Debt Collection Guidance - Compliance Review

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The Office of Fair Trading last month release a report on the compliance of the Debt Collectors Guidance sheet of 2003.

Results of the review revealed that although improvements have been made since the DC Guidance came into force, there were still identifiable gaps.

3 years before publication of the Guidance, Debt collection accounted for approx. 3% of informal action taken against Consumer Credit Licensees, this has now risen to 12%

The increase shows that the Guidance has successfully raised awareness to debtors and advisors to challenge creditors using unfair practices.

Where the Guidance has not changed industry behaviour, new license provisions will come into force in 2008.

The new Guidance will give the OFT more powers to impose financial penalties where necessary. The current lack of power to impose such penalties has been noted as one of the reasons why some creditors still choose to not change their behaviour in accordance with the 2003 Debt Collectors Guidance.

The OFT analysed representative sample complaint data from the period Apr - Aug 2006 to identify most complained about unfair practices. Information gathered showed that the most complained about practices are:

  • Threatening statements mainly over the telephone
  • Threatening court action without describing the process
  • Failure to investigate disputed debt
  • Sending demands when uncertain who the debtor is
  • Failing to provide debtors/advisors with information/documentation to support creditors demands
  • Bypassing elected third parties

Other bad practices which are commonly complained about are general intimidation, harassment and licensees mis-stating their powers.

The OFT considers consumer and debtor complaints as a key informational resource when gathering evidence to support complaints about individual companies.

Since the raising of awareness bought about by the 2003 Debt Collection Guidance, the OFT have noted that 60% of their investigation cases resulted in license enforcement action within a 6 month period and 30% within 3 a month period.

The OFT concluded that the majority of traders have shown a willingness to adapt their behaviour to ensure compliance and that a number of cases investigated point to system failure issues such as accuracy of data on debts.

Many complaints appear to arise from inaccurate and incomplete data being passed between different departments within the same company or passed on from a creditor to a debt collection agency when a debt is sold on or its collection is sub-contracted out to another company.

For the traders who choose not to confirm to the guidance set out by the OFT, the new legislation will strengthen the
ability of the OFT to operate the consumer credit licensing regime.

The 2006 act will include a range of sanctions such as financial penalties and the ability to impose a Requirement on a license holder to modify conduct giving rise to fitness concerns.

The OFT will also be able to monitor compliance with the law and OFT Guidance more effectively through use of their new powers to demand information from licensees.

The OFT want to build on the increase in consumer awareness and further encourage consumers to tackle unfair debt collection activity and seek help where they need it.

Click for more information of the Debt Collection Guidance - Compliance Review