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OFT announces findings of review into debt collection compliance

172/06    11 December 2006

The OFT has today published the findings of a review into how guidance to debt collectors has changed behaviour within the sector and raised awareness. The OFT's guidance on debt collection, issued in July 2003, sets out minimum standards for debt collection by those holding consumer credit licenses.

Download Debt collection guidance compliance review report (pdf 227 kb).

The OFT found that:

• the guidance is a success in terms of content
• awareness has increased among collectors of debts, individual debtors and consumer advisors
• there have been positive changes in industry behaviour, and
• there is more to be done in improving levels of compliance.

Consumer advice organisations said that the most serious practices, such as threats of violence to debtors, had reduced. The main complaints by consumers remain threatening statements from companies, being contacted at unreasonable times and firms failing to investigate disputed debts. A common complaint theme is threatening court action and not describing the process correctly.

Respondents to the review found the guidance clear and easy to use. Consumer advisors said that they and their clients had found the guidance to be a useful tool for challenging unfair behaviour by creditors and debt collectors. Representatives of local authority Trading Standards Services shared this view.

Positive changes in industry behaviour include:

• creation of dedicated complaint handling units
• revision of standard letters where they had the potential to mislead or  be perceived as threatening, and
• cessation of anonymous telemessages to contact debtors.

The OFT's review found that 17 per cent of all those licensed to collect debts have attracted complaints from customers between April 2004 and August 2006.  The OFT has taken action against those collecting debts in 101 cases.

Alan Williams, Senior Director of Markets and Projects at the OFT, said:

'We are pleased with the praise for our guidance and welcome the positive measures taken by the industry to reduce unfair practices but more still needs to be done to improve levels of compliance around debt collection. If companies engage in unfair debt collection practices we will continue to take firm enforcement measures to stop them. This could involve formal action to refuse or revoke their licence, or warning and advising companies how to change their behaviour. Our aim is to increase consumer welfare in an area where those in debt are already vulnerable.'

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. The Credit Services Association (CSA) estimates that there around 500 debt collection businesses in the UK of which 200 are members of the CSA, engaging in debt collection worth £5billion - equivalent to 20 million individual debt cases.

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. Between April 2004 and August 2006 the OFT investigated 262 licensees for alleged breaches of guidance. The OFT issued minded to revoke notices to nine licensed debt collectors; three retained their licences and six surrendered their licences. The OFT took informal action against 92. In 77 cases advice or warning letters secured immediate compliance.

5. Since the guidance was issued 14 licensees have agreed following intervention to revise standard letters and the OFT received commitments from four licensees, including a major high street financial institution and a major UK utilities company, to stop sending anonymous telemessages to debtors.

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