A debt collection agency purchases unpaid debts from creditors and contacts debtors to collect the money owed. Collection methods include letters, telephone calls, and even personal visits, each of which must adhere to guidance provided by the Office of Fair Trading (OFT). Failing to pay a debt that has been turned over to a collection agency can have several consequences.
In July 2003, the OFT issued guidance specific to debt recovery activities. From March through June 2011, it conducted a formal consultation regarding proposed revisions to this guidance, which included a stakeholder workshop and the receipt of 65 written responses. As a result, the OFT guidance was updated in November 2011. The OFT collaborated with the Debt Buyers and Sellers Group- Credit Services Association to create guidance regarding the form, content, and use of standard letters for debt collection.
In the UK, a debt collection agency can add interest and other charges to debts that remain unpaid. Debtors have a right to request details regarding these additional charges. It may be possible for a debtor to dispute some or all of these charges based on the original credit agreement. When the credit agreement does not include a provision that permits the levy of recovery charges, these charges may not be imposed. Credit agreements must include clear indication of the amount of charges payable upon account default.
The OFT debt collection guidance includes information regarding charging for debt recovery. Charges should not be unfairly or inappropriately levied and the collection firm should communicate with debtors in an accurate, clear, transparent manner. The firm is prohibited from misusing continuous payment authorities including debiting a greater amount than included in the relevant agreement unless this amount has been agreed to by the debtor.
Misleading a debtor into believing that he or she has legal liability for payment of recovery charges when this is not true is also not permitted. Charges must be reasonable, meaning the amount should be based on the recovery of necessary and actual costs. If borrowers provide evidence of financial difficulty and inability to make repayments that are due or can only make token repayments due to debt level increasing from continued application of interest and other charges, a creditor should consider decreasing or ceasing interest and other charges.
A charge may still be considered unfair, even if an express contractual provision exists, if it is not reflective of necessary and actual costs. If there is no discrepancy regarding the amount being collected, the debtor should immediately propose a potential settlement agreement. This allows the debtor to take care of the debt before additional charges are applied and it will prevent a lawsuit.
Debtors who believe that a collection agency has violated OFT guidance have an avenue for recourse. The OFT recommends that they attempt to resolve the situation with the lender directly. If this does not have a positive result, debtors can contact the Financial Ombudsman Service via telephone or by downloading a complaint form from the service’s website.