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ombudsman news

issue 81

November/December 2009

recent complaints involving debt-collecting businesses

Since April 2007, the ombudsman service has covered complaints made by consumers against debt-collecting businesses acting for consumer credit lenders. Under our rules, a complaint can be brought by any consumer from whom the debt collector attempts to recover the consumer credit debt - not just by the person named on the credit agreement. As with all the complaints we deal with, the consumer should first raise the matter direct with the business - which is allowed up to eight weeks to try to resolve the problem.

In some of the complaints we see, consumers say they are being chased for a debt owed by someone else - because the debt-collecting business has not taken enough care about tracing the right person. In cases like this, we expect the business to be able to show us clear evidence that they are indeed seeking repayment from the correct person.

Other complaints may involve a dispute between the consumer and the debt-collecting business about the amount owed. Again, we would expect the debt-collecting business to be able to produce clear evidence, proving how the debt has accrued. Sometimes, debt-collecting businesses tell us they are unable to do this because they were not given sufficient information by the original lender. This does not alter the fact that the debt-collecting business has a duty to be able to show it is asking for the right amount of money. That is, after all, what it would be required to do if it attempted to recover the debt through the courts.

Some of the complaints brought to us concern the way in which a business has gone about collecting a debt. The consumer may, for example, say that the business has pursued them in an oppressive or unreasonable way. When looking at such complaints, we take into account whether the business has kept properly to the relevant Office of Fair Trading guidelines, and has not breached industry codes, such as the Credit Services Association Code of Practice. We expect businesses to keep proper records of their visits to consumers - and of their written and phone communications with them - and to be able to produce relevant records to support their case, if a complaint is made against them.

Arriving at a fair agreement for the repayment of a debt will always be a two-way street. The debt-collecting business must take a realistic and proportionate approach to the consumer's proposals. Equally, the consumer must be willing to engage in the process and should not simply ignore reasonable requests to provide a proposal showing how they intend to repay the debt. In some of the complaints we see, difficulties have arisen (or escalated) because the consumer has been advised - inappropriately - not to communicate at all with the debt-collecting business.

Where we decide that a debt-collecting business has not dealt reasonably with a consumer, we will normally tell it to pay appropriate compensation as redress (and we may direct that this should be used to reduce the debt). However, we will not normally conclude that the debt should simply be written-off. In some cases we have found it difficult to achieve a prompt, fair settlement because the consumer's representative has advised them to accept nothing less than a complete write-off of the debt.

Sometimes a consumer (or their representative) asks us to declare a debt legally unenforceable, on the grounds of some alleged legal technicality, even though there is no dispute over the size of the debt - and no complaint that the financial business has behaved at all unfairly. The law requires us to decide cases on the basis of what is fair and reasonable - and we are unlikely to decide it would be fair and reasonable to agree to such a request. This does not prevent the consumer asking a judge to consider these points if the lender seeks to enforce the debt in court.

The following selection of cases illustrates some of the complaints we have dealt with recently involving debt collecting.

consumer complains of aggressive and unreasonable behaviour by debt-collecting business

Mr M's credit card debt of just under £2,400 was passed on to a debt-collecting business by the lender, after Mr M fell seriously behind with his repayments.

Initially, the business contacted him by letter. He responded through his representative, Mrs K, who worked at a local debt advice agency. She told the business that Mr M proposed paying off the debt by making regular monthly payments of £16. This was the same amount that until then he had been paying to the lender. However, the business said the minimum it would accept was £28 a month.

Mrs K asked Mr M to make an appointment to come and see her, to discuss whether that sum would be affordable. Meanwhile, he made a payment of £16. As soon as it received that payment, the business wrote to Mr M. It said he must now pay off the debt in full, as he had paid less than the required monthly amount. After Mrs K contacted the business, it agreed to accept monthly payments of £28. For the next five months, these payments were made as arranged. The following month, however, a payment of only £15 was sent - apparently because of an error on Mrs K's part.

The business then phoned Mr M. He later complained that it had threatened him with bankruptcy unless he gave his debit card details over the phone, so that the business could take a payment there and then to cover the entire balance of the debt.

After speaking to Mrs K, he complained to the business. He said its attitude had been aggressive and threatening - and that forcing him to pay off the entire debt had left him in considerable difficulties. The debit card payment had used up all the money in his current account. He had been obliged to borrow from friends in order to pay for essentials and was unable to make any of his regular payments to other creditors.

The business told him he had no grounds for complaint. It said his other commitments were not its responsibility - and the fact that he had been able to pay off the debt with his debit card "proved" that he could easily afford the amount involved. Mr M then referred his complaint to us.

complaint upheld
We asked the business for details of all its communications with Mr M, including recordings of phone conversations. After listening to the call during which the business had taken Mr M's debit card details, we agreed with Mr M that the business had behaved in an aggressive and unreasonable manner. We thought that if it had simply told him it had received a smaller repayment than expected - and given him the chance to look into why this had happened - he would quickly have brought the repayment up to the correct amount.

It was clear from the recording that Mr M had provided his debit card details reluctantly, under threat of bankruptcy. He had told the business that if it took such a large payment he would be left with no money for essential expenses - and would be unable to meet agreed commitments to other creditors. Mr M's bank statement confirmed that this was indeed the position.

We upheld the complaint. We pointed out to the business that as well as treating Mr M unfairly, it had also breached the regulatory guidelines and relevant industry codes. We required it to pay Mr M £500 to reflect the distress and inconvenience it had caused him.

Normally, where we uphold a complaint, we aim to return the consumer to the position they would have been in, if the business had acted correctly. In this case, that would have meant directing the debt-collecting business to return Mr M's money and reinstate his repayment arrangement of £28 a month. However, we agreed with Mr M's request to leave the debt fully repaid. He told us he was anxious to avoid the possibility of "more hassle" if there were any further mistakes or misunderstandings with his repayments. He said he would repay the money he had borrowed from his friends, and make up the missing repayments to other creditors, as and when he could.

consumer argues that his debt should be declared unenforceable and his payments refunded

Mr C, who owed a consumer credit debt, failed to respond to a statutory demand for payment. The lender therefore instructed a debt-collecting business to recover the money through the courts.

Shortly before the date set for the court hearing, Mr C sent the debt-collecting business two cheques. The business then arranged for the hearing to be adjourned. Each of Mr C's cheques was for £1,800 and the total sum covered the full amount he owed, together with costs. One of the cheques could be paid in right away, the other was post-dated to six weeks later.

A few weeks after sending the cheques, Mr C wrote to the business and asked for a full breakdown of the costs, together with a copy of the consumer credit agreement relating to the debt. The business responded promptly, sending him a breakdown of the costs and explaining that it had contacted the lender and asked for a copy of the agreement.

Two weeks later, Mr C's second cheque was presented for payment on its due date. Mr C then complained to the business that it had "wrongly engaged in debt collection" while the debt was in dispute. He said that because the debt-collecting business had failed to provide him with a copy of the original agreement - the debt was unenforceable. The business should therefore return the money from the two cheques - and should not ask him to make any further payment.

The business did not accept that it had been "wrongly engaged in debt collection" when banking Mr C's post-dated cheque. Nor did it accept that the debt had been in dispute at that point. Unhappy with this response, Mr C brought his complaint to us.

We agreed with Mr C that the business had been carrying out the activity of debt-collection when depositing his second cheque for payment. However, we did not agree that the debt was in dispute at the time. Mr C had written to ask for a copy of the original agreement, but there was nothing in that request - or in any of his previous communications with the business - to indicate that he disputed the debt.

We did not consider that the business had done anything wrong in depositing Mr C's cheque. It was certainly the case that the business was unable to enforce the debt in court until it had produced a copy of the agreement. However, we could not see that it was prevented from paying in the cheque that Mr C had already given it. After we had discussed the situation with Mr C, he told us he wished to withdraw his complaint.

debt-collecting business fails to honour its offer of a discount for early settlement

A debt-collecting business wrote to Miss H about her debt of £1,450 that it had been instructed to collect on behalf of a catalogue company. A few days after receiving this letter, Miss H rang the business during her lunch break at work.

After discussing various repayment options with her, the business agreed to accept £1,280, in full and final settlement of the debt. Miss H then gave the business her debit card details, so it could take her payment of that amount.

When she arrived home that evening, Miss H found she had been sent a mail-shot by the debt-collecting business. Dated two days earlier, the mailing offered "50% discount for early settlement" of her debt. Miss H then complained to the business. She said it was guilty of "sharp practice" in asking for £1,280, as it must have known that the mailing was on its way to her. The 50% discount would have enabled her to pay off the entire debt for £725. She therefore asked for a refund of £555, the difference between this sum and the amount she had just paid.

The business refused to do this. It said she had already received a discount - as the sum she had paid was less that the amount she actually owed - so she could not now claim any additional reduction. Miss H then referred her complaint to us.

complaint upheld
We listened to a tape recording of the conversation between the business and Miss H, when the business had discussed payment options and taken her payment for £1,280.

During that call, Miss H had made it clear that her financial resources were very limited and that she was keen to negotiate the best reduction possible, in return for settling the debt right away. Before agreeing to pay £1,280, she had asked if that was the lowest figure the business was prepared to accept, in full settlement of the debt. The business had confirmed that it was.

We upheld the complaint. We told the business it had treated Miss H unfairly and that it should send her a refund of £555.

consumer complains of harassment by debt-collecting business

A debt-collecting business rang Mr D and asked how he proposed to settle his credit card debt. He told the business that he would consider the matter once it had sent him a copy of the consumer credit agreement for the credit card. Mr D also said that he did not wish to have any contact with the business by phone, so it should only communicate in writing.

Some weeks later, Mr D wrote to the business. He noted that it had still not sent him the copy of the agreement he had asked for. And he complained that it was continuing to "harass" him by phoning him. He believed he was therefore entitled to have the entire debt written-off. He also asked the business to compensate him for the "harassment" and to remove all adverse credit reference information that it had registered in relation to the debt. When the business refused, Mr D brought his complaint to us.

complaint upheld in part
There was no dispute about the size of the debt. And we noted that the business had been prepared to accept regular monthly repayments, rather than expecting Mr D to pay off the entire amount immediately. So we did not agree with Mr D that it would be fair and reasonable for the business to write-off the debt. Similarly, we saw no reason why the business should remove the credit reference information registered about the debt, as this was an accurate record of the situation.

The business sent us the recordings of its phone calls to Mr D. Each call was very short, because Mr D had put the phone down as soon as he realised who was calling. Mr D told us he had been advised by someone on an internet forum that his loan was probably unenforceable and that he should ignore any requests to repay it. Mr D accepted that he had not helped matters by following this advice. He also accepted that he needed to agree a repayment plan with the business and start paying off the loan.

We told the business it should have respected Mr D's request not to contact him by phone. The fact that Mr D had continued to receive regular phone calls appeared mainly to have resulted from poor internal communication at the business. However, it was also clear that the business was frustrated by Mr D's failure to respond to any of its attempts to communicate with him, whether by phone or by letter.

We pointed out to Mr D that the business had not spoken to him in an improper manner or attempted to put any pressure on him to pay the debt. It had offered to pay him £50 for the inconvenience caused by its continuing phone calls. We told him we thought this was fair.

When he brought his complaint to us, Mr D asked us to provide a legal determination on the correct meaning of certain technical provisions of the Consumer Credit Act (as amended in 2006), which had not yet been tested in the courts. We explained why we were unable to do this. Our role, as an informal dispute-resolution service, is to decide cases on the basis of what is fair and reasonable. It is not part of our role to provide general opinions on legal matters - or to answer hypothetical questions on the meaning of parts of the law.

consumer goes abroad leaving credit card debt unpaid and providing no forwarding address

Mr G had power of attorney for his daughter, Mrs C, who was working abroad. He was surprised when a letter for his daughter was sent to his address, as she had never lived there and had not asked anyone to forward mail to her there.

After opening the letter, which had been sent by a debt-collecting business and concerned a credit card debt, Mr G rang the business. He asked how it had obtained his address - and why it had sent the letter there. The business told him it had not had any contact from his daughter for some time and it believed she had moved abroad without leaving a forwarding address. After arranging a "trace" to try and establish her whereabouts, it had discovered that she stayed with her father for a short period before going abroad.

Mr G sent the business proof that he held power of attorney for his daughter. He then asked it to send him statements of her account, so he could satisfy himself that the debt was indeed his daughter's responsibility. The business agreed to do this, but it was nearly three months before it sent Mr G the statements.

Mr G found no reason to doubt that his daughter was responsible for all the transactions listed on the statements. However, he pointed out to the business that none of the transactions had been made within the past year or so. And he said that as his daughter had long since moved away from the address the credit card company held for her, she would not have received any statements for some while.

He offered to pay £200, in full and final settlement of the debt. The business thought that was insufficient, as the debt currently stood at around £2,300. However, it said it was prepared to discuss repayment options with him, if he wanted to pay off the debt on his daughter's behalf.

Mr G then complained that the business was being unreasonable in not accepting his offer. He also asked for compensation for its delay in sending him copies of the statements.

complaint not upheld
We accepted that Mr G thought his offer of £200 was generous in the circumstances - given that Mrs C had moved abroad and was apparently not prepared to pay anything towards the debt.

However, we explained that the business was under no obligation to accept that offer. It had been willing to discuss reasonable repayment arrangements, if Mr G wished to pay the debt on his daughter's behalf. However, the business had made it clear that it was dealing with him solely in his capacity as power of attorney for his daughter. It had not at any time suggested that he was liable for the debt - and had not asked him to pay it.

We agreed that the business had taken a long time to get the statements to him and had been unable to provide a clear explanation for the delay. However, in the circumstances we did not think it would be fair or appropriate for the business to pay him any compensation.

We noted that it had, correctly, supplied him with the information he required in order to check the validity of the debt. And it had not taken any steps to pursue payment before (or indeed after) he had received that information. We did not uphold the complaint.

debt-collecting business pursues the wrong person for payment of a debt

Mrs V was surprised to receive a letter from a debt-collecting business about a consumer debt of £715 that it said she owed to a loan company. She could not recall having had any dealings with that company. And she thought it strange that the letter had been sent to her current address, as the business had used her maiden name of Miss J. She had not used her maiden name since her marriage some years earlier, and she had only recently moved to her current address, where she was registered as Mrs V.

She called the business and asked if there had been some mistake, as she was sure she had never taken out the loan in question. The business quoted the address where it said she had been living when she took out the loan. She told the business that was "proof" that it was pursuing the wrong person, as she had never lived at that address. She offered to send the business copies of her birth and marriage certificates, together with evidence of the length of time she had lived at her current and previous addresses.

The business agreed to look at anything she wished to send, but said that in the meantime she must make a payment towards the debt. Mrs V refused to do this. She said that once it saw her documents, it would realise she was not the person who owed the debt.

However, even after it had received Miss J's documents, the business continued to make regular phone calls, asking her to pay the debt. She then complained to us.

complaint upheld
There was nothing at all unusual about either Mrs V's first name or her maiden surname. We pointed this out to the business and asked what checks it had made to establish that Mrs V and the Miss J who owed the money were the same person. The business was unable to provide any clear answer to this question.

We were satisfied that Mrs V had taken a reasonable approach to the matter, and had been quick to offer convincing proof of her identity. It was evident, from the recordings provided by the business, that its phone calls to Mrs V had not been aggressive or threatening in nature. However, we told the business that we did not consider it had behaved reasonably in continuing to try to collect the debt from her.

The business offered to pay Mrs V £100, to compensate her for the distress its actions had caused. It also undertook to write to her, confirming its clear understanding that there was no connection between her and the Miss J who owed the debt. And it provided written assurance that it had not registered any credit reference information against Mrs V's name, in relation to the debt. We considered that to be a fair outcome, and Mrs V was happy to settle on that basis.

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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.