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Debt Advice Handbook 14th edition

Dealing with harassment
Many creditors harass debtors. Much of this goes unreported and unchallenged, and is expected by many clients. Section 40 of the Administration of Justice Act 1970 defines harassment as trying to coerce a person to pay a contract debt by making demands for payment that are calculated to subject a person to ’alarm, distress or humiliation, because of their frequency or publicity or manner’.
Harassment can take place in writing or orally. It can include using obviously marked vehicles, calling repeatedly at antisocial hours, or visiting neighbours or places of work. Harassment occurs if a debt collector purports to be enquiring about a person, but explains to neighbours why the enquiries are necessary. Harassment might also include posting lists of debtors in public. It includes abusive or threatening behaviour and all acts of violence. Any false representation that a type of non-payment is a criminal offence or that a person is a court official or other publicly sanctioned debt collector is also regarded as harassment.
Harassment is not a criminal offence but could give rise to civil action.1As in Roberts v Bank of Scotland (Adviser 160 abstracts)
Because much debt collection activity takes place verbally over the phone, at the client’s home and sometimes at her/his place of work, you should always ask how demands were made and exactly what was said, and check all written communication for evidence of inappropriate behaviour.
It is important to take urgent action to protect the client from further contact. Send a letter of complaint immediately, outlining the facts as understood and warning the collector and creditor that, if not resolved to the client’s satisfaction, the complaint will be taken to the next level. In cases of violence or extreme harassment, inform the police and the local trading standards department as soon as possible.
Note: feedback from creditors suggests that many advisers do not act professionally when making complaints on behalf of clients – eg, by using rude, abrupt and sarcastic language. In addition, hearsay evidence is often reported as fact instead of, for instance, ’our client informs us that…’. The complaint letter should be objective and factual, and not personalised (unless the complaint is about the actions of an identified individual).
Next, advise the client to have no further contact with the collector or creditor until the matter has been clarified. This may involve politely, but firmly, refusing her/him entry to property or not answering the telephone. Advise the client to keep a diary recording details of any further attempted collection action. If possible, take practical steps to ensure that the client’s friends, neighbours or relatives know about serious harassment and are able to provide a safe haven or support to them. Some agencies give clients a sheet of their letterhead, and advise them to show this to any collectors or creditors who visit and tell them to contact the agency.
 
1     As in Roberts v Bank of Scotland (Adviser 160 abstracts) »
The Consumer Credit Sourcebook
The Office of Fair Trading’s Debt Collection Guidance and Irresponsible Lending Guidance were indispensable for debt advisers, as they set out practices which the Office of Fair Trading considered to be unfair, and provided advisers with the basis for challenging unacceptable behaviour. The guidance covered anyone engaged in the recovery or enforcement of regulated consumer credit debts – ie, any credit agreement other than an exempt agreement (see here). Much (but not all) of the guidance is now in the FCA Handbook, in the Consumer Credit Sourcebook (usually referred to by the abbreviation CONC) as rules (R) and guidance (G).
Where the source for a Financial Conduct Authority (FCA) rule or guidance is Office of Fair Trading guidance, this is cross-referenced in the Consumer Credit Sourcebook. Office of Fair Trading guidance ceased to have effect on 1 April 2014 and so any part not carried over into the Consumer Credit Sourcebook cannot be relied on as the basis for a complaint.
Chapter (or Section) 7 of the Consumer Credit Sourcebook applies to creditors or external debt collectors taking steps to obtain payment of a debt due under a credit agreement. It covers:
    clear, effective and appropriate arrears policies and procedures for dealing with clients who fall into arrears, including for the fair and appropriate treatment of clients who are particularly vulnerable (CONC 7.2);1fca.org.uk/publications/guidance-consultations/gc20-3-guidance-firms-fair-treatment-vulnerable-customers
    the treatment of clients in default or arrears, particularly the requirement to treat clients fairly (CONC 7.3);
    the requirement to provide clients with information about the amount of any arrears and the outstanding balance (CONC 7.4);
    pursuing and recovering repayments (CONC 7.5);
    exercising a continuous payment authority – ie, a mandate given by the client to, for instance, a lender, allowing it to take a series of payments from a debit or credit card without seeking express authorisation for every payment (see here) (CONC 7.6);
    applying interest or charges (CONC 7.7);
    contact with clients (CONC 7.9);
    the treatment of clients with mental capacity limitations (CONC 7.10);
    misrepresenting the authority or the legal position with regards to the debt or the debt recovery process (CONC 7.11);
    creditors’ responsibilities in relation to debt (CONC 7.12);
    data accuracy (CONC 7.13);
    settlements and disputed debts (CONC 7.14);
    statute-barred debts – ie, those that are too old to be recovered (CONC 7.15).
Specifically, the guidance states the following.
    If a creditor informs a client that it has decided not to pursue the debt, it must make her/him aware that the debt may still be sold by the creditor and the debt purchaser might decide to pursue the debt. Note: if the creditor has accepted a payment in full and final settlement of a debt, the creditor must formally and clearly confirm this (CONC 7.4.2R and 7.14.14R).
    A creditor must investigate if a debt is disputed on valid grounds or what may be valid grounds (eg, if the client is not the debtor, the debt does not exist or the amount being pursued is incorrect), and must provide information on the result of such investigations (CONC 7.14.3R and 7.14.5R).
    Creditors must not require someone to supply information to prove s/he is not the debtor in question (CONC 7.14.4R).
    Creditors must suspend debt collection activity if a client disputes the debt on valid grounds, or what may be valid grounds (CONC 7.14.1R).
    A creditor should not make undue, excessive or otherwise inappropriate use of statutory demands when seeking to recover a debt from a client (CONC 7.3.15G).
    Creditors must treat clients in default or in arrears difficulties with forbearance and due consideration (CONC 7.3.4R).
    If a client is in default or in arrears difficulties, a creditor must inform her/him that free and impartial debt advice is available from the free-to-client debt advice sector and refer the client to an agency. It appears that it is sufficient for a creditor to signpost a client to a debt advice agency or to the Money Advice Service by providing its name and contact details to the client (CONC 7.3.7AG).
    Creditors must not pressurise clients to pay a debt in a single lump sum or more than they can reasonably afford and must allow alternative, affordable repayment amounts if a reasonable offer is made (CONC 7.3.8G and 7.310R). Putting clients under pressure to draw a lump sum from a pension in order to pay a debt is likely to breach these requirements (CONC 7.3.10AG).
    Creditors must suspend recovery of a debt from a client for a reasonable period (ie, 30 days) if a debt adviser is assisting her/him to agree a repayment plan (CONC 7.3.11R and 7.3.12G) and should consider extending this for a further 30 days if there is evidence of reasonable progress (CONC 7.3.11R and 7.3.12G). When determining a reasonable period, creditors may take into account any period the debt was subject to a Breathing Space moratorium (CONC 7.3.12) (see here).
    Creditors must suspend recovery of a debt from a client if notification has been given and it is reasonably believed that s/he lacks the mental capacity to make decisions about her/his debt problems, unless or until a reasonable period has been allowed for relevant evidence to be provided (CONC 7.10.1R and 7.10.2G).
    Creditors must take reasonable steps to ensure that customer data is accurate and that accurate and adequate data is passed on to third parties, such as debt collectors, debt purchasers and credit reference agencies, to avoid cases of ’mistaken identity’ (where the wrong person is pursued for payment of a debt) and to ensure that clients are pursued for the correct amount of any debt (CONC 7.13).
    In relation to statute-barred debts (see here), CONC 7.15 acknowledges that, although the debt still legally exists, a creditor must not:
      pursue the debt if the client has heard nothing from the creditor during the relevant limitation period (but not if the creditor has been in regular contact with the client before the debt became statute-barred);
      mislead clients about their rights and obligations – eg, by falsely claiming that the debt is still recoverable through the courts;
      continue to press for payment after a client has stated that s/he will not be paying a debt because it is statute-barred.
The detailed rules and guidance set out above are underpinned by a set of principles known as the Principles of Business (PRINC), which are set out in the FCA Handbook. Principle 6, which requires creditors to ‘pay due regard to its customers’ interests and ensure they are treated fairly’, is of particular significance when creditors are dealing with clients in financial difficulties and arrears. It requires a proper investigation of the client’s personal circumstances, including what they can truly afford to repay and whether the client is a vulnerable person so that any payment arrangements agreed are appropriate. In 2019, the FCA published an initial consultation setting out its view of what these principles required of creditors to ensure they treat customers fairly. The consultation included draft guidance. This took place before the onset of the coronoavirus outbreak. The FCA published a further consultation and updated draft guidance in late 2020, and expects to publish the final guidance early in 2021. In January 2021, the FCA reminded debt purchasers and debt collectors that the requirement to treat customers fairly applied equally to them as to the original creditor.
In February 2021, the FCA published its finalised guidance on the fair treatment of vulnerable customers with the stated aim of ensuring that vulnerable customers are treated fairly and that they experience the same outcomes as those of other customers. The FCA defines ‘vulnerable customers’ as: ‘customers who, due to their personal circumstances, are especially susceptible to harm, particularly when a firm is not acting with appropriate levels of care’. The guidance sets out six areas the FCA believes creditors should focus on:
    Understanding the nature and scale of their customers’ potential vulnerabliities and the impact of vulnerability on their needs.
    Training staff to identify phrases and behaviours that suggest customer vulnerability and then direct them to appropriate sources of assistance.
    Considering vulnerable customers at all stages of product and service design.
    Providing customer service processes that enable vulnerable customers to disclose their needs and responding flexibly.
    Ensuring communications are understandable by all consumers, taking into account the needs of vulnerable customers – eg, chice of communication channels.
    Monitoring and evaluating whether the needs of vulnerable customers have been met.
The guidance also points out the relevance of the Equality Act 2010 and that a breach of the Act is likely to be a breach of FCA rules and principles – eg, the requirement to make reasonable adjustments for a client with a disability. The FCA says it intends to review the impact of this guidance within two to three years. The guidance can be found at: fca.org.uk/publication/finalised-guidance/fg21-1.pdf. Following a seminar held by the FCA in May 2021 to help creditors understand their role in treating vulnerable customers fairly, the FCA published a set of frequently asked questions which can be found at: fca.org.uk/publication/documents/guidance-fair-treatment-vulnerable-customers-faqs.pdf?mc_cid=886bfa499f&mc_eid=e2ce419d14.
Breaches of the FCA Handbook should first be raised with the creditor and debt collector concerned. If the matter is not resolved, the client should use the complaints procedure to escalate the matter to the Financial Ombudsman Service.2Ombudsman News 99, 2012 contains a number of case studies involving debt collection, which are covered in Arian 35 caselaw update and Adviser 150 abstracts. See also Ombudsman News 114, 2013 and Arian 47 caselaw update. See also V Seetal, ‘Debt Collection Complaints and the Financial Ombudsman Service’, Quarterly Account 54, IMA. Also raise the issue with the appropriate trade body (eg, the Finance and Leasing Association or the regulator – eg, the FCA).
 
2     Ombudsman News 99, 2012 contains a number of case studies involving debt collection, which are covered in Arian 35 caselaw update and Adviser 150 abstracts. See also Ombudsman News 114, 2013 and Arian 47 caselaw update. See also V Seetal, ‘Debt Collection Complaints and the Financial Ombudsman Service’, Quarterly Account 54, IMA. »
Codes of practice
Many creditors have their own codes of practice. For example, all gas and electricity suppliers must have a code of practice on dealing with customers in financial difficulty. Other creditors subscribe to trade associations, which have codes of practice with which members should comply – eg, the Finance and Leasing Association Lending Code, the Credit Services Association Code of Practice and the Lending Standards Board’s The Standards of Lending Practice. Some regulators (eg, the FCA, Ofwat and Ofgem) issue guidelines on how to deal with customers in debt. There is also guidance for bailiffs in Taking Control of Goods: national standards.1Ministry of Justice, Taking Control of Goods: national standards, updated April 2014. Although not legally binding, any relevant paragraphs are useful industry guidance which can be referred to in any complaint. See also Ali and Aslam v Channel 5 Broadcasting [2018] EWHC 298 (Ch) at para 54.
All these codes set high standards, which creditors and collectors are expected to meet in their dealings with clients. The Standards of Lending Practice also requires subscribers to ensure that when they sell a debt, the purchaser agrees to comply with its guidance on handling financial difficulties. The Finance and Leasing AssociationLending Code contains equivalent provisions. Although creditors and collectors often fall short of the standards set in the relevant code of practice, they are voluntary and cannot be directly enforced in the event of non-compliance. The only remedy is a complaint, which in some cases can be referred to an independent Ombudsman (see here).
This Handbook refers to codes of practice where relevant. It is often in a client’s best interests to point out to a creditor or collector where there is non-compliance with a code of practice and request that it be complied with. In the case of collectors (and private bailiffs), it is also worth copying in the creditor. This does not mean that a complaint should be made in every case. The aim of a complaint should be to achieve a better outcome for the client than currently appears likely and so, if a complaint is likely to impede rather than promote negotiation, you should discuss this with the client and consider deferring it.
 
1     Ministry of Justice, Taking Control of Goods: national standards, updated April 2014. Although not legally binding, any relevant paragraphs are useful industry guidance which can be referred to in any complaint. See also Ali and Aslam v Channel 5 Broadcasting [2018] EWHC 298 (Ch) at para 54. »
Clients with mental health problems
There is a clear link between debt and mental health issues. According to the Royal College of Psychiatrists, it has been estimated that one in four adults living in the UK experience a mental health problem every year. When combined with financial difficulties, mental health problems can affect not only the individuals concerned, but also the organisations with which they have relationships.
Many mental health conditions have no physical signs, and fluctuations in the severity and effects of an illness are common. In many cases, creditors are not aware that there is a mental health issue until payments have been missed and the collections process has reached an advanced stage. Even then, it may not be apparent whether the client is capable of conducting a financial transaction (see here). Money advisers and creditors are not trained to diagnose mental health problems and often do not understand the implications. However, once a creditor is aware of the issue, it should have processes and systems in place to take account of the situation, and should respond fairly and appropriately.
Guidance on dealing with clients with mental health problems
The FCA’s Consumer Credit Sourcebook provides information on common potential causes of limited mental capacity1FCA Handbook, CONC 2.10.6G and specific indications that should alert a lender to a client’s condition.2FCA Handbook, CONC 2.10.8G Creditors should have practices and procedures for dealing with credit applications from such customers3FCA Handbook, CONC 2.10.11G and should document the steps they take to assist people to make informed borrowing decisions and to ensure they make informed and responsible lending decisions.4FCA Handbook, CONC 2.10.12G It recommends that creditors should present clear, jargon-free information to explain credit agreements and should consider presenting information in more user-friendly formats.5FCA Handbook, CONC 2.10.14G
The Consumer Credit Sourcebook also requires creditors to establish and implement clear, effective and appropriate policies and procedures to ensure that clients who are particularly vulnerable are treated fairly and appropriately, and it acknowledges that clients who have mental health problems or mental capacity limitations may fall into this category.6FCA Handbook, CONC 7.2.1R and 7.2.2G
However, a creditor may not be in a position to know whether a client has some form of limited mental capacity and may not be able to assess her/his level of understanding of any explanations – eg, if there is no face-to-face interaction or the internet is used for transactions.
To address this issue, the Royal College of Psychiatrists and the Money Advice Trust published Lending, Debt Collection and Mental Health: 12 steps for treating potentially vulnerable clients fairly.7This was originally published in April 2014 and expanded to cover vulnerability more widely to reflect the FCA’s increasing attention to this issue. This provides information to creditors on how to take a proactive approach to identify and address clients who are particularly vulnerable, including those with mental health issues. However, it recognises that not every client with a mental health problem is automatically vulnerable or unable to manage her/his money, and explains how creditors and debt collectors can take clients’ mental health into account in both lending and collection situations. The briefing can be downloaded from malg.org.uk/resources/malg-mental-health-and-debt-guidelines.
In addition, the Money Advice Liaison Group has produced Good Practice Awareness Guidelines for Helping Consumers with Mental Health Conditions and Debt, available from malg.org.uk/resources/malg-mental-health-and-debt-guidelines.8Originally published in November 2007, the current (third) edition was published in 2015. Both of these publications are endorsed by the Consumer Credit Sourcebook9FCA Handbook, CONC 7.2.3G and include the following.
    Creditors, debt collectors and advisers should all have procedures in place to ensure that people with mental health problems are treated fairly and appropriately.
    If a mental health problem has been notified to a creditor, the creditor should allow a reasonable period for an adviser to collect the relevant evidence and send it to the creditor. This could be extended, if necessary, if s/he has not been able to collect all the evidence by the end of one month.
    If creditors sell debts once a mental health issue has been advised, they should monitor the debt purchaser to ensure compliance with the guidelines.
    If someone in debt has a serious mental health problem, creditors should only start court action or enforce debts through the courts as a last resort and only when it is appropriate and fair for lenders to do so.
    Creditors should consider writing off unsecured debts when a client’s mental health problems are long term and unlikely to improve, and if it is highly unlikely that s/he will be able to pay outstanding debts.
    Disability benefits (personal independence payment, disability living allowance and attendance allowance) should be recognised as being specifically awarded for meeting mobility and care needs. It is the client’s decision whether or not to include any of these benefits as disposable income in the financial statement.
Note: these guidelines only apply to the management of debt problems and not to the stage when the debt was incurred. However, the guidelines suggest that creditors may wish to ’flag’ the files of clients who have provided information, explaining the effect of a mental health problem on money management and debt issues. In addition, a client and someone holding a power of attorney for her/him could decide voluntarily to add information about her/his mental health problems to her/his credit reference file so that creditors who carry out a search as part of an application for credit are aware of the position. This can be done by a ‘notice of correction’ (see here).10A recommended form of words agreed by the credit reference agencies is at para 4.16 of the guidelines.
Much of the guidelines deals with obtaining evidence to demonstrate the effect of a client’s mental health on her/his ability to deal with her/his debt problems. The Money Advice Liaison Group has produced a debt and mental health evidence form (DMHEF) to assist advisers in this process (the current version in use since 1 October 2019, v.4, is briefer than earlier versions). The form, together with guidance notes for advisers and creditors (which should be read before using it) can be downloaded from moneyadvicetrust.org/creditors/Pages/DMHEF-advisers.aspx. The guidance states that, before using the DMHEF, advisers should consider:
    whether further evidence does actually need to be collected; and
    if so, whether alternative evidence is available that could do the same job as the DMHEF – eg, copies of prescriptions or patient letters.
The form contains three questions to be completed by a health or social care professional who knows the client, which provide information about:
    how the client’s mental health problem affects her/his ability to manage her/his money;
    how the client’s ability to communicate is affected by her/his mental health problems; and
    anything else the professional can say which would help the client – eg, condition severity or duration, any relevant treatment being received or whether the client is in a situation of mental health crisis.
UK Finance and the Credit Services Association have advised their members to accept any suitable evidence and only ask for the DMHEF as a last resort. Where the DMHEF is used, the client must explicitly consent to a health and/or social care professional completing the form. GPs in England have agreed they will no longer charge for completing the form.
There are, however, some issues.11See C Trend, C Fitch and A Sharp, ‘Debt and Mental Health: tools of the trade’, Adviser 160
    The form does not specifically address the question of whether or not the client was able to understand the contract s/he originally entered into. This is relevant to the enforceability of the contract and, therefore, the client’s liability for the debt. This is a matter that advisers should consider first of all (see here).
    The client must give her/his written consent to the form being used to obtain information about her/him and may lack the mental capacity to provide this. However, a third party who is authorised to act on behalf of the client can complete and sign the consent form.
 
1     FCA Handbook, CONC 2.10.6G »
2     FCA Handbook, CONC 2.10.8G »
3     FCA Handbook, CONC 2.10.11G »
4     FCA Handbook, CONC 2.10.12G »
5     FCA Handbook, CONC 2.10.14G »
6     FCA Handbook, CONC 7.2.1R and 7.2.2G »
7     This was originally published in April 2014 and expanded to cover vulnerability more widely to reflect the FCA’s increasing attention to this issue. »
8     Originally published in November 2007, the current (third) edition was published in 2015. »
9     FCA Handbook, CONC 7.2.3G »
10     A recommended form of words agreed by the credit reference agencies is at para 4.16 of the guidelines. »
11     See C Trend, C Fitch and A Sharp, ‘Debt and Mental Health: tools of the trade’, Adviser 160 »