Debt Collecting Merry-go-round

How to Deal With Harassment from Debt Collectors

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• Publisher: Straightforward Publishing Digital
• Year: 2014
• ISBN:
  9781847165077
• Topic: Law
• Subtopic: Civil Law
• Index: Law

The Debt Collecting Merry-Go-Round is a very pertinent book for our times. As more people find it difficult to pay debts, the incidences of unfair practices are rising. Many people do not know their rights and how to handle debt collectors who use harassment and unfair practices. This book spells out those rights in a very clear manner. This second edition includes a discussion of recent cases involving the Protection from Harassment Act 1997, such as the case of Roberts v Bank of Scotland (2013).

Chapter 1

What is the Debt-Collecting Merry-Go Round?

There has been a growing tendency in recent years for organisations, especially banks and large utility companies, to subscribe to the “debt-collecting merry-go-round”. Businesses will understandably want to recover unpaid debts but the manner of this approach has developed to the extent that in many cases it amounts to harassment and certainly breaches guidance on fair practice.

The classic example of the “debt collecting merry-go-round” is where a creditor will pass an outstanding account to a debt collection company who will go through a sequence of collection stages and, when that fails to recover the debt, the account gets passed to another debt collection company to do exactly the same. The merry-go-round can spin round like this forever unless the harassed individual takes action to stop it.

The debt purchase industry is big business and a major reason for the debt collecting merry-go round. . The price is determined by the ‘quality’ of the debt. Typical sellers tend to be the banks, building societies, utilities, mail-order companies and car loan businesses; in fact, any organisation that extends credit in large volumes. Before a debt is sold, it will go through the ‘in-house’ collection process and will usually be referred to debt collection agencies. Eventually, the debt will be written off as “uncollectable” and the debt will be offered for sale. Buyers will then try and use any means to recover the debt in order to make money on the debt purchase

The following case study of Smith v. UK Energy Plc (UKE) includes all the typical elements of the debt collecting merry-go-round.

In 2006, Andrew Smith purchased 5 Boundary Close, Newtown. He notified the electricity supplier (UKE) that he was the new occupier. A few weeks later he received an unexpected bill for £2,000 addressed to the occupier of 5 Boundary Avenue, Newtown. Andrew contacted UKE and said this must be a mistake and UKE said yes it was probably intended for a commercial unit that was on the industrial estate a few streets away in Boundary Avenue. Andrew thought nothing more of it and a few months later he received a quarterly bill for £75 and this seemed about right. He paid this bill by bank transfer the following day. However, a few weeks later he received a letter from the credit control department of UKE addressed to A Smith at 5 Boundary Close, Newtown, demanding payment of the £2,100, it had increased from £2,000 as a collection fee of £100 had been added! He contacted UKE and spoke to their credit control call centre, which was probably not based in the UK, and made it clear that this did not relate to him and it was not even his address. Andrew gets further letters from UKE threatening to take him to court within 7 days unless payment was received in full. The following week, Andrew receives a letter from Sledge Hammer Collections (SHC) demanding payment of £2,250 or else court action will follow. Again, a nice little collection charge of £150 had been added. Andrew writes to SHC and copies in UKE explaining the situation and that this does not relate to him. He even mentions that the meter number that is referred to on the bill is not the meter number at Andrew’s property! This should surely stop any further contact. The next letter Andrew receives from SHC threatens the attendance of bailiffs and the amount now due has again risen to £2,350. Just when Andrew thought SHC had forgotten about him, he starts receiving telephone calls, initially once a week but their frequency then increases to 4 or 5 per day!

Andrew’s recycling bin is getting pretty full from this demand for payment of an account that has nothing to do with him, but it gets even fuller when the following week he gets a letter from Red Letter Collections (RLC) stating that if he does not pay in 7 days court action will commence and the whole sequence of events experienced with SHC starts all over again, culminating in RLC making 4 or 5 telephone calls per day to Andrew.

You may think that the case of UKE and Andrew Smith is a glorified example to make interesting reading. In fact, this is based on an actual case and, if anything, it is less extreme than what actually happened. The cause is a number of factors which include the sheer incompetence of some organisations that have become so large that they do not always know what another part of the business is doing. A lack of experience is another factor as those involved in debt chasing and credit control seem to think that bombarding the customer with letters and telephone calls is all that is required to collect payment.

The debt collecting merry-go-round is a creature born out of a number of factors but the most significant ones contributing to its development are related to the demise of the county courts, including the increasing cost of court fees and the administrative chaos that exists in many courts due a reduction in funding. The civil court process is proving to be an unattractive method of collecting debts especially as the enforcement methods have as much bite as an elderly person with ill-fitting dentures. There is also the prospect of further administrative delays as the courts struggle for adequate resources, especially as mediation seems about to be forced on litigants and government Ministers see this form of ADR as a way to save money in the civil justice system. A pressure to mediate and tame enforcement procedures does not endear large organisations to spend money using a system that, in their view, fails to produce results.

“In their view” should be emphasized because to judge whether something is effective, or not, it would be fair to assess what you hope to achieve from the current system. The civil court process has never - in recent years - been a particularly robust method for chasing debts. If you are chasing debtors who have the ability to pay and the creditor is prepared to spend the money (and the time) it takes to recover a debt then perhaps the court system is relatively effective. However, if you are trying to recover money relatively quickly and cheaply from those who do not have the means to pay apart from small amounts over a prolonged period of time, you would not view the court system as an effective option. Some large organisations that fuel the debt collecting merry-go-round seem not to be able to understand, or choose to ignore this because the state fails to provide an effective legal system to collect debts It is wrong to ignore the law and resort to harassment, especially where such organisations can afford to use the court system unlike many ordinary people. In a time of economic difficulty, and the need to reduce the budget deficit, if large companies moved away from the courts then this would reduce resources because the current system of making the county courts largely dependent on court fees would mean a fall in revenues and a further drop in the level of service provided.

As mentioned earlier, some organisations have become so large that they do not always know what another part of the business is doing and this is undoubtedly a factor behind this merry-go-round. A lack of experience or training is another factor as those involved in debt chasing and credit control seem to think that bombarding the customer with letters and telephone calls is all that is required to collect payment.

The example of UKE and Andrew Smith is a classic case of a utility company and/or a debt collection company not updating the information they have concerning a particular account. Lawyers are mocked for using the phrase “taking instructions” but everything has to be done on the say-so of the client. One wonders whether many of these debt collection companies actually report back to their clients the crucial and critical information concerning disputes that are raised by those they are chasing. The evidence suggests that, even if they do, they fail to update their records and merely continue with the broken record technique. As an experienced debt litigator, I am surprised by this attitude or sheer incompetence. Surely, if you were to investigate the claims of a customer that the money was not due (and this unearths evidence and documents which support the fact that the customer’s version of events is not correct) then you would do so as it puts you in a strong position when it comes to negotiating repayment. Too often, a reply to a customer’s query is met by a rather bland and standard reply that does not adequately address the issue.

As well as not taking proper instructions from their clients, I often wonder why some organisations entrust debt collection companies to deal with cases that involve points of contract law about which they clearly do not have the appropriate knowledge or understanding. A typical example is below in the case of OK Energy UK and Mr Robert Evans.

Mr Evans runs a restaurant. He took on the lease of the restaurant from his sister Leanne. Leanne had an electricity supply account for the restaurant. When she had the account, she was on a high tariff; when Mr Evans took on the lease of the restaurant he applied to OK Energy UK to take on the electricity supply account. OK Energy agreed to enter into a contract. This was done verbally on the telephone and no terms were pointed out to him before they started supplying him. Mr Evans received bills from OK Energy and for the first 9 months everything seemed fine and he paid the bills which were calculated on their standard tariff of 10 pence per unit. In month 10, Mr Evans decides he wishes to switch to New Source Energy Plc. Then, unexpectedly, Mr Evans receives a recalculated bill using a tariff of 20 pence per unit. Mr Evans contacts OK Energy UK and queries why he has received this new bill for the period for which he has already paid in full. OK Energy state that it is a cancellation fee and was contained in their terms and conditions at the time he took on the supply.

OK Energy needs to understand some basic principles of contract law. For terms to be incorporated into the contract the term must fulfil several requirements. The terms should be given to the other party at the time of entering into the contract or, at least, reasonable steps should have been taken to bring the terms to the attention of the other party. In the case of OK Energy, there were no terms brought to the attention of Mr Evans at the time of entering into the supply agreement about paying a higher rate in the event that he decides to switch suppliers.

As well as the situation of the obvious dispute, such as in the case of the alleged debtor never having received the electricity or any other chargeable service, there are cases of individuals being harassed for money they clearly do not have. It may be said that they are merely hiding their true financial position but it may not come as a surprise that some individuals, possibly vulnerable people who are genuinely without funds, are chased so hard that they either seek money from loan sharks or do worse and contemplate taking their own life. This is not a case of being melodramatic. These situations do happen and keep on happening. The following case of String v. Big UK Bank is a typical example of a debtor being harassed into paying more than he can afford:

David String lives in a small bedsit in Newtown. He is 57 years old and works a few hours per week sweeping up at the local supermarket. He gets paid the minimum wage and gets assistance with his rent. He has only been living by himself for the past 6 years since his parents passed away. He has learning difficulties and finds it hard to read and write. One of his few pleasures in life is buying CDs from the local music store. He has a bank account with Big UK Bank. David manages to obtain a personal loan from Big UK Bank for £6,000. It is quite surprising because if the Big UK Bank had done its checks into the earnings of David then he would not have been a good bet for the loan. It is not long before David has spent the money and falls behind with the repayment because he gets made redundant from his job and is totally reliant on benefits. David receives letters chasing the unpaid loan and goes to his local Citizens Advice Bureau who help him complete an income and expenditure sheet showing that he can only afford to make payments of £20 per week. He makes this offer to Big Bank who reject the offer and David continues to receive letters and telephone calls on his pay as you go mobile. CAB writes again to the Recovery Manager at Big UK Bank and states that he has not got the funds to pay more than £20 per month. Big UK Bank responds by saying that they acknowledge he has not got funds, but David continues to receive an increased number of telephone calls and letters from not only Big UK Bank’s collection department but from Fast Recovery Collections and Debt Collections R Us.

The scenario of David and the Big UK Bank is not exaggerated. Again, this is based on a true situation. What happened next is that David instructed a lawyer to try and stop the continuous telephone calls that were happening 7 or 8 times a day and the endless letters threatening court action. Despite accepting that David had no funds to make any higher repayments, they continued to chase David. A letter was written to the Big UK Bank which was responded to by saying that until he makes an acceptable offer they will continue to chase David. A formal letter of claim was sent to Big UK Bank requesting that all further contact be through his solicitors and that they accept the offer of instalments especially as they had already acknowledged that he had no funds. Despite the letter of claim, letters chasing payment from David continued to be sent by the couple of debt collecting companies instructed by Big UK Bank and from their credit collections department. There were also numerous telephone call...

Table of contents

• Cover
• Title
• Copyright
• Contents
• Introduction
• Chapter 1. What is the Debt-Collecting Merry-Go-Round?
• Chapter 2. What Laws Can Assist the Harassed Debtor?
• Chapter 3. Debt Collectors and their Lack of Powers
• Chapter 4. Practical Advice to Deal With Harassment
• Chapter 5. Taking Legal Action to stop Harassment
• Chapter 6. What remedies can the court award for harassment?
• Chapter 7. What Will Stop the Merry-Go-Round?
• Appendix 1. Court Forms
• Appendix 2. Legal cases
• Index