Wonga will have to pay £2.6m in redress to around 45,000 customers for sending out fake ‘legal’ letters to pressurise customers in arrears, in a timely reminder that debt recovery is a process littered with possible pitfalls. Whether in-house or through an external agent, all activity must comply.
The letters appeared to be from external legal agents. In fact, they were from Wonga. A charge was also made to cover the cost of sending the letter. Wonga must now identify affected customers, refund any charges and pay damages for distress and inconvenience. The FCA appointed a skilled person to oversee the process and it would appear Wonga only escaped a large fine as the FCA wasn’t responsible for consumer credit at the time of the letters were sent.
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The Student Loans Company has also been criticised for using similar tactics, sending letters giving the impression that debt had been outsourced, when it was being dealt with by a subsidiary.
Recent experience tells us that legal challenges to debt collection activity can lead to unhelpful court precedents around topics such as unfair relationships, Consumer Credit Act technical challenges and product mis-selling. This can be managed if there are good controls around escalating defended claims. So whether your debt recovery process is run by an internal team, or an external DCA, what key obligations do you need to keep in mind to avoid a headache?
The Consumer Credit Sourcebook (CONC)
CONC 1.2.2R makes it clear finance providers are responsible for their employee’s and agent’s actions and must ensure their DCAs act within the rules. In particular, you must ensure your DCA has the right permissions to undertake the work they do (7.13G). You must also make sure they are clear on the FCA Handbook principles 6 (treating customers fairly) and 7 (communications to customers must be clear, fair and not misleading).
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By GlobalDataAs part of this your DCA must be clear with customers about who they are and why they are contacting them (7.9R). They must be careful not to misrepresent their legal status or authority (7.11R). Essentially, it must not appear as if the debt has been escalated externally if this is not the case.
The DCA must pass on all reasonable offers of payment for consideration (7.5.4R) and pass on payments received in a timely fashion (7.5.5R). Misleading attempts to encourage a customer to make contact (e.g. a calling card suggesting they have missed a delivery) will not be tolerated (7.9.2 R).
The FLA Lending Code
Section 1D of the Code covers the approach to customers who default on payments and makes clear finance providers need to be available, helpful, informative and sympathetic to those in financial difficulty. Particular care must be taken in relation to those with long-term health difficulties or mental health problems. The Money Advice Liaison Group Good Practice Awareness Guidelines provide advice on dealing with customers with mental health issues.
The Common Financial Statement (CFS) Good Creditor Checklist
This focuses on clear and positive communication with customers who have missed payments. It encourages transparency and reinforces the message that customers must fully understand what’s expected of them.
Given the dangers of non-compliance, you should review your policies and procedures to ensure all the requirements are adhered to. We’re often asked to review outsourced arrangements to tackle these issues.
Rebecca Butler is an associate at Eversheds
