We have had a massive response to our article regarding bailiffs and the tactics used by them. Since the last article we have had over 30 emails asking us to clarify guidelines that are in place to ensure fair play .
We will refer ( for best practice ) to the OFT guidelines and list them for ease;
The OFT raised a concern that some standard collection letters do not make clear who the letter is from. The DCG states that a failure of those contacting debtors to make clear who they are and why they are making contact would be regarded as a misleading or unfair business practice (DCG paragraph 2.2c). The following are examples of areas where lack of transparency can arise.
i. Use of Trading Styles
The use of different trading styles by an organisation could potentially be misleading if the organisation is not identified. Some debt collection agencies (“DCAs”) use different trading styles to escalate debts through the collection cycle and some also use different trading styles or departments to differentiate between the types of recovery activity which may take place. For example, if a debtor has previously informed the DCA of severe financial hardship, the debt may be referred to a specialist „Financial Hardship‟ unit.
However, whenever a trading style is used, the OFT has made it clear that they see no legitimate purpose in failing to be transparent and therefore if the debt is being escalated or transferred to a different department within the same company and/or to a different company within the same group of companies (an associated company under s.184 CCA74), the collection letter should make this and the reason for that escalation or transfer, clear.
The Association has produced a Best Practice Guidance Note which refers specifically to the use of Trading Styles.
A lack of transparency can also arise if information is presented in a way which could create a false/misleading impression, including using terms which overstate the nature of the business. For example, using terms in trading names such as ‘enforcement’, ‘legal’, ‘solicitors’ and so on, when there are no appropriately qualified staff. Members are reminded that it is a criminal offence for a company to act in a manner that implies it is ‘qualified or recognised by law to act as a solicitor’ when this is not the case.
In accordance with the spirit of the DCG, Members should take care when choosing font styles and sizes to ensure they are reasonable as the OFT believes they could lead to transparency issues. For example, font size less than 10 point could be difficult to read. Gothic text may also be difficult to read and has connotations associated with legal documents and should therefore be avoided.
v-i. Describing the legal process
The OFT has seen a number of standard letters issued by DCAs which contain inaccuracies and omissions in their description of the debt recovery procedure and the legal process and which fail to mention that steps are required before enforcement action can be taken. For example:
letters which set out the potential enforcement actions following non payment of a County Court Judgment (e.g. bailiffs seizing goods, employers deducting money from wages) without indicating that a further application to the court is required before enforcement action can be taken (i.e. to obtain a warrant of execution, attachment of earnings, charging order etc); or
letters referring to bankruptcy and charging orders where it is not clear that a staged process is involved.
Sending such letters, would in the OFT‟s view, potentially be an unfair or oppressive business practice in breach of paragraphs 2.2b, 2.4b and/or 2.6g of the DCG
Although the OFT does not expect to see every stage of the process set out in letters of this type, a correct indication of the stages before enforcement action can be taken should be provided to prevent letters from being misleading, potentially exploiting debtors’ lack of knowledge and being perceived by recipients as threatening.
Members are reminded that the granting of judgments and other orders are court decisions and letters should not pre-empt a particular outcome e.g. that a judgment WILL be made.
If a DCA wants to refer to the process that may be followed after a debt is unpaid it is the responsibility of the DCA to understand and correctly state the process.
v-iii Timing of issue of letters referring to legal action
The OFT regards it as an unfair and oppressive business practice if letters threatening legal action are issued to individuals if the DCA is not reasonably certain that the address they have is the debtor‟s address.
As set out in paragraph 2v, DCAs act in good faith on the information provided to them by their client at the time of instruction, and a distinction can be made between „trace and collect‟ and non trace and collect instructions.
However, letters which refer to legal action would, in the OFT’s view, have the potential to be perceived as a threat of legal action and therefore could be an unfair and oppressive business practice:
against someone who has a legitimate dispute with the original creditor
when information on the account may be incorrect and the account could not
be pursued through the courts, for example if the debt is statute barred
Therefore, even on non trace and collect instructions where the DCA is relying on the information provided by the creditor as being accurate, the DCA should consider if reference to legal proceedings in a first letter is appropriate.
With regard to disputes, the Association has made it clear to the OFT that, at the time of instruction, Members will be unaware if the debt is disputed, as they have to rely on clients not referring disputed debts or because the debtor may not have raised this with the client prior to the DCA‟s involvement.
The Association also stressed to the OFT that the debtor will have received numerous correspondence and attempts at contact from the client (or in the case of secondary and tertiary debt, a previous agent), prior to a debt being referred to the DCA. These letters would have informed the debtor about potential action which could be taken, including referral to a third party DCA or legal action.
As set out above, it is essential that debt collection letters are factual and highlight the potential action which could be taken should there be a failure to pay.
Members are reminded that bankruptcy proceedings can only be initiated on debts over £750. Therefore any threat of bankruptcy proceedings (including statutory demands) in letters where the debt amount is less than £750 would be in breach of the CSA Code of Practice and potentially be an unfair and oppressive business practice under the DCG.
The Association therefore suggests, that when issuing standard debt collection letters on debts below £750, any reference to bankruptcy as a possible course of action, be removed.
Statements and Phrases
The use of certain statements in standard letters gives the OFT cause for concern and they gave the following as an example:
“THIS PROBLEM WILL NOT GO AWAY AND WE INTEND TO RECOVER THE FULL AMOUNT YOU OWE WITHOUT FURTHER DELAY”
In the OFT‟s view, such statements could in some circumstances breach paragraph 2.6g of the DCG.
The Association is keen to work with the OFT on this matter, however, it feels that the use of such statements can also in other circumstances give a clear message to the debtor and highlights the importance of making contact in order to avoid potential legal action.
However, Members are reminded that the wording of letters must not be misleading and should be used appropriately. In the above example, if the Member has the option to discuss a repayment arrangement with the debtor, this should be made clear in the body of the letter so the debtor is fully aware.
xi Sensitive Cases
The issues highlighted within this Guidance are of particular relevance where it transpires that the case is sensitive e.g. the individual has mental health problems, long term or terminal illness or other disabilities which impact on the debtor’s ability to pay. Where a DCA becomes aware of such cases the OFT and the Association would expect measures to be in place to ensure that such cases receive appropriate handling.
The CSA Code of Practice provides details of how Members should deal with sensitive cases. The Association has also produced Guidance on Mental Health and Members may also find the MALG Guidance on the Debt and Mental Health Evidence Form useful.
To view this document please go to the OFT WEBSITE