Key Provisions for Debt Collection Firms in the Consumer Credit Sourcebook (CONC)
Last week’s article covered some of the key provisions in CONC for consumer credit firms with a focus on helping customers who are vulnerable and those in financial difficulty, probably the most important topics. My aim is to expand upon the topic in this article through a focus on CONC 6 and 7 which cover post-contract obligations and the handling of arrears.
CONC 6 – Post-contract obligations
Firms are generally prohibited from signing a customer up to credit and then ignoring them. The theory being that customers could build up arrears and without contact from the creditor they may assume they have ‘gotten away with it’ while all the time the firm is adding interest and charges to the account, ready to hit the customer with a rather hefty bill! To avoid this the FCA, together with the Consumer Credit Act 1974, requires firms to send customers a regular statement of account. This statement must be provided at least annually and put in the post within 30 days from the date at which the statement ended. This should enable customers to have a general overview of their account no matter how well they are repaying. But this is not the only provision.
Where a customer misses payment, firms must send communication to the customer. This is called a “notice of sums in arrears”. Technically this must be sent when the customer’s arrears have risen to the value of two months of required payments, so if the customer has been paying half the requirement to send the NOSIA would be triggered after four months. The notice must be provided within 14 days of the second month of arrears occurring, and it’s quite important to meet this timescale exactly as failure to do so renders the debt unenforceable. It’s clear to see this notice is designed to force creditors to keep customers up to date with their account, especially where they are falling behind. This notice, although with slightly amended content, must be sent every six months until the customer is out of arrears. This is set out in more detail in CONC 7.17-7.18.
Equally if a firm is to charge the customer because of late payment this is known as a “default sum”, therefore, a “default sums notice” must be provided setting out the fact that a payment has been missed and a sum is to be charged. This is applicable for charges such as overdraft charges or credit card fees. But do note this is separate from the “default notice” which is required to be sent before the creditor takes steps to close or enforce a consumer credit agreement.
All the documentation above must contain certain information, these requirements are too specific for an article, but firms must ensure they are included as the punishment for failing to provide the notice, with all required information, is the unenforceability of the debt! It is certainly worth creditors checking that their notices meet the statutory requirements!
CONC 7 – Arrears and default
For a collections firm the primary set of rules which need to be adhered to are set out in CONC 7, but it must be noted that these rules equally apply to creditors collecting their own debts and act as strong guidance to non-consumer credit firms collecting overdue payments.
We’ll start by explaining CONC 7.3. This is an overarching rule which should be kept in mind whenever we are creating collection procedures or strategies and is simply “the firm must act proportionately”. In other words, we should not jump straight to legal action, or pursue strong enforcement options on relatively small or young debts, we must do everything we can to collect pre-legally before exploring such options. The proportionality provision was taken from the Office of Fair Trading Debt Collection Guidance when responsibility to regulate was passed to the FCA, the OFT had included this rule because they had seen practices which they did not think were fair and pushed customers into further levels of debt. One such practice was the overuse of statutory demands where the creditor had no real intention of taking action, as such the demands were simply being used to scare customers into payment, perhaps beyond their means.
Another rule which came about due to poor practice is CONC 7.6 which covers use of continuous payment authority (CPA). The FCA observed some firms obtaining CPA without properly informing customers that it meant the lender can request payment without further authorisation and without setting out when the lender would request payment. Perhaps the lenders didn’t set this out because they were abusing the power, some were requesting payment at midnight on the due date, then, if this was rejected, every hour after until payment was made (usually when the customer had been paid). Furthermore, some firms were requesting differing amounts, perhaps they would start with the full amount then scale down the requests until it met with an amount the customer had remaining in their account, effectively clearing them out! As such firms now must inform the customer how often they will request payment, the payments should only be requested twice and may only be for the full amount, after which the firm should contact the customer as they are likely to be in financial difficulty.
A focus this year is on helping vulnerable customers, this will be explored in future articles in more detail but there are already expectations in place under CONC 7.10. In short, firms must take steps to identify vulnerability such as red flags, reach out to the customer and do what they can to assist the individual. This may include changes to communication methods, use of a vulnerable process using different messages, giving the customer time through use of breathing space, allowing third party representatives authorisation on the account and where the vulnerability is matched with financial difficulty firms provide a range of options to assist such as sign-posting, breathing space and re-arranging payments.
I hope the above gives you a flavour of CONC, there is so much to it so do have a look at our CONC Guidance document which puts the rules in an easy to understand way!
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