A matter that seems somewhat pervasive between most individuals is debt. Whether it is paying off student loans, monthly repayments on a mortgage or the generic and unavoidable council tax and utility bill, debt is something we all have in common. Debt becomes problematic when an individual, for whatever reason, is unable to repay what is owed. As a result, a debt-collection business may be employed by the organisation to which the debt is owed, to collect the debt. They are often known as “credit-collection agents" or "debt-recovery agents".
Debt collectors have been regulated by the Financial Conduct Authority (FCA) since 1 April 2014 and were previously licensed by the Office of Fair Trading (OFT). Much of the OFT's guidance in relation to the operation of debt collectors is now found in the FCA's Consumer Credit Sourcebook for businesses authorised on or after 1 April 2014.
The Financial Ombudsman Service
Perhaps a more stringent method of investigating the practices of Debt Collection agencies is through the Financial Ombudsman Service (FOS). Set up by Parliament, the FOS is the UK’s official organisation in settling disputes with financial services. Where a business and an individual are unable to resolve a complaint themselves, the FOS may able to assist in giving an unbiased answer regarding the matter. If it is found that an individual has been treated unfairly, the FOS have legal powers to resolve the matter. The FOS are governed by the OFT guidance and in addition consider the relevant law, as well as the facts and circumstances of the dispute.
Complaints and the Financial Ombudsman
Previously the FOS could only consider complaints regarding debt collectors where the complaint was about an attempt to collect a debt that originated from a regulated consumer-credit or consumer-hire contracts such as a car finance agreement or mortgage. The position changed on 1 April 2014 when regulatory duties passed from the OFT to the FCA. Now the FOS consider complaints regarding the collecting of debts that arise from exempt consumer credit and consumer hire agreements (that is credit or hire agreements exempt from the operations of the Financial Services and Markets Act 2000) even if the event happened before 1 April 2014.
The FOS also consider complaints about debt collection arising from certain peer to peer agreements. However as peer to peer lending became a regulated activity on 1 April 2014 only complaints that arose after this date will be considered.
The following are a few examples of the types of cases that the FOS deals with:
- The consumer alleges that the debt is not their debt. In these cases the FOS would expect the business to provide evidence that clearly shows they have been seeking repayment from the right person.
- The consumer may complain about the way the business has treated them. These complaints include consumers relaying the manner in which the business has contacted them, sometimes too often, or have been rude or aggressive.
- Where a business rejects a consumer’s repayment proposal or has refused to be flexible. The FOS looks at the evidence to decide whether the business has behaved fairly.
Complaints that fall outside the scope of the Financial Ombudsman Service
The FOS does not deal with complaints regarding the collection of council tax, utility bills or rent arrears. These debts fall outside the scope of the FOS because they do not relate to regulated activities within the FCA regime.
Where consumers are concerned about issues relating to the collection of these types of debt, they will usually be referred to Citizens Advice.
Settling a complaint
The FOS usually settles complaints involving debt collection by informal agreement. If it is found that the business has not followed correct procedures or acted improperly, settlement might involve compensation for the trouble or upset that a consumer has experienced.
Some consumers hope to have their complaint settled by having their debt written off. Writing off the debt is not an easily available remedy. The FOS is more likely to recommend a suitable amount of compensation, which will be calculated by assessing what has happened and how the consumer has been personally affected. Another alternative remedy may be to instruct the business to accept a reasonable offer of payment made by the consumer.
If a consumer accepts the final decision of the FOS, before the set deadline, that decision becomes legally binding. The effect of this is:
- The business is under an obligation to adhere to the FOS decision, whether they agree with the decision or not.
- If the business does not cooperate, a consumer has the right to enforce the decision in a court of law
- A consumer will not be able to take separate legal action against the business about the issues that have been addressed by the FOS.
If on the other hand a consumer does not accept the decision of the FOS before the deadline, the decision will not be legally binding. In such a case, the business is not bound by the decision of the FOS. A consumer will retain the right to take other action against the business. Once the FOS has made a final decision, their involvement in the complaint will end, whether or not their decision is accepted.
Due to the potential binding nature of a decision rendered by the FOS and their ability to consider a wide range of debt types, a business must be mindful of the manner in which they collect their debts. They must ensure that the debtor is the correct person who owes the debt; be aware of the way a debtor is approached to collect the debt and that all payment proposals are reasonably considered in settlement of the debt. It is important that where a business does have many debts to collect, that there are appropriate measures and procedures in place to avoid falling foul of the FOS.