One of the most stressful things about being in debt, in additon to the obvious worries associated with owing money, is harrasment from lenders. Debtors are often bombarded with regular warning letters and phone calls several times a day. This can cause considerable distress to people affected by debt, often acquired through no fault of their own; rather, their money worries are a result of unforseen circumstances, such as redundancy or wages being cut.
On the 6th April 2009, the Ministry of Justice updated the rules regarding court action: an amendment to the civil procedure rules concerning the pre-action protocol (in relation to disputed debts) states that an early exchange of information should take place before court action is taken
Lenders are obliged to supply sources of debt advice to debtors prior to court proceedings, and if those affected seek such advice from agencies such as the Citizens’ Advice Bureau, they are entitled to 30 days’ grace from companies chasing debt.
The rules regarding debt collection were updated following complaints about the ‘aggressive tactics’ employed by many debt collection agencies. These agencies collect monies owed to various types of company, including utility companies, banks and the government; money owed on loans, mortgages, council tax, utility bills, etc.
Complaints from struggling families have soared since the onset of the recession, with unfair court action and mistaken cases of identity commonly being reported.
Emma Parker, a communications officer for the Financial Ombudsman Service, comments:
“Since April 2007, the Financial Ombudsman Service – the free service set up by law to settle financial complaints – has been able to look at consumer credit complaints. This includes complaints about debt collection in relation to a consumer credit debt, such as a hire purchase, a loan or credit agreement.
Debt collecting firms have a maximum of eight weeks to resolve disputes before the ombudsman can become formally involved. But if a consumer does not know how to contact a firm or would like the ombudsman to write the firm to let them know about the complaint in the first instance, they can call the ombudsman’s consumer helpline on 0845 080 1800.
The ombudsman received around 400 debt collection cases last year. Common themes have been people being pursued for a debt that isn’t theirs and people feeling that they have been harassed. If the ombudsman sees evidence of a systemic problem with a particular firm, it passes that information on to the regulator, the OFT”.
With the new 30 day rule, those affected by debt will have one month from receiving an initial letter from a debt collection agency to seek the necessary help and advice, in order to allow them to take control of their finances and prepare their case for the courts, if necessary.
The Citizens’ Advice Bureau has welcomed these changes, but is still concerned that not enough is being done. They have reported seeing a sharp increase in the number of people becoming the victims of unfair, often harsh, debt collection during the recession.
The charity says that the law needs to separate those who ‘wont pay’ from those who simply cannot pay, and treat each group accordingly; those who are in genuine financial difficulty should have their offers of payment accepted, instead of being continually pressed for more money.
Indeed, it is this group who should be receiving help from debt advice agencies, while those who refuse to pay should feel the full weight of the law.
Alarmingly, it is not only poorer families feeling the strain of the recession; around half of clients seeking help from the charity CCCS were homeowners, with 12% having an income in excess of £30000 per annum. The poor economic climate has seen an increase in the number of debt collection agencies being set up in order to target srtuggling families, and it is important these operate in a fair manner.
The Office of Fair Trading issues licences for consumer credit, and it has seen a marked increase in applications for businesses in the areas of debt management and debt collection. Luckily, the OFT does have the power to reprimand and fine companies that do not comply with the laws surrounding credit collection; one company has already been fined this year for unnecessarily threatening debtors with bankruptcy and court action.