ARTICLE...
Setting Standards
This year is set to be an interesting year with regards to regulatory change for the debt purchase sector. The past two years have been exceptionally tough for many companies in the sector and this can be seen in the huge reduction in the number of purchasers in the market. From a peak of around 40 to 50 purchasers competing in the UK market, this has now shrunk to less than 10; not through consolidation but rather purchasers exiting the market.
For those purchasers that remain in business, there is a need for a fairer balance in the laws, regulations and operations that govern the debt purchase industry that will enable them to maintain a code of practice of the highest possible standard.
Last year saw a significant amount of regulatory interest in the debt purchase sector from various different regulators. The OFT were clearly flexing their muscles, so too the FOS, who announced a record year in complaints, while the ICO together with the FSA took enforcement action on companies for data protection failings.
Some companies have been found to carry out poor collections practices while on the customer side, there have been too many cases of debtors seeking legal loopholes in the Consumer Credit Act in order to avoid repaying their debts.
However, towards the end of 2009 the courts provided the credit and collections industry, as well as consumers and regulators, with much needed clarification. Firstly the Supreme Court ruled that the OFT could not investigate the fairness of overdraft charges on consumer current accounts. The second batch of cases that went through the High Courts gave important guidance on the meaning of enforcement, providing true copies of consumer credit agreements and unfair relationships pursuant to the Consumer Credit Act 1974. These judgements indicate a willingness on the part of the judicial system to take a look back at the first debates on the CCA as far back as June 1972.
The constantly changing state of the economy requires the debt purchase industry to monitor their practices and take a fresh look at what it offers and the way in which it operates; but this is also true of the regulators. The rise in debtors seeking to exploit loopholes in the CCA in order to avoid paying must be taken seriously. A recent statement from the OFT clarified that lenders do not need to produce the original loan documents to a borrower on request, but only a 'true copy' or 'reconstituted agreement', which must contain the original terms and conditions. This statement should help to discourage debtors from evading their responsibility to repay their debts.
It appears, however, that 2010 is braced for another turbulent and challenging year with the implementation of the Consumer Credit Directive (CCD), with more focus on consumer protection from Government and last but not least, more powers to the ICO.
The CCD is set to revolutionise and make the already complex consumer credit regime more complicated for the UK. In addition, the implementation of OFT's Irresponsible Lending Guidance is presenting its own challenges in ensuring a fair guidance and a coordinated approach in line with the CCD implementation.
Of course, it is worth noting that 2010 is an election year, therefore what may happen is that government will try to rush through vote-winning, consumer-friendly policy in the next couple of months.
As well as regulators having a busy year ahead, the debt purchase industry must seek to collectively raise their profile and have their voice heard by the regulators and legislators in a way that reflects the size and importance of the industry. Everything that the debt purchase industry does should aim towards higher standards and a strict code of practice for all, with ethical business practices the priority.
Original article, by Ken Maynard, Group Chief Executive of the Cabot Financial Group, courtesy of Credit Management.
