ABSTRACT
In January 2021, the Financial Conduct Authority (FCA) wrote an open letter to the United Kingdom’s debt collection industry highlighting numerous poor practices and demanding immediate improvements. The letter outlines the extent of the unfair treatment being experienced and the disproportionate impact of this treatment on vulnerable consumers. This situation exists despite decades of industry regulation from the FCA and its predecessor, the Office of Fair Trading (OFT). The U.K. is unusual in being one of the few countries in Europe with a regulatory regime for private sector debt collection. The FCA regulates the informal collection of consumer debts, and there are specific restrictions on these practices in the regulator’s Consumer Credit Sourcebook (CONC) and the FSMA (Regulated Activities Order) 2001. Despite these regulatory restrictions, there have been increased reports of exploitative and inappropriate informal debt collection practices (IDCPs) in the U.K., something which the Covid-19 pandemic has exacerbated. As an example of the extent of the issues experienced as a result of the global situation, the number of people in severe problem debt has risen dramatically from 1.7 to 2.4 million from March 2020 to January 2021.
This chapter explores the UK regime on IDCPs, arguing that instead of being seen as a ‘model’ for regulation, other countries should learn from the mistakes and gaps in the U.K.’s approach. First, we outline the legal obligations of debt collectors. This section shows that in theory the U.K. provides a relatively robust form of protection. It also highlights the relationship between the U.K.’s ‘hidden problem of household bill debt,’ the distinction between private sector and public sector debt collection regulation, which allows government bodies to engage in unfair IDCPs. The second section examines the limitations of these regulations. The section highlights the lack of clarity of the processes utilized by private sector debt collectors. It examines a range of terms and conditions from telecommunications providers and banks (the main service providers who utilize debt collectors in the U.K.), emphasising that the relevant contractual provisions are complex, often legally incorrect, and potentially breach the unfair terms provisions of the Consumer Rights Act 2015. We then explore the ineffective enforcement mechanisms for breaches of regulations relating to IDCPs, highlighting the need for proactive and accessible enforcement processes. Without an effective way for consumers to complain and penalties for firms that breach the restrictions, a debt collecting regulatory regime provides little if any practical benefits for vulnerable parties. The third section questions whether there should be any role for IDCPs of small consumer debts. If consumers are in financial hardship, is it morally justified to refer them to a debt collector in the first place? Finally, the chapter concludes and makes several recommendations for how to strengthen the U.K.’s regulation in this area.
