Debt collection agencies use “fear and ignorance” to make a profit

April 23, 2009 at 10:20 am Leave a comment

by James Easy

In the Commons adjournment debate yesterday, Andrew Mckinlay, Labour MP for Thurrock, insisted that both the Office of Fair Trading (OFT) and Parliament needed to do more to combat the spate of financial companies and debt collection agencies using “abysmal methods” to extract money from their debtors.

He argued that, at present, there were wholly inadequate safeguards against such behaviour, and that in the last three years alone the OFT have received around 25,000 complaints from consumers about their treatment at the hands of these numerous companies, many of which are household names, e.g. E-On, 3 and The Bank of Scotland.

Of the 25,000 complaints, he continued, only four were followed through with “serious formal action”, which included such consequences as the revocation of trading licences.

The issue has been boiling slowly over time, and has the potential for even greater coverage.

Mr McKinlay said the Sunday Times had recently investigated and produced an article on the Lloyds Banking Group whose staff were threatening to put the “frighteners” on and to “f***” customers that owed them money.

He also told us how the consumer affairs programme on Radio 4 “You and Yours” also devoted an episode to the problem.

It highlighted the case of a woman whose terminally ill husband had been bombarded with insensitive automated telephone calls by the Bank of Scotland.

The MP then told us of another case which involved a woman who was called six times a day while at work – behaviour which is in clear breach of the OFT regulations.

He continued that in such cases, the behaviour of these companies is not only breaching the OFT’s regulations but also the “spirit” of the banking code.

He stressed that there should be a lower threshold for harassment in the law and perhaps, “an alternative offence to protect and promote the interests of vulnerable people”.

He also proposed that the OFT be enabled to “order a stop notice that suspends debt collection activities if it becomes aware of a case in which…there is a breach of guidelines and/or clearly a dispute about whether a debt exists”.

John Leech MP, the Lib Dem for Manchester Withington, was allowed a brief interjection by Mr. McKinlay, which he used to give further insight to something the Thurrock MP had mentioned, namely that some companies tend to use in-house solicitors who masquerade as independent in order to scare people into action.

This point was duly affirmed by McKinlay and prompted him to condemn the debt collection industry as “rotten to the core”, and ask the Minister for Trade, Development and Consumer Affairs (Gareth Thomas MP) to introduce legislation to prevent the sale of debt by banks/financial institutions to external agencies, particularly in situations where there is a dispute as to whether that debt is valid.

His final requests were that the Minister takes measures to stop automated dialling and that better steps should be taken to “minimise the trauma for people who have a debt, but cannot pay”.

The Minister confirmed that this issue is one that “is being taken extremely seriously”, and particularly so in light of the 2007 case of Derbyshire grandmother Beryl Brazier, who took her own life after she was hounded “for the debt of a man with whom she was not connected”.

He said that this case highlighted the “appalling errors” that are present in the industry when concerning the transfer of background facts and data of debts from company to company. These failures, he said, were not just against the law, but “unforgivable”.

Regarding what action has already been taken, the Minister said that new powers introduced by the Consumer Credit Act 2006 and implemented in April 2008 have helped the OFT in tackling many of the issues raised in these cases.

They now have powers to “take into account a company’s competence lawfully to carry on credit activities when assessing its fitness to be given or to retain a licence”.

He continued: “The OFT must also, when determining whether a licensee is fit to hold a licence, consider any evidence of the licensee being engaged in business practices that appear to be deceitful, oppressive or otherwise unfair or improper.”

Mr. McKinlay interrupted, asking Mr. Thomas how the new provisions can stop company directors simply dissolving companies and constituting new ones in order to “get around” the situation, to which he didn’t receive a clear answer.

The Minister, who seemed to accept Mr. McKinlay’s general contention that more needs to be done, said that the Credit Services Association (the main trade association in the sector) had agreed to his request to offer debtors advice and a 30-day “breathing space” to sort themselves out, and a similar measure had also been successfully introduced in the credit card sector.

In closing, he confirmed that a forthcoming White Paper on consumer affairs will address the issue further.

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