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technical note

debt collecting

The law requires us to decide each case on the basis of our existing powers and what is fair in the circumstances of that particular case. 

We take into account the law, regulators’ rules and guidance, relevant codes and good industry practice at the relevant time. We do not have power to make rules for financial businesses.

Our current approach may develop in the light of circumstances we see in future cases we may receive. We may decide that fairness requires a different approach in a particular case.

  1. what this note covers
  2. is the debt enforceable?
  3. did the event complained about occur on or after 6 April 2007?
  4. does the debt being collected arise from a regulated consumer-credit or consumer-hire agreement?
  5. which business was the debt due to originally?
  6. did the debt collector do anything other than just trace the consumer?
  7. who can complain to us?
  8. which business should the complaint be registered against?
  9. is the debt collector asking the right person to pay?
  10. has the debt been calculated properly?
  11. is the debt collector behaving fairly?
  12. compensation

1. what this note covers

This note relates to complaints where a third-party debt-collection agency (ie one that is separate and distinct from the original lender) has been employed to recover a debt. It does not cover complaints where the lender itself is acting to collect the debt.

Debt collectors are employed by creditors (lenders) or owners of hired goods (the hire business), to recover debts that are owed to them. They are sometimes also known as credit-collection agents or debt-recovery agents. When working to recover debts, debt collectors act as the agent of the creditor or owner, as well as in their own right.

Debt collectors are employed to recover a range of debts, including:

  • overdue car loans
  • unpaid council tax and
  • unpaid utilities bills.

But there are some complaints about debt collecting that we cannot consider. We can look at complaints relating to debt collecting only if the debt originated from a regulated consumer-credit or consumer-hire agreement.

The debt collector's "customer" is the creditor or hire business, not the consumer. But it also owes a duty to the consumer to act within the law and the relevant industry codes. Debt collectors are licensed by the Office of Fair Trading.

enforceability

2. is the debt enforceable?

We sometimes see complaints where consumers say that a debt cannot be legally enforced. Consumers may say that:

  • there are mistakes in the credit or hire agreement; or
  • the debt collector has not been able to produce a "true" copy of the signed credit or hire agreement.

Although we will decide what we think is fair and reasonable in the individual circumstances of the case, it is not within our powers to declare an agreement as legally enforceable or otherwise. Where there is a dispute about the enforceability of an agreement, this issue can be decided only by a Court.

jurisdiction issues

When we look at a complaint about debt collecting, we need to ask a number of questions to establish whether the complaint is one that we can consider or not.

3. did the event complained about occur on or after 6 April 2007?

Debt collecting falls within our consumer credit jurisdiction. We are able to look at complaints about events that happened from 6 April 2007, the date consumer credit businesses came under our jurisdiction. This jurisdiction is not retrospective, so we cannot look at complaints about events that occurred before that date.

It is the date of the event complained about which is important, not the date that the credit or hire agreement was entered into.

4. does the debt being collected arise from a regulated consumer-credit or consumer-hire agreement?

We can only deal with complaints about the collection of debts arising from a regulated consumer-credit or consumer-hire agreement. This means that we cannot deal with complaints about the collection of debts such as:

  • council tax
  • utility bills or
  • trade debts.

Where consumers are concerned about issues relating to the collection of debts like these, we usually refer them to Citizens Advice.

5. which business was the debt due to originally?

The consumer-credit activity of debt collecting does not include a lender collecting or seeking to recover its own money. It only covers the collection of debts originally due to other businesses under a regulated consumer-credit or consumer-hire agreement.

Some debt collectors are also debt purchasers. This means that they buy debts from lenders – usually at a discount – and then seek repayment on their own account. We can deal with complaints about the collection of these debts, if the original debt arose from a regulated consumer-credit or consumer-hire agreement. These debts are sometime called "assigned debts".

6. did the debt collector do anything other than just trace the consumer?

Debt collectors are sometimes employed by lenders and hirers simply to trace a consumer – the original lender or hirer will then itself seek repayment of the debt. We can deal with a complaint relating to tracing activity only if:

  • the tracing is intended to help collect a regulated debt; and
  • after carrying out the tracing activity, the debt collector goes on to request repayment of the debt.

7. who can complain to us?

Our rules allow us to deal with a complaint brought by someone that the debt collector has sought to recover payment from, under a regulated consumer-credit or consumer-hire agreement. The relevant rules are set out in the FSA Handbook (DISP 2.7.6).

So if the complaint is about debt collecting, and the person complaining has been asked to make payment, we can deal with the complaint.

Generally we cannot deal with complaints where correspondence addressed to the consumer was being sent to an old or incorrect address. However, the position may be different where the debt collector, knowing that the consumer no longer lives at an address, deliberately continues to send frequent demands for payment with the apparent intention of putting indirect pressure on the occupant to pay the debt. This sometimes happens where:

  • a wife, husband or partner has left the family home; or
  • a grown-up child has left the parental home.

Similarly, we sometimes see complaints where a debt collector has continued to make frequent calls to a phone number it knows the consumer can no longer be reached on – with the intention of pressurising someone else into paying the debt.

8. which business should the complaint be registered against?

It may sometimes be appropriate to register a complaint against the lender or hirer, rather than the debt collector – even if the debt has been "assigned" (sold).

This might be the case where the complaint is about something which was the responsibility of the lender – such as the sale of payment protection insurance (PPI) or application of late-payment charges.

However, we may sometimes take the view that liability for some matters passes to the debt collector on assignment.

If a debt has been "assigned", any redress which involves a refund or reduction of the amount due to be paid by the consumer will need to take the sale into account.

our general approach

9. is the debt collector asking the right person to pay?

We need to be satisfied that the right person is being asked to pay. If the wrong person is being asked, for example, a family member – or if there has been a "mis-trace" – we can deal with a complaint from that person.

A "mis-trace" is where a debt collector has contacted an unconnected person, often someone:

  • with the same (or a very similar) name as the borrower or hirer; or
  • residing at a last known address for the borrower or hirer.

We would expect a business to provide evidence to support a claim that they are seeking repayment from the correct person. It is not usually enough to say that the person has the same name as the borrower or hirer, or even the same name and date of birth. There should always be some additional reason to link the person to the debt.

Sometimes consumers will say that they are not the borrower or hirer. In these cases we may need to decide, on the balance of probabilities, whether or not it is likely that they are.

Complaints can be very emotive where consumers are being asked to repay a debt which they say does not belong to them. We may consider making an award of compensation for any distress and inconvenience suffered, if the wrong person was pursued – although the amount involved is likely to be modest.

The Office of Fair Trading (OFT) does not consider it appropriate for debt collectors to ask the neighbours of someone they have traced to relay messages to that person.

We can deal with a complaint from anyone from whom debt collectors have requested payment – so we could deal with a complaint from traced people if they had been asked to repay the debt through messages left with neighbours. However, we could not consider a complaint from neighbours who had been asked to relay the message – unless they themselves had been asked to repay the debt.

10. has the debt been calculated properly?

We frequently receive complaints where the amount of the debt is in dispute. For example, the consumer may say that:

  • the debt has already been paid in full;
  • the debt has been settled at a reduced balance; or
  • the amount being claimed is incorrect for some other reason.

We may ask the debt collector to provide information to show what is properly due. In some cases it may be necessary – or perhaps easier – for us to contact the lender or hire business.

If a lender or hire business has previously accepted a reduced settlement on an account, we would not expect it to subsequently instruct a debt collector to recover the balance.

11. is the debt collector behaving fairly?

Whether we consider a debt collector's behaviour to have been appropriate will often depend on the context – and on how responsive the consumer has been to the debt collector's approaches.

We expect both parties to be reasonable and to engage with each other. This may require us to explain:

  • to debt collectors – that they must listen to the consumer and agree reasonable payment proposals, and/or
  • to consumers – that they should not simply ignore debt collectors in the hope they will go away. They should seek to agree an acceptable repayment schedule, and accept this may not be possible unless the collector has reasonable information about their current circumstances.

We see complaints where, despite detailed discussions, the debt collector and the consumer have not been able to agree repayment arrangements.

When considering whether a debt collector has acted fairly, we will have regard to a range of guidance, much of which is published by the industry itself.

Debt collectors are licensed by the OFT. Debt Collection Guidelines issued by the OFT set out examples of what are considered to be unfair practices. We would expect these guidelines to be followed. Similarly, the trade body – the Credit Services Association (CSA) – publishes an extensive Code of Practice which we would also expect businesses to follow.

Guidance for subscribers to the Banking Code – where relevant in complaints about events before 1 November 2009 (when the code was discontinued) – says that for both debt collection and debt sale, a detailed investigation process should be followed, including compliance with:

  • the OFT guidelines;
  • the CSA code of practice; and
  • relevant legislation.

These provisions have been replicated from 1 November 2009 in the new Lending Code.

The Finance and Leasing Association Lending Code contains a similar commitment.

Consumers sometimes complain that they are being harassed by debt collectors. Harassment can take the form of:

  • repeated phone calls or visits;
  • contact made at unsociable or inconvenient times; and
  • contact in inappropriate situations, such as the consumer's workplace or in another public setting.

Sometimes consumers say that any continued contact is harassment – particularly where they have already told the debt collector they are unable to repay all or any of the debt.

The OFT guidelines [PDF format] include examples of things that can be considered as harassment. They also include examples of practices that can be considered unfair during debt collection visits.

Actions which are breaches of the OFT guidelines include:

  • an attempt to collect a debt outside a statutory limitation period; and
  • the instruction of multiple collection agents (which would be a complaint against the original lender or hire company).

Businesses should be able to provide us with clear logs of contact with the consumer, showing:

  • the time and date when contact was made;
  • the method of contact; and
  • the outcome.

For automated phone contact, dialler records should be available.

compensation

12. compensation

We are frequently able to settle complaints against debt collectors by mediation, which may involve the payment of a modest amount of compensation for distress and inconvenience.

Some consumers expect that if their complaint is upheld, any debt will automatically be written off. However, if there is no dispute that the debt itself is owed, then it may not be fair and reasonable to conclude that it should be written off – even if we conclude that the debt collector should have done something differently.

Instead, we might consider whether it is appropriate to make an award in relation to the activity complained about, and to distinguish this from the issues around the repayment of the debt.

We may also look to mediate a settlement where a refund of unfair charges is required. For example, it may not be a fair outcome that charges should be accounted for by making debt collectors reduce the amount they are seeking, particularly if the debt was bought from elsewhere.

We may conclude that it is fairer for the original lender – who applied the charges in the first place – to pay the charges to the debt collector to reduce the remaining debt (or, more rarely, to the consumer where that appears the most equitable solution).

There are also other remedies available to us. For example, we may direct a business to accept an offer of repayment.

help for businesses and consumer advisers

contact our technical advice desk on 020 7964 1400