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Debt collection

A record number of people in England & Wales went insolvent in 2006 as the direct result of greater personal debt. With interest rates on the rise, increases in utility bills and worsening unemployment, it is forecast that even more people will experience problems with debt in the coming year. The situation is not helped by what is perceived as being irresponsible lending by banks and other similar institutions whose actions are making it too easy for people to over commit themselves financially. There is a school of thought that consumers are not always receiving the correct advice about their options when debts cannot be repaid and that as a result their situation can be made worse and cost them even more money without improving their financial position. The trading behaviour of some debt collection companies can also give cause for concern and result in further problems and difficulties for debtors to have to deal with.

The Consumer Credit Act 1974 provides a number of provisions designed to protect the consumer and control the activities of businesses. This is to be improved on by the implementation of the Consumer Credit Act 2006, which amends and adds to the existing Act as from April 2007 with additional amendments taking effect from April 2008.

One area affected by the new Act is that of consumer credit licensing. All businesses providing finance under credit or hire agreements or involved in the collection of debts have always been required to hold a consumer credit licence issued by the Office of Fair Trading (OFT). This means they have been assessed as being fit to engage in the activities covered by the licence. However, with effect from 2008 the OFT will be given enhanced powers to take action against licence holders who do not comply with either the Consumer Credit Act 1974 or the guidance introduced in 2003 relating to unfair trading practices concerning debt collection.

This guidance, which has recently been reviewed by the OFT to determine its effectiveness, is intended to set out the type of behaviour the OFT consider to fall within the category of unfair business practices which could then call into question the fitness to retain or be given a licence. It is not designed to be a checklist of behaviour or to provide information on best practice. It merely outlines unfair practices with illustrative examples which are based on complaint information and issues brought to the attention of the OFT by organisations representing consumers, businesses and other regulators. It applies to all consumer credit licence holders and applicants but relates only to the collection of debts once an account is in default.

Some common misconceptions exist around the trading practices employed by creditors and debt collection agencies acting on their behalf and whether these practices amount to harassment of the person owing the debt.

Where a debt is owed, it can rightly and legally be pursued by the company the debt is owed to; someone acting on their behalf, or a company who have since purchased the debt. There are various licensing and legislative requirements imposed on companies conducting this type of work and the majority will therefore have procedures in place to ensure they are acting within the legislation. Where a debt is disputed by the debtor it is reasonable to expect the collector to investigate and/or provide further details as appropriate.

Legislation exists to protect debtors from harassment by the creditor or agent acting on their behalf. The legislation does not apply where no debt exists.

Debt recovery can take many forms. However, the most common forms of contact a debtor may receive are by letter or telephone. An initial enquiry letter may be sent to the debtor at an address identified for them. It is likely that this will include full details of the debt in order to avoid any dispute that the debt exists.

If written correspondence is opened by anyone other than the addressee, it is unlikely that the collector can reasonably be held accountable if details of the debt are inadvertently disclosed. It is likely that the collector will take steps to verify a current address for the debtor and then an automated letter schedule will be set up in order to keep contact with the debtor. The frequency may vary depending on the response that is received.

Equally, if telephone contact is made with a debtor and a response is not received it may be that the debtor pursues this line of communication in order to try and successfully recover the debt. Telephone contact may also be made via a work or mobile telephone number. This practice is unlikely to be deemed unfair unless details of a debt are released to a third party in an attempt to cause distress or humiliation to the debtor or the collector has been asked not to ring at certain times for example and these wishes have been ignored.

Communication by telephone and letter are not uncommon and are not deemed to be unfair practices. It is often thought that frequency of communication from a debt collector in itself can amount to harassment but this is not the case. However, it may be regarded as an unfair practice if it can be shown that the contact is at unreasonable times or at unreasonable intervals.

The frequency, in addition to the time of day and manner in which the communication is made may have an impact on whether the trader is found to be acting unfairly. But, only where this is calculated to cause distress or humiliation to the debtor or members of his household or family.

A collector will be entitled to continue to request payment for a debt, which falls outside of the limitation period of 6 years. However, the OFT guidance details how this can be pursued fairly.

The debt collection guidance also covers the following unfair business practices:

Communicating in a manner which is unclear, inaccurate or misleading e.g. when making contact failing to make clear to debtors who they are, who they work for, what their role is and the purpose of the contact;
Misrepresenting the correct legal position in relation to the collection of a debt e.g. falsely implying court action has been taken when it has not;
Putting pressure on debtors or third parties that can be regarded as oppressive e.g. using more than one debt collection business at the same time resulting in repetitive and/or frequent contact by different parties;
Using deceptive and/or unfair methods e.g. disclosing debt details to an individual when it is uncertain that they are the debtor in question;
Unfairly charging for debt collection e.g. claiming collection costs from a debtor when there is no contractual provision to do so;
When visiting, acting in an unclear or threatening manner e.g. not making the purpose of any proposed visit clear; entering a property uninvited.

Further help and guidance for dealing with debt can be provided by National Debtline, your local Citizens Advice Bureau, the Consumer Credit Counselling Service and PayPlan.