I know that consumer credit is a minority sport, and that sympathy for lenders is in short supply. But this particular issue is exercising me somewhat at the moment, so I’m going to rant about it a bit anyway.
Anybody who works in the consumer credit industry will be used to receiving allegations of harassment from debtors. Some are from people who have been shabbily treated by their lenders, and some are from people who are outraged by the mere suggestion that they might care to repay money that they have borrowed.
Some are from people who repeatedly receive letters about loans that they didn’t take out, addressed to people that they’ve never heard of. And sometimes the only response we can give is to shrug our shoulders and carry on sending the letters.
So why do we feel obliged to harass people who don’t owe us money?
The relevant legislation is the Consumer Credit Act 2006, which inserts into the 1974 Act certain requirements about the provision of information to debtors. Sections 9 and 10 of the 2006 Act introduced a requirement to send “notices of sums in arrears” at regular intervals to debtors who are behind with their payments. These notices tell the debtor that they are in arrears and by how much, and include an OFT leaflet about dealing with debt. They’re not allowed to include a demand for repayment.
Now, you might argue that the main purpose of these notices is deforestation – after all, it’s not as if lenders don’t already write to debtors to tell them when they’re behind with their payments. My guess is that 95% of these notices go straight in the bin.
But it’s worse than that, because there is no exemption for absconding debtors. The requirement to send the notices (for fixed-term loans, at least) ceases only when the debtor is no longer in arrears or the lender has obtained judgment. Full stop, no other circumstances in which you can not send the notice.
Under ordinary circumstances we would just say “sod it”, and wait until we had found our runaway debtor before sending any more of these notices – after all, nobody’s going to complain about not receiving one. But the draftsman has been too clever for us, and so section 11 of the Act provides not only that the debt may not be enforced during any period of non-compliance but also that no interest may be charged for that period.
Now, even though the Civil Procedure Rules allow us to issue a claim to the debtor’s last known address (and presumably obtain judgment in default if there is no reply), we’d prefer not to do that unless we think that he or she is only pretending to have absconded. Not being able to enforce the debt is therefore not a significant problem.
The interest remedy, however, is a real pain. If the interest has been applied to the loan up front (which is common for personal loans), then the only way to deal with this would be to do a retrospective credit once the debtor has been located and the notice sent.
Changing existing software to incorporate that calculation is going to be expensive. And whilst you’d be able to add some of the rebate back on again if the loan wasn’t repaid in full before the end of its term, that’s just double the hassle and double the development.
In the old days, we would have relied on the general public’s lack of knowledge about consumer credit law (the 1974 Act being all but incomprehensible to the people that it is supposed to benefit). In our shiny new networked world, there’ll be standard form defences and counterclaims for interest rebates just a couple of clicks away. I’ve even seen someone try to defend a debt action on the basis that the notice of sums in arrears that they received didn’t include the OFT notice.
And so our choice is: do we spend a few hundred grand on changing our systems so that people who run away from their debts can be rewarded with an interest rebate, or do we send 6-monthly letters at 50p a go to people who don’t owe us money? Actually, that’s not even a choice.
So, the Consumer Credit Act 2006. Its intended effect is to require us write to people to tell them something that they already know, using information that they have already been given. And as a bonus, it makes us send that information to people whose only fault is to live in a house once occupied by a feckless muppet.