InstituteOFcreditMANAGEME NT response to OFT consultation paper on DEBT

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Institute OF credit MANAGEMENT response to OFT consultation paper on DEBT GUIDANCE FOR CONSUMER CREDIT LICENSE HOLDERS AND APPLICANTS

http://www.icm.org.uk/pdfbin/OFT%20-...20_Feb%20..pdf

COMMENTS OF THE
INSTITUTE OF CREDIT MANAGEMENT
ON THE OFFICE OF FAIR TRADING (OFT)
CONSULTATION PAPER ON
DEBT COLLECTION GUIDANCE FOR
CONSUMER CREDIT LICENCE HOLDERS AND APPLICANTS

The Institute of Credit Management is the largest professional credit management organisation in Europe.
Its 9,000 members hold important, credit-related appointments throughout industry and commerce.
Institute members are involved in the collection of outstanding debts and therefore this consultation is of
direct relevance.
Introduction
The draft guidance is written essentially in relation to consumer debts. There are many credit grantors
and debt collectors whose work covers the collection of commercial debts from sole traders, partnerships
and possibly other unincorporated bodies. The Institute considers that the current draft guidance should be
limited to the recovery of true consumer debts and that, if thought necessary, separate guidance should be
produced for the recovery of commercial debts.
While the Institute welcomes guidance for setting out minimum standards to protect consumers from
unfair practices, a balance has to be achieved to ensure that the guidance does not have an inequitable
impact on the majority of ethical businesses and collection agencie s. It would be very unfortunate if, in
attempts to minimise unfair practices, the regulations impacted on those businesses and collection agencies
that do operate in a professional and ethical manner. Such organisations have adapted to the requirements
of the Civil Procedure Rules, which require creditors to take all reasonable steps to

avoid taking court
action – and to use it as a last resort.

Some of the proposals in the guidelines, as drafted, tend against this concept, encouraging creditors to use
the courts rather than make fair and reasonable attempts to contact the debtor to negotiate and accept
reasonable payment arrangements. To make visits, letters addressed to ‘the occupier’ and any contact
with debtors ‘unreasonable’ and thus put an OFT licence at risk will encourage the use of litigation to
recover debts.
While the OFT rightly looks to provide appropriate protection for those that genuinely can’t pay, any
guidance should not give unwarranted assistance to those who can pay but won’t. The Institute is
concerned that unless this issue is considered, certain aspects, albeit unintentionally, could be used to the
advantage of the unscrupulous debtor.
The Institute’s detailed comments are set out on the following pages.

Annex A

CHAPTER 2
DEBT COLLECTION - UNFAIR BUSINESS PRACTICES
Communication
2.1 It is unfair to communicate, in whatever form, with consumers in an unclear, inaccurate or
misleading manner.

The Institute agrees.

2.2 Examples of unfair practices are as follows:
a. use of official looking documents intended or likely to mislead debtors as to their status
e.g. documents made to resemble court summonses

The Institute agrees. Unfair practices such as “look alike” letters and court summonses that have not been
issued are in breach of existing legislation. The Institute considers that those who adopt such practices
should be prosecuted accordingly.

b. leaving out or presenting information in such a way that it creates a false or misleading
impression or exploits debtors ' lack of knowledge

The Institute agrees.

c. those contacting debtors not making clear who they are, who they work for and what
their role is

The Institute agrees.

d. unnecessary and unhelpful use of legal and technical language

While the Institute agrees, there must be an acceptance of certain “necessary” legal/technical language in
letters and other documents.

e. failing to provide debtors or creditors with information on status of debts e.g. not
providing requested balance statements.

The Institute agrees that information should be given on the current status of debts.

False representation of authority and/or legal position
2.3 Those contacting debtors must not be deceitful by misrepresenting their authority and/or
the correct legal position.

The Institute agrees.

2.4 Examples of unfair practices are as follows:
a. falsely claiming or implying they are bailiffs or, in Scotland, sheriffs officers or
messengers - in- arms

The Institute agrees.

b. falsely stating that bailiffs or, in Scotland, sheriffs officers or messengers - in- arms are
going to be sent

The Institute agrees.

c. falsely claiming a right of entry

The Institute agrees.

d. misrepresenting status by naming businesses, premises or web-sites or using a logo to
falsely imply government or other public body status or backing.

The Institute strongly agrees.

e. misleading debtors into believing they are legally liable to pay collection charges when
this is not the case e.g. when there is no contractual provision for charging in the credit
agreement

While the Institute agrees that the right does not apply to consumer credit contracts unless there is
provision for it in the contract, this is not the case for an individual, trading as a business, who incurs a
business to business debt. Business to business debts which are not paid to terms carry statutory interest
and collection costs under the Late Payment of Commercial Debts (Interest) Act 1998 as amended by the
Late Payment Regulations 2002. This right applies even if there is no provision for it in the agreement.
This is one reason why it is not practical to cover both consumer and commercial debt in a single guidance
document.

f. falsely implying or stating that civil proceedings will be taken, that civil action has been
started or that a court judgment has already been obtained

The Institute agrees.

g. falsely implying or stating that debtor’s goods will be seized

The Institute agrees.

h. falsely implying or stating that failure to pay a debt is a criminal offence or that criminal
proceedings will be brought

The Institute agrees.

i. referring to bankruptcy proceedings where there is little chance that such action will be
pursued or where balances are too low to qualify for such proceedings

While the Institute agrees that referring to bankruptcy proceedings where balances are too low to qualify
is unacceptable, bankruptcy could be an appropriate option in certain circumstances.

j. pursuing third parties, e.g. relatives of deceased debtors when they are not liable.

The Institute agrees.

Physical/psychological harassment

2.5 Putting undue pressure on debtors or third parties, e.g. relatives, is considered to be
oppressive

2.6 Examples of unfair practices are as follows:
a. contacting debtors at unreasonable times and at unreasonable intervals. Comments are
invited on whether OFT should specify what we consider to be reasonable. If so please
give us your views on what constitutes reasonable times and intervals

The Institute considers that there are real difficulties in prescribing reasonable times and intervals. If
these are to be stipulated, the OFT must take into account that there will always be scenarios that
necessitate contact outside the given timeframes because of the unique circumstances of certain
individuals, be it through work, religious beliefs or lifestyle. In some instances what might otherwise be
deemed an unreasonable time may have been requested by or is in agreement with the debtor. To limit a
reasonable degree of flexibility in any given timeframe might provide the unscrupulous debtor with an
opportunity to use the system to his or her advantage. (eg he/she might simply make himself ‘unavailable’
within the prescribed ‘reasonable’ hours). The Institute is also mindful that the Civil Procedure Rules
require a creditor to take all reasonable steps to resolve debt claims before resorting to legal action

. If
methods and times of contact (in a fair and reasonable manner) are to be restricted, then this may leave
the creditor with little alternative but to sue. Consequently, this will increase the volume of consumer debt
cases that are referred to the County Court.
In normal circumstances (if such a thing as ‘normal circumstances’ could be said to exist), the Institute
would suggest the following hours as reasonable:
8 am to 9 pm Monday to Friday
9 am to 4 pm Saturday
9 am to 12 noon Sunday/Bank Holidays

b. pressurising debtors to sell property or to raise funds by further borrowing

The Institute considers that clarification of “pressurising” is needed in relation to this proposal and to (c)
and (d) below. While it may be inappropriate for a debtor to raise funds by further borrowing there may
be instances where, say, the sale of a luxury item could be more financially beneficial to the debtor than
enforcement by court action.

c. pressurising debtors by using more than one debt collection business, either one after
another or at the same time, resulting in repetitive and/or frequent contact by different
parties

While the Institute agrees that using more than one collection agency at the same time is not appropriate,
there may be circumstances that require the use of more than one agency for reasons of conduct or
competence. (eg where an ‘in-house’ agency passes the debt to an external agency, or the lender has
received complaints in relation to the first appointed collection agency or is unhappy with their
performance).

d. pressurising debtors to pay in full, in unreasonably large instalments, or to increase
payments when they are unable to do so

The Institute agrees.

e. making threatening statements or gestures which suggest harm to debtors

The Institute agrees.

f. disregarding claims that debts have been settled or are disputed and continuing to make
unjustified demands for payment

The Institute considers that claims of disputed debts must be thoroughly investigated and evidence
provided, if appropriate, to ensure that any query is genuine and is not being used as a delaying tactic.

g. disclosing debt details to third parties (especially neighbours relatives or employers),
unless legally entitled to do so

The Institute agrees.

h. acting in a way likely to be publicly embarrassing to the debtor either deliberately or
through lack of care e.g. sending open correspondence to a shared post box.

The Institute agrees.

Deceptive and/or unfair methods
2.7 Dealings with debtors are not to be deceitful and/or unfair.
2.8 Examples of unfair practices are as follows:
a. contacting people speculatively by e.g. addressing correspondence 'to the occupier'
when there is doubt as to whether they are the debtor in question

If there is ‘doubt’, and if the debtor cannot be contacted by all other means, what alternative does the
creditor have? Clearly, the creditor cannot and should not ‘obtain information by deception’ if he/she has
been unable to make contact with the debtor. In these circumstances the creditor must be entitled to try to
seek clarification and the Institute can see little alternative other than sending a letter addressed to ‘the
occupier’. This approach should not be adopted unless creditors have a genuine belief that the debtor is at
the address and is simply avoiding payment - there would be no merit in sending such a letter otherwise.

b. obtaining details under false pretences e.g. leaving a note at a suspected debtor’s home
telling them to phone to arrange a suitable time and date for delivery of a package.
When they call, they are asked to confirm their personal details and are then sent
payment demands for a debt

The Institute agrees.

c. refusing to deal with appointed third parties, such as Citizens Advice Bureaux
d. contacting debtors directly and bypassing their known appointed representatives e.g. in
an effort to deal with someone in a weaker position

These two statements are both absolutes. In general any professional creditor will be happy to deal with a
third party if it moves the matter forward. Concerns have been expressed in the past, however, about feecharging
debt management companies which have deliberately obstructed communications between lender
and debtor. A lender should always have the right to contact a debtor and the guidance should be
amended to provide a better balance.

e. failing to refer on reasonable offers to pay by instalments

The Institute agrees.

f. not passing on money collected within a reasonable time and failing to keep and provide
details of payments made. Comments are invited on whether OFT should specify what
we consider to be reas onable. If so please give us your views on what would constitute a
reasonable time

While the Institute agrees, it has encountered a divergence of views among members on what a
‘reasonable time’ would be. The ability of individual organisations to process payments can vary widely.

g. where a debt has been bought, failing to establish the details of the debt history
resulting in debtors sometimes being wrongly pursued.

The Institute agrees.

Statute-barred debts
2.9 The Limitation Act 1980, which applies in England and Wales, sets out time limits for
bringing various kinds of legal action. These are known as limitation periods. The limitation
period for debts, i.e. the point at which they become statute barred, is 6 years from when the
debtor defaulted on or later acknowledged the debt. If debtors are aware of their legal rights
then in practice the debt is unenforceable as they can apply to have the claim struck out.
Different legislation applies in Scotland and Northern Ireland.
2.10 We invite your views on the following:
a. Is it unfair or improper to pursue such debts? For example, what if no contact with the
debtor has been attempted for several years or the debtor has frustrated all attempts to
make contact?
b. Should the processes involved in collecting such debts differ from the normal processes
(e.g. more time/leeway provided to debtors)? If so, in what way?
c. Do you have any views on the fairness of pursuing debts which although not statutebarred
have not been pursued or chased for a considerable time e.g. should they not be
pursued if no contact has been made with the debtor for say a couple of years?
d. Do you have any experience of this issue? If so please provide us with a summary of
your experiences.

The Institute considers that there are several important issues to consider if it is proposed to amend the
statutory period.
For example, the financial situation of a consumer who has genuine difficulty in paying a debt when it is
due may improve over a period of time. If a creditor, knowing that the debtor simply could not pay, was
to continue to press for payment that would be ‘unreasonable’. Equally, there would be little benefit in
suing such a debtor. Should a creditor, who has decided not to take legal action, but to wait, and seek to
collect the debt at a later stage, be in a worse position than a creditor who has sued knowing that the
consumer was simply not in a position to pay?
The proposal also does not take into account the individual who absconds to avoid creditors for a period of
time. Should a consumer debtor be treated more favourably than a sole trader who incurs a business debt
and thus is governed by the statutory period? Why should a consumer be protected ‘after a couple of
years’ while a sole trader with a business debt is caught by the statute? The Institute suggests that
changing the statutory period may well encourage creditors to sue. In this way if a judgment were
obtained, it would last for six years. If the creditor did not sue, the consumer would be absolved after, as
suggested by the proposals, ‘a couple of years’. To reduce the period would also encourage unscrupulous
debtors to avoid contact in the hope of avoiding their contractual obligations.
The Institute considers that the limitation periods for Scotland and Northern Ireland should be stated.

Charging for debt collection
2.11 We have stated in the past that we consider it to be an unfair business practice to charge
for debt collection when there is no contractual provision to do so.
2.12 In order to determine our future position on this issue we invite your views on the
following:-
a. Under what circumstances, if any, is it fair to charge debtors for collection of debts?
b. Do you have any experience of this issue? If so please provide us with a summary of
your experiences and/or any examples you may have.

The Institute reiterates that there is a statutory right to interest and collection charges in respect of
business to business debt. Since the introduction of the Late Payment Regulations 2002 it appears that
some commercial creditors are charging the interest and collection costs when legal action is taken. If
recovered, the interest and collection costs go some way to compensate them for the costs in instigating
legal action.
In relation to consumer debt, the Institute considers it fair to charge for the collection of debts to the extent
that this is provided for in the credit agreement, to the extent that the term in the agreement does not fall
foul of the Unfair Terms in Consumer Contracts Regulations, and for actual and necessary costs only.

Debt collection visits
2.13 Is it unfair or improper for a debt collector to visit a debtor e.g. at their work or home?
What if the debtor refuses to answer written correspondence or answer phone calls? Would
debtors find it beneficial to talk to someone about their situation face to face or are they more
likely to be embarrassed or intimidated?
2.14 We invite your views on the following:-
a. Under what circumstances, if any, is it fair to pay personal visits to debtors?
b. If visits are appropriate, what safeguards must be in place?
c. Do you have any experience of this issue? If so please provide us with a summary of
your experiences and/or any examples you may have.

Reputable companies and collection agencies who undertake such visits do so not to ‘pressurise’ the
consumer, but to negotiate payment and to make sensible arrangements to repay debts. The Institute
contends that such a situation is more preferable for the individual than the issuing of proceedings and any
subsequent entry of a judgment against them. In those circumstances, home visits are designed to avoid
legal action. In some cases, a debtor can only be contacted by visit to his/her place of work if the creditor
has no other point of contact. In this instance, as with all visits, these need to be carefully arranged and
conducted to avoid a publication of the individual’s indebtedness and incur a breach of section 40 of the
Administration of Justice Act 1970.

General questions
3.2 We invite your views on the following:
a. Is the draft guidance clear and concise?
b. Does the draft guidance have any significant omissions?
c. Is the draft guidance in need of amplification/clarification and, if so, in what respect?
d. Are there any points in the draft guidance with which you disagree and, if so, in what
respect?

The Institute is concerned that the guidelines, as drafted, lack clarity on some issues and could create
uncertainty and confusion. Issues of particular concern are:

·

commercial debts incurred by sole traders, partnerships and other unincorporated bodies (see
Introduction and comments under section 2.4.e)

·

the need to define ‘pressurising’ (see comments under sections 2.6.b and 2.6.c)

·

correspondence to ‘the occupier’ (see comments under section 2.8.a)

·

dealing with third parties/representatives (see comments under section 2.8.c and 2.8.d)

·

statute barred debts (see comments under section 2.9 and 2.10).

Specific questions
3.3 Should OFT specify what we consider to be reasonable when we state that 'contacting
debtors at unreasonable times and at unreasonable intervals' is an unfair practice? If so please
give us your views on what constitutes reasonable times and intervals

Please see the Institute’s comments under section 2.6.a above.

3.4 Should OFT specify what we consider to be reasonable when we state that not passing on
money collected within a reasonable time and failing to keep and provide details of payments
made is an unfair practice? If so please give us your views on what would constitute a
reasonable time.

Please see the Institute’s comments under section 2.8.f above.

3.5 Statute-barred debt
a. Is it unfair or improper to pursue such debts? For example, what if no contact with the
debtor has been attempted for several years or the debtor has frustrated all attempts to
make contact?
b. Should the processes involved in collecting such debts differ from the normal processes
(e.g. more time/leeway provided to debtors)? If so, in what way?
c. Do you have any views on the fairness of pursuing debts which although not statutebarred
have not been pursued or chased for a considerable time e.g. should they not be
pursued if no contact has been made with the debtor for say a couple of years? Do you have any
experience of this issue? If so, please provide us with a summary of your experiences.

Please see the Institute’s comments under section 2.10 above.

3.6 Charging for debt collection:
a. Under what circumstances, if any, is it fair to charge debtors for collection of debts?
b. Do you have any experience of this issue? If so please provide us with a summary of
your experiences and/or any examples you may have.

Please see the Institute’s comments under section 2.12 above.

3.7 Debt collection visits:
a. Under what circumstances, if any, is it fair to pay personal visits to debtors?
b. If visits are appropriate, what safeguards must be in place?
c. Do you have any experience of this issue? If so please provide us with a summary of
your experiences and/or any examples you may have.

Please see the Institute’s comments under section 2.14 above.
Conclusion
While consumers must be protected from the minority of unethical collection agencies, care should be
taken to ensure that those who conduct their businesses in an ethical and professional manner are not
unfairly burdened as a consequence. Equally, it must also be accepted that there are debtors who actively
seek to avoid their liabilities and any guidance issued must not give them assistance, albeit unintentionally.
Failure to address these issues may cause a high volume of bad (uncollectable) debts and instances of
protracted payment. This would have an adverse impact on the profitability of businesses and may restrict
the availability of credit.
The Institute considers that the focus must be on those who breach existing legislation and/or adopt
unethical practices. They should face action from the OFT accordingly. Eradication of these businesses
and their activities can only be of benefit to the credit industry as a whole.