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OFT to review compliance with its debt collection guidance
154/05 10 August 2005
A review to find out how the OFT's guidance to debt collectors has changed behaviour in the sector has been launched by the OFT.
The OFT's guidance on debt collection, issued in July 2003, sets out minimum standards for debt collection by those holding consumer credit licences. It describes unfair business practices which will call into question fitness to retain or be awarded a consumer credit licence (see note 1). Applicants and licence holders are expected to abide by this guidance.
Since July 2003 the OFT has monitored compliance on a case by case basis, primarily on a reactive basis and responded to complaints, taking action as appropriate, including giving warnings or removing licences (see notes 2-4). The compliance review seeks to probe in more depth compliance levels across the industry.
The most common breaches of the guidance seen by OFT are:
• pressurising debtors to pay in full, in large instalments or increasing payments when the debtor cannot meet the demand
• refusing to deal with appointed or authorised third parties such as CABx, independent advice centres or money advisors
• failing to investigate and/or provide details as appropriate when a debt is queried or disputed, possibly resulting in debtors being wrongly pursued
• Disclosing or threatening to disclose debt details to third parties without being legally entitled to do so.
As part of the compliance review the OFT will issue a questionnaire to current licence holders involved in debt collection including creditors, Trading Standards and free/independent advice agencies. The OFT will write to previously consulted bodies, key stakeholders and other interested parties, inviting comments and opinions on compliance with the guidance and how it is used in practice. There will also be a form available for consumers who wish to make a complaint against a licence holder or applicant.
Penny Boys, OFT Executive Director, says:
'Our guidance sets out practices we view as unfair and relevant to fitness of those holding consumer credit licences. We have some evidence of non- compliance and also examples of changes in behaviour as a result of the guidance. This review will give us a clearer picture of compliance levels across the industry. The compliance review will also raise awareness of the guidance amongst those in debt, who are some of the most vulnerable consumers. If they are experiencing unfair treatment we want to know so that we can tackle that unfair conduct.'
A report on this review will be published in Spring 2006.
NOTES
1. Unfair business practices outlined in the guidance include; communication with consumers in a misleading or deceitful manner; behaving in a threatening manner towards debtors and levying of unfair charges.
2. In 2003 there were approximately 270 debt collection businesses, of which 130 were members of the Credit Services Association (CSA) and it had £3 billion referred to its members for collection. In 2005 there were approximately 500 debt collection businesses, of which 200 were members of the CSA and it had £5 billion referred to its members for collection. These figures relate to business as well as consumer debt.
3. The OFT can refuse or revoke a licence if it decides that a trader is not fit to hold one. The OFT must, when determining whether or not a trader is fit to hold a licence to carry on a business covered by the Act, consider evidence that the trader has engaged in business practices appearing to be deceitful or oppressive or otherwise unfair or improper (whether unlawful or not). Decisions to revoke or refuse a consumer credit licence are made by an adjudicating officer for and on behalf of the OFT. Before a licence is refused/revoked the adjudicating officer issues a 'minded to refuse' or 'minded to revoke' notice to the trader. This is a formal notice letting the trader know that the OFT is minded to refuse to grant a licence or to revoke an existing licence. It sets out the reasons for the proposed action and the supporting evidence. The trader is then given the opportunity to make representations before a final determination is made. In the event that the determination is adverse, the trader has the right to appeal against the determination to the Secretary of State for Trade and Industry.
4. The OFT has sent out 79 advisory/warning letters regarding breach of guidance since July 2003. It has sent out 102 advisory/warning letters to traders engaged in debt collection since July 2003. Debt collection has accounted for 18.5 per cent of informal actions in the period.
5. The OFT has undertaken 12 formal actions to refuse or revoke credit licences held by debt collectors since 2003.