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Debt Collection (Consumer Credit Act)

Volume 491: debated on Wednesday 22 April 2009

Motion made, and Question proposed, That this House do now adjourn.—(Mr. Ian Austin.)

The purpose of this debate is to draw the House’s attention to the abysmal state of debt collection methodology and the spirit governing it in the UK and the wholly inadequate safeguards for good and innocent people who are endeavouring to pay debt or who dispute it. It is a matter of fact that the debt collection industry relies on a combination of fear and ignorance to make a profit, and that is despicable.

In 2006, the Office of Fair Trading and related agencies received some 5,700 complaints. In 2007, that figure had reached 8,000 and more than 11,000 complaints had been received by August 2008. That is a total of 25,000 complaints in three years, but the Office of Fair Trading took formal action—such as licence revocation or suspension, or the imposition of other requirements on debt collection agencies—in only four cases. I shall illustrate tonight that that is a wholly inadequate response and that Parliament has failed to stiffen the sinews of the OFT and give it legislative powers and duties to protect and promote the interests of innocent people.

By coincidence, in the past 24 hours, the OFT has taken action against an outfit called Mackenzie Hall. Some of its procedures were found to breach the OFT’s guidelines. Ray Watson, the OFT director of consumer credit, said:

“Persisting with debt collection activity when debts are in dispute can give rise to significant consumer detriment, particularly where vulnerable consumers are involved.”

But that is a pathetic response, because similar abuse happens every day in countless agencies. All we see is limp and late action by the OFT.

How did I come to seek this debate? There were several reasons and I shall share them with the House. First, a constituent wrote to me in March because he had received a menacing letter from the communications company 3, which claimed that he owed it more than £800. The letter requested that he

“treat this matter with the utmost urgency. Failure to respond within 20 days of the date of this notice will result in our chosen specialist debt purchasing partner Lowell Portfolio 1 Ltd directly contacting you to arrange repayment of the outstanding balance.”

This menacing letter totally bewildered my constituent, who had never had knowledge of 3, or dealings with it. As his Member of Parliament, I wrote to the company on 26 March. I asked what all that was about and said that my constituent was bewildered and anxious, but I have not received a reply—except for the fact that, by another amazing coincidence, there was a phone call to my office just two hours before I commenced this Adjournment debate, asking for more information. That gives an idea of the sort of cavaliers and cowboys that we are dealing with, among both the companies themselves and their agents. Such behaviour has got to stop.

Secondly, in February I happened to listen to the very fine BBC programme. “You and Yours”, on which I think that the Minister subsequently appeared. The whole programme was devoted to the menacing attempts by debt collection and communications companies, as well as banking and financial institutions and others, to extract money from people. Some of the people involved are wholly innocent and do not have any debt, while others either dispute the debt or are willing to come to an arrangement about its repayment. The programme found that the companies had responded with bureaucratic inertia or an inability to communicate, or with the malevolent and menacing actions that I have described.

Last Sunday week, The Sunday Times carried a very forensic and skilful article by its “Insight” team, in which they described the conduct of the Lloyds Banking Group’s debt collection department. Workers in the so-called “recovery” department were secretly tape recorded, and the tapes revealed that it was suggested that they should put “the frighteners” on and “f…” customers who owed the bank money. Bank staff were incentivised by bonuses and, contrary to the code of practice of the Office of Fair Trading, claimed to represent firms of solicitors.

The bank’s staff are poorly paid, and have every incentive to maximise the extraction of money from the people whom they telephone. Inevitably, that leads to breaking the OFT code and often to a menacing attitude. One lady, a nurse, told The Sunday Times that she had been called six times a day at work, something that again breaches the OFT guidelines. Moreover, it was reported that the people who train new staff and induct them into the recovery unit persuaded them to remind home owners about repossession, and to tell them that they could be credit blacklisted.

No. I hope that the hon. Gentleman will forgive me, but there is not enough time. Perhaps he will be able to intervene in a minute.

Although recovery department staff were Lloyds’s employees, they tried to imply that they were part of a firm of solicitors by the name of Sechiari Clark and Mitchell. That, of course, was quite false. I hope that the Minister will confirm that he has read the article in The Sunday Times, as I have been able to give only a summary of it in the few minutes available this evening.

The programme “You and Yours” showed the extent, scale and gravity of the callous and dilatory nature of debt collection in this country. I know that the Minister listened to the programme, and I hope that he has been able to consider the follow-up programmes. For instance, one lady described how the Bank of Scotland had constantly bombarded her and her terminally ill husband with insensitive automated phone calls. Another person, Marian Parks, described how the same bank’s actions had impacted on her father, John Leather, and set out all the problems that arose as a result. To their credit, her family was so incensed that they entered into litigation before Mr. Recorder Grice at the Truro county court, where the matter was determined on 23, 24 and 25 February. It is interesting that Mr. Recorder Grice described the so-called Triad system, which involves constant automated telephone calls to alleged debtors, as

“a juggernaut which cannot be stopped very easily”.

He went on to say that

“the Bank of Scotland comes at you from all sides”,

and that the Bank of Scotland’s explanation

“would be farcical had it not been so stressful.”

He described how use of the Triad automated telephone system went on and on. He said that there were certainly grounds for “criticism” of the Bank of Scotland and its “inflexible system”, adding:

“what I find really disturbing is the complete absence of a personal safety net...I think the Bank of Scotland should be subject to significant criticism”.

Also in the bundle of documents presented to the court was the “advanced call skill read-ahead package” for staff who work in the bank’s recovery system. It tells them to use the following threats:

“keep your car…protect your credit rating…be able to get future credit…prevent legal action”.

It suggests “borrowing from…relatives” and asking:

“Is your husband/wife employed?”

and so on. All that, of course, is against the spirit of the OFT code and the banking code.

The radio programme to which I referred also demonstrated the courage of a Mr. John Cooper, who took on the communications company 3, which I have already mentioned. He had purchased, some time ago, phones for his daughters, but they did not work in his area. He cancelled his direct debit. It would appear that that alleged debt was sold to a company called HFO Services, which persisted, menacingly, in trying to get him to cough up some money, to the extent that his daughter was fearful that its representatives would seize property in the home. I heard on the radio—I think that the Minister will have done so, too—a recording of a telephone conversation in which a representative from HFO Services, speaking from a call centre in Asia, said:

“Despite leaving several messages on your answer machine and despite trying to get in touch with you, you have failed to respond back. Now if I don’t receive your call today I would go ahead and forward the”—

there followed an indistinct word—

“to Northampton County Court so that there would be a county court judgement issued against you. And it might be also the court appointed bailiffs. If you want to save yourself some legal hassles please call me back.”

That is completely and utterly contrary to the codes. Of course, the company was exposed by the BBC. In a feeble statement, the outfit called HFO Services said:

“HFO views any alleged breach of the OFT guidelines or applicable legislation as a matter of the utmost seriousness.”

It would say that, wouldn’t it? That does not impress me. It tried to give an excuse and pretended that it would have an investigation. I have to say that the director of that company knows what is going on in his call centre. If he does not, he should, and anyway, he is culpable.

I have referred to the guidelines, and I will place a copy in the Library. They are self-explanatory and common sense, but they are wholly inadequate. They need to be beefed-up. They were last reviewed in 2003. They do not take into account the automated dialling system, through which the menacing goes on and on. Both the guidelines and the judgment of the recorder to whom I referred need the attention of the House. The brave people who took the matter to court suffered constant harassment by means of automated telephone calls and so on, but found that that did not constitute harassment in law. We need a lower threshold for the term “harassment” and/or to find an alternative offence to protect and promote the interests of vulnerable people.

We should also enable the OFT to order a stop notice that suspends debt collection activities if it becomes aware of a case in which, prima facie, there is a breach of guidelines and/or clearly a dispute about whether a debt exists. That is what is required.

Since I appeared on the programme “You and Yours”, I have been overwhelmed by heart-rending cases. The MBNA bank has been pressing people. Bank after bank, institution after institution have been overbearing in the way in which they have approached decent people. E.ON used Advantis Credit Ltd in a disgraceful episode in terms of the manner in which its staff approached people who were alleged debtors.

I shall now gladly give way briefly to the hon. Member for Manchester, Withington (Mr. Leech), who has been very helpful.

I thank the hon. Gentleman for giving way. When I tried to intervene, he was speaking about solicitors’ letters. Companies use solicitors and try to give the impression that the solicitors are independent, whereas they are often in-house solicitors who are used to try and scare vulnerable people into acting and giving them the money straight away.

Absolutely. The industry is rotten to the core, whether it is in-house recovery and collection, or where agents are used, or where the debt has been sold. I want the Minister to introduce legislation to prevent the sale of debt. Although that practice has gone on since biblical times, it seems wholly wrong that alleged debt can be sold when there is a dispute as to whether there is a debt.

Anybody who is being pressed for a debt should have a statutory right to speak to somebody in authority in the company or organisation which believes that it is owed money. There should be no automated dialling, and people should have a named person to contact. Every effort should be made to achieve reconciliation where there are disputes, and to minimise the trauma for people who have a debt, but cannot pay. Unless the House and the Minister arrest the practice and kick the backside of the Office of Fair Trading, the problem will grow, and more and more Members will be distressed on behalf of their constituents.

I congratulate my hon. Friend the Member for Thurrock (Andrew Mackinlay) on securing the debate. I recognise that he has a long interest in the behaviour of debt collection agencies and the way in which they are regulated. Others in the House are concerned about the issues that he raises, and I and Ministers in other Departments have taken those issues extremely seriously. I recognise that we need to do more, and in that spirit I welcome tonight’s debate and his continuing interest in the subject.

Some of the concerns that my hon. Friend raises were sharply brought home to me early in my current ministerial job by the tragic death of Beryl Brazier. Hon. Members may remember that Mrs. Brazier took her life after being hounded for the debt of a man with whom she was not connected. Since the events leading up to the death of Beryl Brazier were first raised in the House by my hon. Friend the Member for South Derbyshire (Mr. Todd), I have pursued the need for action to ensure that we tighten the system of regulation in such cases.

The Beryl Brazier case indicated that appalling errors were made in transferring the background facts of the case between the businesses concerned with pursuing the debt. Such failures in transferring data between lenders, debt collectors, tracing agents and debt purchasers are not only a breach of the law, but are unforgivable, especially when they result in such tragic consequences. New powers introduced as a result of the Consumer Credit Act 2006 and implemented in April 2008 have helped the Office of Fair Trading to begin to tackle poor practices within the industry still further.

The OFT established in April 2008—just 12 months ago—a dedicated unit to monitor debt collection agencies, which it rightly identified as a sector of the business world needing particular monitoring. I shall come to how those powers have been used by the OFT, but first I should say that the OFT has long given clear guidance that debt collection agencies should make reasonable efforts to obtain from a creditor or other agency sufficient information about the debt. For example, the OFT would expect the debt collection agency concerned to have checked the accuracy of the client data details that it received from the creditor or agency, and, where possible, to have obtained a copy of the original consumer credit agreement.

Equally, creditors are responsible for ensuring that debt history data are clear, accurate and capable of use by debt collectors, and, of course, for being clear to consumers who may dispute the debt. Debt collectors who hold a consumer credit licence also need to comply with specific fitness guidance that the OFT has issued, covering the debt collecting sector. The guidance was reviewed just three years ago. The new powers implemented under the 2006 Act in April last year have helped the OFT by allowing it to place requirements on licensees to modify conduct. Those powers have also allowed the OFT to impose financial penalties of up to £50,000 a time for failure to comply with a single requirement.

Since April last year, the OFT has also had new information-gathering powers, enabling it better to monitor compliance by seeking information from licensed businesses about their activities, including their debt collection practices. In addition, the OFT now has 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. 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.

I am very pleased with what the Minister is telling us, but my anxiety is that, if the OFT starts using those sanctions, as I want it to, some companies will simply dissolve themselves and the same bad directors will constitute new companies and go back to their old customers. Will there be some protection to ensure that such abuse—such getting around the situation—does not prevail?

Let me turn to the scale of the action that the OFT has already taken, because I suspect that my hon. Friend is not aware of just how much activity has taken place. I should add that the OFT’s debt collection guidance covers such practices. In particular, it says that putting undue pressure on debtors is considered to be oppressive, while ignoring claims that a debt is disputed would constitute unfair practice by the debt collector.

Debts are often disputed by those being pursued for them, and, in such cases, the industry’s immediate response should be to suspend debt collection, and the case should be thoroughly looked into. Indeed, if that had only happened in the case of Mrs. Brazier, she might still be with her family today. Let me again be clear to the House and to such companies: if a licensed debt collection agency or a creditor persistently fails to comply with the OFT’s debt collection guidance, or if there is evidence to substantiate claims that the licence holder has engaged in unfair business practices, the OFT can ultimately revoke its licence, effectively putting the trader out of business. Any persistent failure by a creditor to provide accurate information could also reflect on that business’s fitness to continue to hold a licence.

As I have mentioned, since April 2008, the OFT has had a strengthened role, requiring the provision of more information from businesses engaged in high-risk credit activities, such as debt collection, when they apply for a licence or to renew an existing licence. That is to ensure that business will be carried out to a reasonable standard. In some cases, the OFT will commission on-site visits and reports from trading standards officers to help in its judgment about whether at the heart of a business’s processes and procedures—what it actually does—there are genuinely good standards: for example, whether adequate staff training procedures are in place to ensure that a firm’s legal responsibilities are properly understood at every level of the organisation.

I should tell the House the scale of the action that the OFT has already taken. It has already initiated a total of 186 so-called warning and advisory letters, which have been sent to businesses in the sector. In addition, a further 22 formal actions have been taken, resulting in, for example, seven licences being surrendered, four licences being refused or removed, four businesses being given significant undertakings and four cases in which requirements have been imposed. I recognise the statistic cited by my hon. Friend about OFT action, but I hope that he will recognise that far broader enforcement activity has taken place.

Let me give specific examples of recent informal and formal action. In April 2008, in response to an increase in complaints about debt collection practices, the OFT wrote to 13 companies—including debt collection and trace agencies, debt purchase businesses and financial institutions—warning them to take steps to improve their debt collection practices. Among the more serious practices identified from the complaints were the chasing of consumers for payment of debts that they did not owe, partly because of over-reliance on the poor data provided by creditors and poor or inappropriate tracing activities; failing to properly investigate disputed debts; and employing an over-aggressive or oppressive approach to recovering debts, including, on occasion, refusing to deal with or bypassing third-party representatives such as citizens advice bureaux.

The 13 companies were required to review their policies and procedures for tracing debtors; that included keeping client information up to date and maintaining its accuracy. The OFT was satisfied with the responses of four of the companies and the steps that they had taken to ensure compliance, but it will continue to monitor complaint levels. It is still in the process of assessing or seeking information from the remaining nine companies. That could include carrying out on-site competence visits or seeking further information using its powers under the Consumer Credit Act.

At least one major debt collection company has updated its automated systems to reduce the likelihood of collection activity continuing when the consumer has disputed the debt. The OFT will be writing to creditor trade bodies reminding them of their responsibility to ensure that data used for debt collection are accurate and asking them to take action to improve the data that they pass on to debt collectors.

My next example involves the requirements imposed on 1st Credit Ltd. After an investigation, it was found that some of its business processes and procedures failed to meet satisfactory standards. As a result, that company and its associated companies must refrain from issuing statutory demands warning of bankruptcy when it is unlikely that proceedings will be initiated; not discuss legal action with consumers, unless it is likely that such action will genuinely be taken; ensure that sensitive cases involving vulnerable individuals—for example, those with mental health problems—are dealt with appropriately; and ensure that all matters of concern raised with them by the free advice sector and other third parties are dealt with appropriately.

A considerable amount of activity to raise standards in the industry has been initiated. However, I recognise my hon. Friend’s central point: more action is needed. I have been working with the Credit Services Association, the main trade association in the sector, to get it to remind its members of their obligations to have the highest standards. The association has responded in a positive way. In particular, it has agreed to my request that it should offer debtors who contact a debt advice agency for help in sorting out their finances a 30-day breathing space to get their affairs in order. That follows our success in getting the credit card sector to agree a breathing space for its customers who approach a debt advice agency for first-time help. I am also calling in representatives of the utility sector for similar discussions about how they can best help customers having problems with their debts. My hon. Friend will have seen the announcement by my right hon. Friend the Prime Minister, confirmed again today by the Chancellor of the Exchequer, that a White Paper on consumer matters is being prepared, and that will touch on this subject.

This sector and industry are under the spotlight. Ministers, the OFT, Members of this House, the media and our constituents are all watching closely the activity of businesses in the sector. Considerable work has already been done to challenge poor standards and there has been progress, but I recognise that there is more work to do.

Question put and agreed to.

House adjourned.