Credit Industry
Q. What percentage of the credit industry within the UK is covered by your organisation?
A. Because of the nature of our industry, it is very difficult to provide a precise figure for the percentage of the industry our membership constitutes.
This is primarily because the number of companies in the industry is constantly changing (around 65% are small operations offering localised services and many collect debt on only a part-time or temporary basis) and the definition of companies included in the industry is also open to variation (it could be said that all companies which issue credit are involved in debt collection to some degree).
It also depends on how you measure the "size" of the market - the number of debt cases passed to agencies, the face value of debts passed to agencies, company turnover, the number of companies in the market etc.
If we take the latter of these, there are approximately 500 companies in the UK primarily collecting debts for third parties. As we currently have 240 UK members, the CSA could be said to represent approximately 50% of UK debt collection companies. However, if we take turnover as a measure, because most of the large companies in the industry are members of ours (our largest 10 members have turnovers in excess of £10 million), the percentage is likely to be much higher than this.
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Silent Calls
Q. I am hoping you can help with a query we have regarding the recent Ofcom regulations regarding silent calls.
We manage a panel of Debt Collection Agencies and need to be sure that they are working to the recent Ofcom guidelines. We understand that you issued amended guidelines to CSA members on 19th April 2006 following representations made by you in the consultation round but we are unsure as to whether these have been further updated.
Are you able to send us the final guidelines you issued to CSA members?
A. The particular guidance note you mention was compiled from Ofcom's Statement of policy on the persistent misuse of an electronic communications network or service - dated 01 March 2006. This document is available in full from the Ofcom website www.ofcom.gov.uk - particular note should be made of section 6-16, which notes misuse by making silent or abandoned calls.
The occasional Guidelines we produce for our members (including the one you mention) are best practice documents intended for, and only available to, members. I can therefore not supply this.
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Charging Orders
Q. What is a charging order?
A. A Charging Order is an order from the Court placed on a debtor’s property (house or land) for monies owed to a lender.
If you have borrowed money and the money is not secured and you have not kept to the repayment arrangement, a lender can request the court to place a charging order on your property so that when the property is sold you will have to pay that debt off firt before any of the proceeds are given to you.
Q. When can a lender apply for a Charging Order?
A. Before a court will consider an application for a Charging Order, the lender must have issued a County Court Judgment and you must have failed to make payments on that judgment or not paid the judgment according to the requirements of the court.
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Credit Files
Q. How long does information stay on my credit file?
A. All negative information stays on your credit file for anywhere from 1 to 6 years.
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Legal Requirements of Agencies
Q. I have been considering starting a commercial debt recovery business for some time now spending most of my time researching the industry. One question I have is; can a debt collection agency act on behalf of the client when legal action is required? From what I have researched, agencies either have their own in house solicitors or farm out the legal work.
A. County Court rules currently prohibit non-solicitors from acting on behalf of third parties.
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Compliance & Collection requirements of Debt Collection Agencies
The debt collection industry in the UK is largely self-regulated, though debt collection does fall under the remit of the Office of Fair Trading, a government regulator which issues Consumer Credit Licences (all companies collecting debt from consumers must have a licence). The OFT has also issued Guidance – in July 2003 – in debt collection practices. It is a document that needs to be carefully studied and adhered to. Breaching the guidance could lead to the OFT reconsidering whether a company is suitable to hold a Consumer Credit Licence.
The Credit Services Association, the only Trade Association for the debt servicing industry in the UK, is also there to help people identify trustworthy traders, who maintain high standards of customer service. All CSA members agree to abide by the CSA Code of Practice – a best practice document which goes above and beyond the minimum standards set in law. A full list of CSA members is available on their website – www.csa-uk.com - as well as the CSA Code of Practice.
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Distinction between Debt Collection Agencies and Solicitors
Q. What is the distinction between solicitors and debt collection agencies regarding the collection of overdue accounts?
A. The CSA cannot comment on the practices of solicitors. The Law Society – the trade body for solicitors – may be able to help further with regard to solicitors and their standard practices/fees.
However, many solicitors offer the collection of debts as part of their service offerings. Solicitors will tend to lean towards, or concentrate on, legal proceedings to assist in collecting overdue amounts, which tends to be more expensive to the client, but will also carry out collection activity as a debt collection agency would do. Some solicitors have dedicated debt collection departments, some have subsidiary debt collection companies.
Debt Collection Agencies can collect over 80% of the face value of undisputed debts in the first month because of their third-party effect and full time effort and efficiency. CSA members agree to abide by the CSA Code of Practice – a best practice document which goes above and beyond the minimum standards set in law. They are dedicated to helping clients recover their accounts, handling all debt servicing operations with care, courtesy and consideration. A full list of CSA members in available at www.csa-uk.com.
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Fee Charging
Q. Is there a fee schedule that is standard in the industry? Are fees normally charged on an hourly rate, or per activity, or on some other basis?
A. Agencies usually work on a ‘no collection-no fee’ basis and charge, as a rough guide, between 5% and 15% commission on amounts collected (this can be higher on old or otherwise difficult debts).
Having said this, there is no ‘standard’ regarding the charging of fees for debt collection, nor on the basis for the charge. The reason for the variety of fees, and the way in which they can be calculated, is the virtually unlimited variety of arrangement. Clients can give a range of instructions and there will be differences depending on the industry involved, the type of customer and the age, size and volume of debts to be collected (for example).
The Agency will negotiate with each client regarding what the client wants or needs to be done, what the Agency can provide and how best to achieve the collection of the outstanding amounts based on the individual circumstances.
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Requirement of Consumer Credit Licences for CSA Membership
Q. We only carry out Business to Business debt collection and do not require a Consumer Credit Licence for this. Is it a requirement of the CSA for us to have a Consumer Credit Licence?
A. It is not essential for a CSA Member to hold a Consumer Credit Licence if the company in question only collects commercial debt, however it is desirable. If a company only collects commercial debt then that company will have to confirm and provide proof the CSA that this is the case. In the event that even one consumer collection occurred, this would be a breach of the CSA Code of Practice.
All companies collecting debt must still abide by the OFT Debt Collection Guidelines whether they have a Consumer Credit Licence or not.
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Data Protection
Q. Am I right that any details of debt should not be disclosed to a third party? If so, would my rights also be protected by the Data Protection Act?
A. "Yes" to both questions.
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OFT Guidance
Q. Regarding the 'OFFICE OF FAIR TRADING DEBT COLLECTION GUIDANCE' are debt collection agencies legally required to act within the scope of this guidance?
A. This is only guidance, designed to assist in the interpretation of law. We would expect companies to abide by the standards set out in this document - as a matter of best business practice.
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Administration of Justice Act
Q. Regarding SECTION 40 OF THE ADMINISTRATION OF JUSTICE ACT “S40 Punishment for unlawful harassment of debtors". Would I be correct in assuming a company whom breached this act, would in fact be committing a criminal offence?
A. The CSA cannot advise on legal issues and would direct you to either a solicitor (or the other bodies listed on the bottom of your original email) in regard to this. I believe the relevant legislation is "The Administration of Justice Act 1970, Section 40 (Harassment of Debtors)".
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Information requests
Q. I am writing a paper on the impact of credit card debt in industrial countries.
A. There are no figures available relating solely to Credit Card debt.
Q. The amount of "charged off" debt in the UK, the amount sold.
A. I'm not sure what you mean by "charged off" exactly - if you mean the level of outsourcing of debt, the amount of debt passed to debt collection agencies, this exceeds £5 billion per annum; the membership of the CSA deal with over 20 million cases per year.
Q. Prices at which debt it is sold
A. Because of the variety of packages available in the marketplace (terms vary from firm to firm), there are no clear figures.
Q. The amount eventually collected
A. Because of the variety of sources and classifications of debt, or defaulted debt, there are no clear figures.
Q. Is there any information on consumer debt in general, either unsecured or secured?
A. Personal/household debt including unsecured credit and mortgages doubled from 1994 to 2001. The debt to income ratio was 90% a decade ago and stands at over 118% now. Consumer credit was around £140 billion in 2001 and is estimated to be in the region of £170 billion in 2003. The FSA estimate that consumer credit outstanding for the average household is over £98,000 for mortgage debt and over £24,000 in non-mortgage debt.
The amount of debt passed to debt collection agents exceeds £5 billion per annum. The membership of the CSA deal with over 20 million cases per year. The potential size of the debt collection market is therefore huge. The growth of the DCA market in the last two years is estimated at almost 70%.
Much of the growth in consumer credit and consumer indebtedness has been in the prime market (credit cards, personal loans) whereas lending to the sub-prime market (credit to lower income groups via home shopping, low value loans etc) has remained quite stable.
In the UK, the most recent statistics suggest that the value of consumer credit outstanding on mortgage loans exceeds £480bn and over £170bn is outstanding on other forms of consumer credit. The lending by banks and building societies to commercial and other organisations exceeded £500bn. According to Bank of England statistics the total volume of outstanding lending reached £1,114 bn in 2000. These figures do not take into the account the services provided by the utilities, which are often on a deferred payment basis and represent a sizeable proportion of total consumer debt.
Recent estimates suggest that the amount of debt overdue in the economy exceeds £60bn (excluding business to business trade debt). These figures could be taken as the potential size of the out-placed debt collection industry.
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Contacting Debtors by Telephone
Q. Can the CSA please advise from what time of the morning until what time at night we are able to contact debtors by telephone?
A. The CSA does not specify times in which debtors can be contacted, however the CSA Code of Practice states:
3e: Ensure that all attempted contacts with debtors are made at reasonable times and at reasonable intervals.
The OFT Guidelines issued in 2003 state:
2.23: “There was a degree of consistency from respondents that contacting debtors between the hours of 8am and 9pm Monday to Friday would be reasonable”
“Examples of unfair practice stated within the OFT Guidelines would be:
2.2g: ignoring or disregarding debtors legitimate wishes in respect of when and where to contact them, e.g. shift workers who ask not to be telephoned during certain times of the day.”
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Professional Indemnity Insurance
Q. Is it a requirement of the CSA for members to have Professional Indemnity Insurance?
A. No, it is not a specific requirement, however it may be practical.
