DEBT COLLECTION PRACTICES | INTERNATIONAL BEST PRACTICES ON DEBT RECOVERY
This post provides an understanding of Debt Collection Practices in USA & UK as per DRA Syllabus 2024-25.
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INTERNATIONAL BEST PRACTICES ON DEBT RECOVERY | DRA 2023-24 | CHAPTER – 12
Debt collection is a specialised job and in western countries, namely in USA and UK, these are well established.
There, these collection services are performed in a professional manner as per the legal and regulatory framework. The customer’s interest is protected by the consumers association apart from the lawsuits that can be filed by the aggrieved individuals. This subject matter has been prescribed in the DRA syllabus do’s and don’ts to the debt recovery agents.
Debt collection practices in the USA:
USA has a federal act, FDCPA (fair debt collection practices act) which provides for fair debt collection practices by eliminating abusive practices used in the collection of consumer debts. The act provides for:
- Prescribed and detailed guidelines to conduct this debt collection business
- Penalties and remedies in case of violation of the provisions of the act
- The rights of the consumers that are involved in debt collectors
FDCPA also allows aggrieved consumers to file lawsuits against a debt collection agency for violation of the act provisions.
The other option is the federal trade commission of the state Attorney General, who can take action against the non-compliant collection agencies on below lines:
- Non-compliance can also lead to the levy of fines
- Restrictions on the agency operations
- Closure of the agency operations
Debt collection practices in the UK:
In the United Kingdom, the Office of Fair Trading (OFT) regulates debt collection agencies and provides guidelines on how collection agencies need to operate. The guidelines and not law but they are the interpretations of legal cases.
As per OFT, below is the list of unfair practices:
- To misrepresent the enforcement powers
- To falsely claim to be in an official capacity
- To misrepresent the legal position to the debtor
- To falsely claim a Court judgement when it’s not.
- To harass, claim enforceable or excessive charges
The duty of the debt collectors is to collect the receivables of banks, financial companies, credit card companies as well as manufacturing companies. These Agencies sometimes also provide consultancy services in case of difficult cases and then provide specialised jobs such as:
- In cases where the debtor is not willing to pay future to pay the overdue debt, collection Agencies provide or do legal proceedings including filing Suits, making a legal appearance in courts for bankruptcy and winding up proceedings.
- They also trace or guarantor or debtor in cases where they have disappeared and are not available at the recorded addresses.
- They also trace the hidden assets of the obligors and advice the principals as to what course of action should be taken for recovery of dues.
Below are the cannot and cans of the collection agencies:
CAN’T DO:
- Contact the customers by telephone outside the 8:00 AM to 9:00 PM
- Contact the customers in any way, except in case of litigation, after they have received the return of this that the customer does not want any contact or the consumer has refused to pay the alleged debt. Exceptions to this are:
- Informing that the collection efforts are being terminated
- The collector now wants to file a lawsuit
- The collector is wider to pursue other remedies
- Contacting the consumers at their place of employment after the agency has been told either verbally or inviting that this is not acceptable.
- Contacting the consumer after the collector has received a written request to verify the debt and before the debt collector consumer in before the debt collector has made to the consumer the requested verification and before the debt collector has made the consumer the requested verification or the original creditors name and address.
- Deceptive representation of debt (using inappropriate ways to collect the debt)
- Publish the name and address of the consumer on the bad debt list
- Use abusive profane language in the course of communication
- Triton with address All legal action which is not permitted by the law
- Seek unjustified amount not permitted under the contract law
CAN DO:
- Identify themselves and notify the consumers in every communication
- Give the name and address of the original creditor in case the consumer has requested it in writing.
- Inform the consumer right to dispute the debt in part or in full
- File a lawsuit in a place where the consumer lives or signed the contract.
So, this is one way to deal with the consumers while doing the collection activities by the debt collection agencies. In India, as DRA, one can also be employed the above-mentioned guidelines whenever possible and professionally to maintain a proper code of conduct.
This was all about the practices that were prevalent in the United Kingdom and the United States of America. For more such easy and free notes on the DRA examinations, you can visit the new Learning sessions. The notes are as per the latest Indian Institute of Banking and Finance prescribed DRA Syllabus 2023-24 Exams & are immensely helpful in covering the difficult topics from the prescribed Study materials.
