Debt collection: accept no imitators
The Guardian newspaper has uncovered some sharp practice employed by UK banks to put the frighteners up errant debtors. According to its Money team, the UK’s high-street banks are routinely issuing legal demands from what appear to be independent firms of solicitors “designed to make struggling borrowers pay up”.
Yet the fictional firms with names such as “Green and Co.”, “SCM Solicitors” and “DG Solicitors” are not regulated by the legal profession's watchdog, and are simply names dreamt up by banks' in-house lawyers.
Although the banks, including Lloyds Bank, RBS and HSBC, have gone to elaborate lengths to sustain the illusion, the practice is legal because the letters are signed by a lawyer individually regulated by the Solicitors Regulation Authority in the UK.
“[The letters] give the impression to borrowers that their case has been escalated to a third party, using legal language such as ‘We are instructed by our client’ and ‘We are likely to be instructed to commence court proceedings’, the Guardian states. “The letter heading is near-identical, too, to that of an independent firm of solicitors, and typically uses a different address from that of the bank concerned.”
RBS has wisely decided to discontinue the practice, the revelation of which comes at a particularly bad time following the prosecution and fine last week of payday lender Wonga.
Wonga was ordered last week to pay £2.6 million in compensation by the UK’s Financial Conduct Authority for “unfair and misleading debt collection practices”, having created fake law firms by using the names of company employees.
Wonga was found to have sent letters to customers in arrears from non-existent law firms, threatening legal action. In some instances, Wonga also added charges to customers’ accounts to cover the administration fees associated with sending the letters. As a consequence of its misconduct, the regulator said Wonga would be compensating around 45,000 customers who received the letters, which threatened legal action over outstanding debts.
According to the FCA, Wonga, and other companies within its group, used “unfair debt collection practices which put customers under great pressure to make loan repayments that many could not afford.”
“During this time, Wonga sent communications to customers in arrears under the names “Chainey, D’Amato & Shannon” and “Barker and Lowe Legal Recoveries”, leading customers to believe that their outstanding debt had been passed to a law firm, or other third party. Further legal action was threatened if the debt was not repaid. In fact, neither Chainey D’Amato & Shannon nor Barker & Lowe existed and Wonga was using this tactic to maximise collections by piling the pressure on customers.”
Aside from being a serious misdemeanor, the Wonga actions are inherently stupid. The UK payday lending sector, a business that operates at the margins of acceptable practice, is under constant scrutiny from public, media and, presumably regulators, and no firm is under closer examination than Wonga, the market leader. In that light, whoever sanctioned the fake legal letters was incredibly short-sighted and has brought the sector again under the spotlight for all the wrong reasons.
Every now and then it is apparent that some creditors, and agents acting on their behalf, feel almost any tactics short of breaking legs are acceptable in recovery of debts owed. Small wonder that debt collection has at times been viewed pejoratively by some.
In fact, clear guidelines on best practice for debt collection exist in Ireland.
Back in 2010 StubbsGazette participated in the working of the Law Reform Commission’s Report on Personal Debt Management and Debt Enforcement. Arising out of this, the Irish Institute of Credit Management (IICM), of which StubbsGazette is a founding member, published its Code of Conduct for Debt Collection Agencies.
Among its many provisions is the following, which the UK banks and Wonga would have done well to observe:
In attempting to carry out collection in default of payment, members of the IICM should… Not falsely imply by written or verbal means that criminal proceedings will be brought or that civil action has or will be instituted where members are unable to do so due to legal restrictions.
In fact, this is just one of many provisions of the Code designed to ensure a reasonable and humane approach to debt collection. Others worth repeating are:
• Not use oppressive or intrusive collection procedures.
• Not bring unreasonable pressure to bear on the debtor in default of payment.
• Not act in a manner in public intended to embarrass the debtor.
• Be circumspect and discreet when attempting to contact the debtor by telephone, SMS, email or by personal visit, with due regard to the Data Protection Act and Guidance.
• Ensure that all attempted contacts with debtors are made at reasonable times and at reasonable intervals and in accordance with appropriate sections of the Consumer Credit Act.
• Unless instructed otherwise, accept all reasonable offers by debtors to pay by installments, provided acceptable evidence of non-ability to pay is given.
• Not use improper means to obtain the telephone number and address of a debtor and treat all information supplied as private and confidential unless specific authorisation has been given by the debtor to disclose information to third parties.
The message from the UK is beware of fraudulent and heavy-handed approaches to debt collection – the price in terms of reputation can be much higher than the value of overdue accounts.
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