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OFT Consultation on draft Debt Collection guidance

Having last reissued its debt collection guidance in 2006, the OFT has now published a freshly updated draft for consultation.  It cites two key developments in debt collection in the last few years:  the improved powers gained by the OFT via the Consumer Credit Act 2006, and the growth of debt sale and purchase.

Where the previous guidance moved straight from the Introduction into the specifics of unfair business practices, the new draft first reflects on overarching principles of fair business practice.   Here, the OFT sets out general expectations that businesses should:

• Ensure transparency in dealings
• Exercise forbearance and consideration towards debtors in difficulty
• Act proportionately (and justifiably) in taking recovery action
• Have appropriate policies and procedures in place

The new guidance makes a number of additions as well as expanding and clarifying on existing points.

The OFT makes it plain that behaviour of businesses in collecting non-Consumer Credit Act debts - utilities, telecoms and council tax - will be taken into account when monitoring and assessing their fitness as consumer credit licence holders.  

The list of "unfair and improper business practices" sees new additions of:

• Sending misleading communications such as telling a debtor he has won a prize in a competition
• Failing to provide information on the outcome of reasonable queries and disputes
• Failing to confirm if a payment has been accepted in full and final settlement
• Failing to explain consequences to debtors when an amount offered for settlement is lower than the total outstanding
• Disregarding debtor wishes to be contacted by letter rather than by telephone

New examples of "physical/psychological harassment" include:

• Threatening referral to a third party collectors when there is no intention to do so
• Not having regard to Common Financial Statement or equivalent principles
• Items derived from 'Breathing Space' and Irresponsible Lending guidance provisions
• Not ensuring "accurate, up-to-date and sufficient data" is passed on when appropriate
• Continuing to recover from debtors while they may lack mental capacity
• Using the threat of enforcement action such as charging orders as a tool to raise payments

There are also additions, expansions and clarifications to the sections on "deceptive and/or unfair methods" and "charging for debt collection".  The section on "statute barred debt" has been expanded to outline the different treatment of these debts in Scotland and Northern Ireland.

The introduction to the consultation states,

"It is apparent to the OFT that in order to reduce the harm arising from people being pursued for debts they do not owe, more needs to be done by creditors to improve the quality of the data which they hold and pass on for the purposes of debt sale and for debt collection in general."

Detail on how this is to be particularly ensured in debt sale is set out in a brand new section.  This discusses the maintenance of data by creditors, the information provided to debtors and the exchange of accurate data between businesses involved in debt recovery.  Some of the key points:

• Sufficient information about the customer must be made available to the staff undertaking debt recovery on an account, such as about vulnerability and disputes.
• Debt sellers must advise where debts are statute barred or known as 'gone away', or customers have been identified as vulnerable.
• Where an individual has been established as not being the debtor, or the debt has been paid, records and credit reference agency data must be updated appropriately
• Third parties must pass any information from customers about disputed debts back to creditors.

The draft Mental Capacity guidance and the OFT guidance on sections 77-79 of the Consumer Credit Act are also referenced.  The OFT says about the first,

"it would be appropriate for a business to at least delay pursuance of a debt under circumstances in which it is established that a debtor does not have the mental capacity to make relevant financial decisions at that time"

The consultation on the new draft Debt Collection guidance can be found here.  It closes 2 June 2011.

The OFT acknowledges the proposed changes to the UK financial regulatory structure, saying it believes the "principles of fair business practice" the guidance contains will continue to be relevant despite "considerable uncertainty in the regulatory landscape".

The new emphasis on ensuring accurate and timely exchange of information between different parties involved in debt recovery reflects the seriousness of detriment that can arise if this does not happen.  Credit reference agencies must be provided with information that accurately reflects who is responsible for the debt and its current status.  Leveraging shared information can also increase certainty in identifying the correct individual at the first instance, avoiding the costs and concerns associated with misattribution.

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