating in this way keeps them simmering.
- Recent poor experiences and compliance requirements are causing us to seriously reconsider who we do business with and on what terms, our fear though is increased costs.
So what can we conclude from this:
Not much that can be relied upon, it’s all anecdotal comment but we can determine some themes expressed:
Some lenders and asset owners do not seem to have much faith in their repossession supply chain service providers and some of their supply chain service providers seem disenfranchised from their customers. There appears to be a two sided potential misconception, on the one hand that lenders expect work done for free and on the other hand fear of being ripped off. There is no common establishment or alignment for success.
So where is this debate going.
Well we don’t know, obviously some of the themes expressed can be addressed through better communication, closer relations and deeper audit and compliance routines. Outside of the IBEAM collaboration portal there is no industry wide performance score carding or benchmarking driving incentive and performance and this combined with an open market access approach de cloaking and de mystifying industry practices on both sides of the supply chain would alleviate and de risk any fears on the part of lenders and asset owners. If contingency fee arrangements are only a mechanism to retain control over expenditure and return on investment then this is a) a very poor reflection on support service provision and b) not by some way sufficiently the best way to overcome any trust issues.
Ultimately in an open market the market will decide on the basis on which suppliers and clients complete transactions in the most efficient and rewarding manner for both parties. Fortunately for us most of the thinking surrounding this subject has already been incorporated into the IBEAM collaboration platform, but most surprising for us was the fact that no one directly raised the issue of transfer of commercial risk and entitlement to greater reward that is associated with contingency based fee arrangements that exist in every other industry in which contingent fee arrangements are relevant.
