Dealing with debt collectors
The recession has seen a growth in the number of people facing the knock on the door or letters from debt collectors.
The most common complaint from Brits is, though, that they are after the wrong person.
Dealing with debt problems means facing the problem early - but once debt collection agencies arrive it still is not too late.
Daniel Barnes looks at ways of dealing with debt collectors as complaints about them rise, despite government work to make them treat customers more fairly.
How do debt collection agencies get involved?
Banks, building societies, utility companies, mobile phone companies or any body holding a debt, including government agencies, usually call in external debt collection agencies when their own in-house attempts to organise repayment fail.
"Banks don't want to use debt collection agencies," a spokesperson for the British Bankers' Association explains.
Debt collection agencies can be used after a minimum of six months - however lenders often wait longer. The debt is not sold on to the agency - they are just overseeing collection on the lender's behalf.
The firm is paid a commission on any debts it recoups - leading to criticism that getting cash back is all that matters to them, and not the circumstances of the borrower.
But as the debt is still with the original lender, you should still contact them.
Initial contact from a debt collection agency takes place by letter, and if that is ignored further letters and legal action is threatened.
Debt collectors can also contact people by phone, email and even text message. They may even try to contact the debtor outside working hours - in the mornings or evenings - or at their place of work.
Doorstep collectors could also be used where the debts are high.
Debt collection agencies can also be used if a debt is sold on. Some lenders choose to sell on debts - sometimes for as little as a few pence in the pound - to make up some revenue over just wiping away the debts.
However, the connection with the original creditor is not broken and they will always be responsible for the behaviour of the collecting agent or purchaser.
What to do?
Ignoring a problem will not make it go away.
Those facing debt problems should seek advice as soon as possible. But this does not mean it can ever be too late to hammer out a deal.
The BBA warns keeping you head in the sand over debts is not the way forward.
The body explains that often people know they are in debt troubles, but ignore letters from banks thinking they can do nothing with their problems.
A spokesperson adds while banks try to be proactive and aid people they think are falling into debt they cannot manage, many debt problems exist beyond their bank accounts.
Sean Feast of the Credit Services Association (CSA), the industry body covering debt collection agencies, says debt collection agencies are only involved after there have several attempts to contact a borrower by the lender or who holds the debt.
"To be trite the first thing you should do if you receive a letter from the debt collection agency is pay the debt.
"It is a human trait to ignore problems, and the longer you leave it the more difficult it is. But until a third party is involved for some reason people do not take the debt seriously.
"This is why debt collection agencies are so successful."
However, CCCS also warns there are limits on what collection agencies can do.
"Debt collection agencies cannot enter your property without permission," a spokesperson said.
He adds whether a debt has been sold on or not, it is worth maintaining a dialogue with a creditor and contact a debt advice service.
Are bully boy tactics being kept in place?
Last month, the government with the industry body for the debt collection industry set up a 30 days' breathing space for borrowers struggling to repay debts.
Following on from similar initiatives with mortgage lenders and credit card firms, the 30-days start once an accredited debt advisor - such as Citizens' Advice Bureaux, Advice UK, The Consumer Credit Counselling Service - is appointed.
Over this month the debt collectors will not contact debtors to pursue debts. It is hoped over the month the debt advisor will negotiate with creditors and the collection agency so that a plan for repaying the debt can be agreed.
Consumer minister Gareth Thomas said at the time: "This new 30-day rule will give people a breathing space to help them take control of their finances as well as encourage them to seek help from debt advisors.
"This is an important and sensible commitment to have made to borrowers."
However, it is uncertain how this 30-day period is being monitored or followed.
The 30-day breathing space was established with the industry body the Credit Services Association (CSA).
The OFT has no power to act if a firm fails to meet the 30-day promise - as it is a voluntary agreement and so is not legally binding.
The CSA code of conduct calls for members to deal with debtors in a "fair and reasonable manner".
However, scare stories of agencies calling debtors repeatedly, pressuring family members and using menacing tactics remain. And the OFT is seeing more complaints about debt collection agencies.
But CCCS is finding the conduct of some, but not all, debt collectors is improving.
"Anecdotally, we are seeing an upswing in debt collectors' practice. In some respect this is due to the recession and the realisation that people do not have the money to pay back," a spokesperson said.
Sean Feast of the CSA concurs.
He explains there is no mileage for debt collection firms to chase people who cannot pay - and the number of those not unable to pay has "increased dramatically".
"With people who cannot pay it makes more sense for agencies to find a settlement.
"But you have to balance this with serial debtors who have no intention of repaying debt. They move homes after not paying debts, buy from catalogues without intending to pay. Debt collection agencies focus on these people who ruin it for the majority."
Monitoring fair treatment
The department for Business Enterprise and Regulatory Reform (BERR) sees the voluntary agreement on 30-days holding firm as those members not respecting will be thrown out of the CSA.
"This new 30-day rule is enshrined in the CSA's code of practice," a BERR spokesperson says.
"Firms who ignore this can be reported to the CSA and if they continue to flout the Code, they will be thrown out the association."
Sean Feast of the CSA warns firms being expelled from the CSA would lose more than the body's symbol on their letter paper.
"Any major lender will look to see if a debt collection agency is in the CSA. If they are not then they do not go on the tender list for business and that will hurt," he says.
He warns the CSA would also alert the OFT to any firm ejected from the body.
The BERR spokesperson adds consumers can also report poor conduct by companies to the OFT, which oversees whether companies should hold a consumer credit licence.
The CSA, however, does have reservations about the 30-day limit, as often debt collectors have worked with advice services for longer.
Taking on bad debt collectors
The Office for Fair Trading (OFT) has the powers to fine a debt collection agency for failing to meet satisfactory standard and even take away their licence leaving them unable to continue trading, it being a criminal offence not to do so.
Initially the OFT will impose requirements for a firm to clean up its act. If it then goes on to breach these requirements, it can be fined £50,000 per breach.
The OFT recently ordered one firm - a member of the CSA - to clean up its act after it was found to be still chasing debts when they were disputed.
Disputed debts are those it is doubted whether the person being chased really ran up the debt - either because of mistaken identity or fraud - or if the debt has been already paid.
Earlier in the year, one firm was stopped for warning people they would face bankruptcy and court when it was unlikely.
The OFT has been tightening its vice on firms after the last year - after writing to 13 debt collection agencies and financial institutions after warning them that they needed to take steps to improve their debt collection practices.
A spokesperson for the OFT explains: "We have seen complaints increase, but there are factors behind this as people become more aware of their rights and focus on their finances."
He adds the OFT takes action against rogue debt collection agencies not just where consumers complain, but after listening to reports from local trading standards and advice bodies such as Citizens Advice.
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