Understanding sludge practices

Sludge practices are policies or practices which create unnecessary, irritating and detrimental barriers for customers. These can include confusing payment portals, excessive paperwork, a lack of transparency, repetitive processes and overly complex language. They can lead customers to disengage entirely or miss crucial payments, worsening their financial struggles. 

While these issues affect everyone, they disproportionately impact vulnerable individuals, including those with low literacy or numeracy skills, English as a second language, learning differences, or experiencing mental health challenges. Sludge practices directly contradict the principles of Consumer Duty, which requires financial firms to act in good faith, avoid foreseeable harm and empower customers to manage their finances.

Under Consumer Duty, firms have a responsibility to:

Communicate clearly

Take an audit of your customer-facing processes and ensure you are using straightforward language that’s easy for everyone to understand, avoiding internal collections jargon, numerical calculations or complex terms that could confuse customers. Ensure all communications are transparent, concise, and focused on practical solutions. The simplest approach is to make information accessible to people of all abilities by lowering the bar to understanding, helping customers make informed decisions without feeling overwhelmed or lost in technical details. This reduces barriers and supports better outcomes, which is in line with Consumer Duty principles.
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Simplify processes

Simplify repayment and contact processes to remove friction, ensuring customers can easily engage with you using whichever channels they prefer. Provide multiple, easily accessible communication channels and centralise all information in one place to prevent it from being lost across different systems, causing customers to have to repeat themselves or resubmit information. This minimises the frustration that can disengage customers and make it far harder to re-engage them.

Offer sustainable solutions

When customers face financial challenges, open and proactive conversations about repayment options are crucial. Offering flexible, personalised solutions tailored to their circumstances empowers customers to manage repayments without feeling overwhelmed. This could include options like adjusting payment amounts, extending repayment terms or exploring temporary payment pauses during periods of hardship. By understanding each customer's unique situation, including their income, expenses, and other financial obligations, you can create sustainable repayment plans that set them up for success.

Be proactive

As collections systems, data quality and predictive analytics improve, pre-arrears management is a growing area of interest. Anticipate challenges that may cause customers to struggle and provide resources or guidance in advance, preventing issues before they escalate. By proactively addressing potential obstacles, you help customers avoid decision fatigue and streamline their journey – discouraging sludge practices that may complicate or delay their decision-making. This helps you to create a supportive, transparent experience that aligns with the Consumer Duty of helping customers avoid detriment and make decisions in their best interests.

Monitor and adapt

Compliance is never a one-off activity. It's helpful to schedule regular assessments of customer interactions and internal practices to identify any sludge elements that may inadvertently hinder or complicate the customer experience. Actively solicit customer feedback and conduct frequent audits to pinpoint areas where improvements can be made, ensuring all processes align with Consumer Duty requirements. By creating a feedback loop and remaining adaptable, you can quickly address emerging challenges, refine communication, and eliminate friction points. This ongoing commitment reinforces transparency, accountability, and a customer-centric approach that prevents foreseeable harm and supports informed decision-making.

The goal: a friction-free customer experience

Avoiding sludge is not only a regulatory requirement; it also helps build trust and credibility with customers. Prioritising clarity, simplicity, and empathy can improve your organisation's reputation and ability to attract new customers. In collections, it means when a customer starts a journey, they're more likely to complete it and get a resolution. A customer-centric approach that promotes fairness, accessibility, and support aligns with regulatory expectations and industry best practices, creating a win-win scenario for all parties involved.