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);1 •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: . 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: .
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).