Blog: Wake Up Call for Consumer Collections
Monday 24th Oct 2011
Tony Sutton, Head of National Debt Recovery at Colemans-ctts welcomes the new OFT Guide on Consumer Credit Collections: "The new Office of Fair Trading (OFT) Guide on Consumer Credit Collections (OFT664Rev) was published last week and I recommend that businesses involved in consumer collections read it."
Collections businesses will now need to ensure they are compliant and can demonstrate compliance with documented practices, policies and procedures, otherwise they may face fines of up to £50,000 or variations, refusals or revocation of their credit licences.
The comprehensive 38 page Guide sets out how ethical collections strategies should be run but with perhaps a lot more detail than expected, shown by examples of practices with commentaries.
For businesses involved in collections who are not complying with the Guidelines this will be an early wake up call when they discover that some of the practices the Guide refers to will be regarded as unfair or improper.
Download the full Guide at:www.oft.gov.uk/shared_oft/business_leaflets/consumer_credit/oft664.pdf
The Guide is divided into 3 Parts, with the Part 1. as an Introduction
“Overreaching Principles of Fair Business Practice” (Part 2.)
Businesses involved in consumer collections will now have to abide by the Overreaching Principles as well as having regard to the OFT Guidance for Creditors (OFT 1107) “General Principles of Fair Business” in Chapter 2 “Irresponsible Lending” and Chapter 7 “Handling Default on Arrears”
• Treating debtors fairly – without aggressive or inappropriate coercion or deceitful, unfair or oppressive conduct;
• Transparency – avoiding unclear, confusing or misleading information to debtors;
• Forbearance – towards debtors experiencing difficulty, providing a reasonable time to repay debts;
• Proportionality – in seeking to recover debts, taking into account debtors’ circumstances;
• Clear effective & appropriate policies and procedures – should be in place for engaging with debtors and parties representing debtors interests;
• Vulnerable debtors – clear policies and procedures should be in place for identifying and dealing with such debtors;
Unfair or Improper Business Practices (Part 3.) included in the Guide are detailed examples of specific practices which the OFT considers to be unfair or improper in respect of the following headings:
• Communication – a requirement for clear, accurate and transparent communications;
• False Representation of authority and/or legal position –businesses involved in collections should accurately and truthfully; represent their authority/legal position;
• Harassment – debt collection business should not engage in physical/psychological harassment of debtors or third parties;
• Deceptive/unfair methods – businesses should be truthful and fair in dealings with debtors and others;
• Charging for Debt Recovery – charges should not be levied inappropriately or unfairly;
• Debt Collection Visits – a requirement when visiting debtors not to act in a threatening or unclear manner;
• Statute Barred Debt – unfair methods of collection, including misrepresentation as to the legal position should not be used;
• Data Accuracy – processes should be in place to ensure data accuracy and adequacy to ensure the validity of the debt and debtor being pursued;
Regulatory Compliance & Enforcement (Part 4.)
• Practices, Policies & Procedures – should be in place which facilitate compliance including agents and associates;
• Evidence of compliance - Practices, Policies & Procedures should be documented for inspection by OFT with evidence of implementation, monitoring and amendment recorded;
• Enforcement Principles –Broad principles are set by reference to fair, effective & proportionate enforcement
- The level of actual or potential harm to debtors;
- Frequency of identified misconduct;
- Changing Conduct – the OFT will use “tools” such as imposing “requirements” in respect of operation of the offender;
- Non Compliance – up to £50,000 fine, variation, refusal or revocation of a licence to the business or an individual;
- Appeal – there is 2 tier appeal process to 1. An independent adjudicator and then, 2. First Tier Tribunal (Consumer Credit), which is independently administered by the Ministry of Justice.