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Debt collection guidance

30 January 2012

Introduction

Debt collection guidance (Adobe Acrobat Document 78kb)

Since 2008 we have seen a rapid growth in the number and type of cases reported to us about the lending, marketing and debt collection practices of lenders offering short-term loans. Initially these cases revolved around the cost of such loans, but more recently they focus on the number of firms operating in this market and lending and debt collection practices they employ.

During this time the number of people seeking debt advice from a Citizens Advice Bureaux in England or Wales who have one more payday type loans has increased by four hundred per cent, and the proportion of CAB debt clients total debt owed to payday lenders has increased from 1.4 per cent in 2009 to nearly 8.9 per cent in 2011.

At the same time we have also seen a rise in the number of people seeking advice after being cold called and persuaded to give their debit or credit card details to firms offering claim management, credit brokerage or debt management services. These cases featured in our 2011 report, Cashing In, and clearly show that some credit brokerage, debt management and claims management companies are using high pressure tactics to acquire vulnerable consumers’ debit and credit card details to obtain money without providing the service promised. Cashing In – Citizens Advice 2011

Businesses are able to use a consumers debit or credit card details to obtain money because that is what these cards are for – making payments and in particular making payments at a distance. We believe this functionality is extremely important and helpful to consumers. However, it is this very functionality that makes debit and credit cards susceptible to mis-use.

The lack of clear guidance on the rights and responsibilities of consumers and businesses that use debit and credit cards does not help. We are therefore extremely pleased that the OFT have include these new sections in their guidance. We believe they could drive significant improvements in lending and debt collection practices if certain key amendments are made.

Citizens Advice welcomed the OFT’s revised guidance on debt collection for all businesses engaged in the recovery of consumer credit debts. We believe such guidance is a powerful way to regulate the conduct of businesses engaged in high risk activities and we fully support the OFT’s attempts to update the guidance in the light of new and emerging practices, including those used by payday lenders.