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ombudsman news

issue 147

February 2019

case studies: debt collection

Debt collection is where a creditor engages an external company to recover debt. We can look into complaints about collection activity for credit and consumer agreements – such as mortgages, credit cards overdrafts and personal or business loans.

Although debt collectors deal with unregulated debts as well, we can’t look at complaints about debts relating to household utilities, council tax, or fines.

Between January and December 2018, we dealt with around 3,300 enquiries about debt collection, and took on over 1,000 new complaints for investigation. The people involved told us that businesses collecting debt had:

  • Made excessive contact with them – whether by phone, letters or both – about a debt;
  • Demanded repayment of a debt that didn’t belong to them at all;
  • Demanded too much money, or tried to collect debt that had already been paid in full or was being managed by a debt management company;
  • Added excessive fees to debts; and
  • Chased them for unenforceable or statute-barred debts.

Often debt collectors will take on whole books of debt from lenders, rather than individual customers. Large amounts of information transferring between lenders and collectors can lead to administration errors. This may be especially true with older accounts, where lenders haven’t kept in touch with customers and information may be out of date.

We generally find that it’s fair that the people involved repay what they owe in a manageable way – and expect lenders and collectors to be flexible in helping customers with reasonable and affordable repayments. In some cases, given the particular circumstances of the situation in hand, we might decide it’s not fair or reasonable for the debt collector to continue to collect the debt.

Our case studies include examples of complaints about lenders who’ve taken action to recover debts themselves – where many of the same themes apply.

debt case studies

  • 147/1 - “I’ve kept up my repayments for my loan, but I’m still being told I owe more”
  • 147/2 - “I’ve already repaid my loan – why should I have to pay more now?”
  • 147/3 - “Can a bank sell my loan – even after I tell them I can’t afford the repayments?”
  • 147/4 - “We asked our bank for help with our debts but they took us to court instead.”
  • 147/5 - “My credit card company told me I was in persistent debt – but didn’t help me fix it.”
  • 147/6 - “I’ve repaid my debt – so why is my bank still chasing me?”
  • 147/7 - “I don’t agree my debt should have been passed to a debt collector – and now they’re phoning me when I told them not to”
  • 147/8 - “I was put on a repayment plan, and now it’s affecting my chances of getting a mortgage.”
  • 147/9 - “We asked for some time to sort out my friend’s loan and overdraft debt – but the bank won’t stop chasing him for the money”
  • 147/10 - “I’m receiving debt collection letters – but the debt doesn’t belong to me”

“I’ve kept up my repayments for my loan, but I’m still being told I owe more”

Thea contacted us about her loan repayments, which were being collected through a debt collection agency.

Thea said her debt had transferred from one debt collection agency to another, and after that she’d noticed that the balance was too high. She’d complained to the new agency – but they had disagreed that they were asking for too much, and insisted that she had to pay the increased balance.

Unhappy, Thea asked us to get the balance put right.

putting things right

We looked at all the paperwork Thea sent us about her loan. We saw that, after Thea had had some payment problems with the original loan company, her debt had been passed to a debt collection agency. They had set her up on a monthly repayment plan, which she’d managed to keep up with. Then the debt had been bought by another business, who’d instructed debt collectors. And they’d asked Thea to pay over £1,000 more than she was saying she thought she owed.

We told the new agency to send us details of the loan debt and the repayments Thea had made. We also contacted the original collection agency to get their own transaction records, so we could get a complete picture of what had happened.

Having reviewed all these records carefully, we established that the new debt collector hadn’t taken any payments into account relating to the time before the debt had been sold on. Instead, they’d started with the original loan amount. This was why they were now asking Thea to pay over £1,000 more than they should have asked for.

We pointed out the debt collector’s mistake, and discussed the impact it had had on Thea. They agreed to clear the overcharge and to bring the balance and repayments down to the correct amount. They also offered Thea £100 compensation for the trouble and upset they’d caused.

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“I’ve already repaid my loan – why should I have to pay more now?”

Ali complained to us after receiving a letter from a debt collector threatening legal action. She told us she thought she’d cleared her loan with the original lender years ago, so was surprised and concerned to hear things weren’t settled.

Ali explained that the original lender had gone into liquidation, and she hadn’t been able to contact them. She told us she’d had problems with the lender for a number of years too, and wanted to complain about both companies. She asked for our help to sort things out.

how we helped

We asked Ali what she’d done after receiving the debt collector’s letter. She explained she’d contacted the agency to question the balance – and they’d asked her for evidence of the payments she had made. From the records, it seemed Ali had only been able to provide evidence for one of the payments. When the debt collector had checked with the lender’s records, they hadn’t found records of any payments at all – and they had insisted on full payment.

We explained to Ali that as the lender had gone into liquidation, we couldn’t deal with any complaint against them. However, we called the collection agency to discuss the payments. We pointed out there was clear evidence that Ali had made a payment to the lender using her debit card – but it wasn’t clear where this payment had gone. Because Ali didn’t appear to have had any other accounts with the lender, we suggested the collection agency should honour this payment.

Ali had told us she had also made further cash payments – but she didn’t have any evidence of them. We explained that, because of this, we didn’t agree the agency should have to reduce the balance further. However, as an apology to Ali, the agency offered a 20% reduction of the remaining balance, if Ali was happy to pay the account off in full. Ali confirmed she was in a position to do this.

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“Can a bank sell my loan – even after I tell them I can’t afford the repayments?”

Jermaine got in touch with us about problems he was having with a loan he’d originally taken out with his bank. He said that, having not heard anything about the loan for several years, he’d received a letter from a debt collection agency asking for more money.

Jermaine told us that after receiving the letter, he’d challenged both the bank and the collection agency, as he’d heard nothing from either company since his last payment.

But neither had agreed to write off the debt. Jermaine said he felt he’d been treated unfairly and asked us to step in.

putting things right

Jermaine told us he’d had to stop work due to an injury shortly after taking out the loan, and had struggled to afford his repayments. He said that the bank had initially put him on a reduced payment plan, but had sold the loan on to a third party, who then appointed a debt collection agency when he hadn’t kept up with it.

Jermaine said he’d heard that because his last payment had been made six years previously, his loans should be written off and he shouldn’t be pursued for the money any more.

We explained to Jermaine that the enforceability of the debt was something a court would need to decide – rather than our service. However, we spoke to his bank and the collection agency to try to unpick what was happening with his debt.

Both businesses provided records showing the transaction history of Jermaine’s loan. The collection agency confirmed they were now solely responsible for the collection of the loan – which was why they had contacted Jermaine. Having reviewed his account as part of our investigation, they confirmed that, due to the age of the debt, they wouldn’t be taking any further collection action – and would arrange for the debt to be written off.

We told Jermaine about the debt collection agency’s decision. But he was still unhappy with his bank for selling on his debt – and he was concerned that what had happened would have affected his credit rating.

From the evidence we received, we could see that the bank had only sold the debt on after Jermaine had stopped paying what he had owed – and after they’d given him the chance to reduce his payments. It didn’t seem Jermaine had communicated with the bank about the fact he was having trouble or why.

We explained to Jermaine that, given the length of time since he’d last made a payment, it was likely that any such information would have been removed from his credit file by now. Having looked into Jermaine’s records, both the debt collection agency and the bank confirmed there were now no entries on Jermaine’s credit file relating to the loan.

So, while we were sorry about the difficult situation Jermaine had been in since his injury, we decided the bank hadn’t done anything wrong in selling on his debt – and that he hadn’t been treated unfairly.

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“We asked our bank for help with our debts but they took us to court instead.”

Jo and Ethan told us they hadn’t been treated fairly by their mortgage provider, a bank, after their son’s illness caused them to fall behind with their mortgage payments.

They said that, although they’d told the bank their circumstances had changed, it had taken them to court over their debts. Now the court had said the bank could repossess the house – and Jo and Ethan wanted us to step in.

how we helped

Before we started looking into the detail of the complaint, we spoke to the bank about Jo and Ethan’s situation. They agreed to put their legal action on hold while we investigated exactly what had happened.

We explained to Jo and Ethan that we couldn’t review – or overturn – the court’s decision to let the bank repossess their house. However, the court hadn’t looked into their concerns about how they’d been treated by their bank – relating both to the mortgage payment protection insurance (MPPI) claim and also when they’d asked for help with their financial difficulties. So we were able to look into these issues.

We asked Jo and Ethan to talk us through what had happened. They told us their son had fallen ill around five years after they’d bought their house with a mortgage. They explained they’d both taken time off work to care for him – and had asked the bank for help when they’d realised they couldn’t afford the repayments.

Ethan told us the bank had advised him to claim on the MPPI policy they’d bought with the mortgage. He’d tried this, but he’d been told he couldn’t claim because he was self-employed. Ethan said he’d tried to continue making payments towards the mortgage when he could, but he had quickly fallen into several thousand pounds of arrears.

We asked the bank for their views on what had happened with Jo and Ethan’s MPPI policy. They said they’d looked into the circumstances and decided to pay Jo and Ethan several thousand pounds in redress, as they’d concluded the policy was mis-sold.

We were also concerned about the standard of the bank’s communication and customer service. We could see that Ethan and Jo had kept the bank informed of their circumstances, asked for help, and tried to make affordable payments where possible. They’d written to the bank, asking to meet them to sort out a new payment plan.

However, despite all this effort, the bank hadn’t responded. In fact, the records showed it had taken them three years to refer Jo and Ethan to their specialist vulnerable customer team. By that point, they had been unable to keep up with their payments and the bank had already started court proceedings.

We told the bank they’d seriously failed Jo and Ethan – overlooking their circumstances and letting the situation escalate, rather than stepping in earlier to provide help at an earlier stage.

In our view, if the bank had stepped in earlier, many of the legal issues might have been avoided. Combined with the mis-sold MPPI, the bank’s poor customer service had caused substantial problems, stress and upset for Jo and Ethan, during what was already a distressing time due to their son’s illness.

We recognised that financial compensation couldn’t make up for everything Jo and Ethan had been through. But to recognise the impact of the bank’s poor service, we told them to pay Jo and Ethan compensation from our extreme band.

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“My credit card company told me I was in persistent debt – but didn’t help me fix it.”

Chris asked us for help when his credit card provider wrote to him and told him his account was in persistent debt. He said the provider had given him a choice of how he could clear his debt – but he felt they hadn’t explained the options properly, and he’d been pressured into making a decision he wasn’t sure was the right one.

Chris wanted our help in making the provider treat him fairly, and to get on top of his debt.

how we helped

Chris told us he’d usually made the minimum monthly payment on his credit card. From his statements, we could see his outstanding balance had been several thousand pounds for a number of years. And for the previous 18 months, he’d been paying more in interest and charges than he had actually paid toward his debt each month.

The card provider defended their position. They said they’d offered Chris a choice – in line with the FCA’s rules for persistent debt customers – either to increase his monthly repayment, or to suspend his account and repay his debt at the same rate he was currently paying. And Chris had chosen the second option.

Chris said he’d now read up on the FCA rules, and wasn’t happy with what the provider had said. In his view, they should have looked further ahead – and told him what would happen if he continued to be in persistent debt for 36 months or more. He said that if he’d known the longer-term view, he might have made different choices.

We explained to Chris that he was right about the FCA rules referring to different things after 36 months, as opposed to 18. However, looking at his particular circumstances, we thought the card provider had done the right thing by focusing on what was happening currently to try to stop things deteriorating further. At the point the provider contacted him, his debt hadn’t been anywhere near the point where the 36-month rules applied. And they might not have ever been relevant if the issues with his debt could be resolved.

While we didn’t uphold Chris’s complaint, it was clear he was upset about what had happened – and concerned about what would happen next. We talked him through why we’d reached the decision we had about the card provider’s actions – including their responsibility to ensure accurate information was recorded on his credit file. And we made sure he had the details of organisations who could give him free help with his debt from then on.

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“I’ve repaid my debt – so why is my bank still chasing me?”

Lauren came to us about problems she’d been having with her bank. She said she’d contacted a free debt charity for help with her debts, and was relieved to have managed to set up payment plans with her creditors. However, she was having trouble with her bank – who she said were still contacting her about an overdraft debt that she thought she’d paid off.

Lauren said she’d complained to the bank, but they’d just told her they’d followed the normal collections procedure. Unhappy with this response –and upset at the text reminders she believed she was wrongly getting from the bank – Lauren asked us to get involved.

putting things right

Lauren told us she had been struggling with her finances after her dad, who she’d been caring for, had died. When we looked at the bank’s records, we saw that she’d contacted them for help shortly after this – and they’d given her the details of the debt charity. The bank had also frozen Lauren’s overdraft until she could clear what she owed.

Lauren told us that the debt charity had told her the bank had said she’d paid off her overdraft. However, she was still receiving text messages about it – even after her debt adviser had contacted the bank to confirm that she didn’t owe anything more.

The bank said it couldn’t find any call records for Lauren’s account – so they didn’t have any evidence about these conversations. However, the debt charity sent us their own call recordings, in which we heard the bank saying that Lauren’s debts were clear.

When the bank heard these calls, they accepted there had been administration errors 0n Lauren’s account. In actual fact, there was around £100 left to pay back. But in view of their mistakes, they said they would clear the balance.

Lauren had tried to address her financial difficulties honestly and proactively – and of all of her creditors, only her bank had caused difficulties. We told the bank to pay compensation in our moderate band for the upset caused by its poor customer service. We also told the bank to confirm in writing that Lauren had nothing left to pay.

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“I don’t agree my debt should have been passed to a debt collector – and now they’re phoning me when I told them not to”

Denny told us about a dispute over a doorstep loan. He said he’d been making regular payments for several months, when the lender had decided to sell the debt to a third party debt collector – which was now contacting him by phone, when he’d told them to write.

Denny wasn’t happy that his debt had been sold, as well as with the fact the debt collector was now contacting him. He thought the lender had acted illegally by giving his details to a new company. Because of all this, he was refusing to speak to the debt collector – and thought he should get compensation for the treatment he’d received.

putting things right

We asked Denny for copies of his loan paperwork. The credit agreement clearly said – in line with what’s normal for this type of agreement – that the lender could share Denny’s information for debt collecting purposes, and to sell or transfer Denny’s account. So we didn’t think they’d acted unfairly in selling his debt.

Denny told us that he’d blocked the debt collector’s number from his phone, because he’d told them they should only contact him by letter. He said he’d written to the debt agency to explain his concerns, and had asked them pass his account back to the doorstep lender.

We asked the debt collection agency for their call records. They provided these, pointing out they’d only contacted Denny once a day, at most. He hadn’t answered any of the calls – and they didn’t think they’d acted unreasonably in keeping on trying.

We pointed out that Denny had specifically asked to be contacted by letter only – and whether he was answering calls wasn’t relevant, as they shouldn’t have phoned him at all. As the calls had continued after Denny had made his request, the agency had breached the FCA’s debt collection guidelines.

We explained to Denny that the debt would remain with the agency. However, we agreed they’d acted unfairly – and told them to pay compensation in our moderate band for the upset they’d caused by the unwanted calls. We encouraged Denny to work constructively with the agency to clear his remaining balance.

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“I was put on a repayment plan, and now it’s affecting my chances of getting a mortgage.”

Aaron asked us to resolve a dispute he was having with his credit card company.

He said he’d asked the company for help with his debts and they’d put him on a reduced payment plan for 12 months. A couple of years later, he’d been turned down for a mortgage – and he believed this was down to the notes the credit card company had put on his credit file.

Aaron said if he’d known about the impact that the repayment plan would have on his credit history, he wouldn’t have agreed to it in the first place. So he wanted us to make the card company amend his credit file.

how we helped

We asked the credit card company for their records about Aaron’s account. From these, we could see he’d been in regular contact with the company before his repayment plan had started – to discuss his financial circumstances and how he was struggling to pay what he owed.

The file notes also showed that, on more than one occasion, the card company had explained to Aaron that his agreement to a repayment plan had prevented them from having to issue a default notice against him. The company had also explained they would still be recording any late or reduced payments – and that they had a responsibility to report the status of his account to credit reference agencies.

Aaron said he’d gone back to the card company a few months later when his financial position had improved – to ask if he could now make overpayments on his account. The card company had said he could, but that his repayment plan would end early.

We considered everything that had happened. In our view, if the credit card company hadn’t offered to reduce Aaron’s repayments, it was likely he’d have incurred a default. We explained to Aaron that this would have had a more severe impact on his credit file than the recording of his repayment plan.

Based on what we’d seen, we concluded that the credit card company had clearly communicated Aaron’s options – and had taken the action they should have as soon as they knew about his circumstances, including freezing interest and charges on his account.

We were sorry about the trouble Aaron was having with his mortgage, but the credit card company wasn’t at fault. So we didn’t uphold his complaint.

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“We asked for some time to sort out my friend’s loan and overdraft debt – but the bank won’t stop chasing him for the money”

Saira contacted us on behalf of her friend Toby, who wanted to complain about his bank.

She said Toby had been struggling with his finances for several months, and had ended up in a hospital, receiving treatment for severe depression and anxiety. Saira told us that Toby had phoned his bank about the overdraft and loan he had with them, including asking for some time to sort out his finances.

However, Toby had continued to receive calls, texts and letters threatening him with court action if he didn’t pay his debts. In Saira’s view, this had made Toby’s mental health worse – to the point he’d told her he was having suicidal thoughts. She asked us to step in and make the bank treat him fairly.

how we helped

We contacted the bank’s vulnerable customer team to discuss Toby’s situation – including the approach to collections that Saira had concerns about.

The bank confirmed they’d put a payment break on Toby’s account after he’d called them. But they said they hadn’t known the full picture of Toby’s situation until we got involved. So they didn’t think they’d done anything wrong in continuing to contact him.

Looking at the bank’s records, we could see Toby had mentioned the impact that being contacted so frequently about his debt was having on his mental health. He’d specifically asked for a break from the communications to help him recover. And he’d told the bank he was working with a free debt charity, who’d be in touch with them once the payment break was over.

The bank had offered Toby a payment break, as well as telling him they’d frozen the interest and charges on his account. However, there was no evidence they’d done anything to respond to his concerns about their communication with him – or to support him in any other way with the problems he’d shared with them.

We told the bank that, from what we’d seen and heard, it seemed Toby was focused on resolving his debts – and had done the right thing in asking his bank for help. However, the bank had let him down. And their failings had caused significant additional problems for Toby, when he was already having trouble.

We told the bank to pay compensation from our substantial range. The bank also apologised to Toby and said they would write off his debt in full.

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“I’m receiving debt collection letters – but the debt doesn’t belong to me”

Wei complained to us that a debt collection company had been chasing him for money relating to a bank overdraft.

Wei told us he’d previously had an account with the bank in question – but he’d closed it several years ago. He said he was sure the debt wasn’t his, and was upset the bank seemed to have shared his personal details with debt collectors without permission.

Wei said he’d asked the bank to remove the debt from his name and stop the debt collectors contacting him. He’d also asked for compensation for the trouble they’d caused.

However, the bank was insisting the debt belonged to Wei – and now he wanted us to step in.

how we helped

We asked the bank for all its records relating to Wei’s account. From these, we could see that Wei had complained to the bank about the same debt before. And he’d brought a complaint to the ombudsman at that time.

During Wei’s previous complaint, he’d mentioned a different debt collection agency than the one he was saying was involved now. Back then, his bank account had still been open – and Wei hadn’t disputed that the debt belonged to him. And to resolve the complaint, the bank had agreed to allow Wei to pay off his overdraft debt in small monthly payments.

We asked the bank what had happened to the debt since then. The bank confirmed that Wei had failed to keep up his reduced payments – and the debt had been passed to one third party debt collector, and then another. The bank showed us copies of the letters they’d sent to Wei’s address – and in our view, these clearly explained what was happening, both during the time Wei’s bank account was open and during each of his complaints.

Given everything we’d seen, we concluded the debt belonged to Wei. We explained to him that the bank hadn’t done anything wrong, and encouraged him to work with the debt collectors to repay what he owed.

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Image: ombudsman news 147

ombudsman news gives general information on the position at the date of publication. It is not a definitive statement of the law, our approach or our procedure.

The illustrative case studies are based broadly on real-life cases, but are not precedents. Individual cases are decided on their own facts.