Experian supporting compliant practices in debt collectionGuidance Note

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Please note that this guide should not be taken aslegal advice. Its purpose is simply to promote compliant activity and best practice. If you have any legal concerns, you should seek independent legal advice.

Contents

Introduction 3

Principles of Good Practice 4

Data Accuracy 4

Deceptive and/or unfair methods 4

Addressing the challenges 6

Industry discussions 8

Useful Information 10

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Introduction

Experian has worked closely with the Collections Industry for many years to develop an understanding of the issues they face and to provide products and services that help businesses in this sector to undertake their activities in an effective and compliant manner.

This document looks at some of the challenges to the Collections industry that the recently published Office of Fair Trading (OFT) guidance has introduced and discusses how these challenges might be met in practical terms.

In compiling this document, the Compliance team have drawn on the strength of Experian’s relationship with the Collections Industry as well as discussions with industry regulators and trade associations, including the Information Commissioner’s Office, the British Bankers Association, the Lending Standards Board and the OFT themselves.

As a Data Controller and Data Processor (as defined under the Data Protection Act 1998 (‘DPA’)) Experian takes care to ensure that data protection is considered appropriately in all of its activities. Experian’s Compliance department plays a significant role in managing Experian’s compliance with not only the DPA but any legislation and industry standards that apply to either its own or its clients’ activities.

The OFT is currently responsible for overseeing the Consumer Credit Industry in the UK. This responsibility covers a number of different elements including debt collection practices. The OFT first produced guidance on debt collection practices in 2003 and a subsequent update in December 2006.

In March 2011 the OFT published a consultation paper concerning their proposal to issue revised guidance, updated to take account of market developments, regulatory changes and other OFT guidance subsequently issued.

Since the last update in 2006, there have been two key developments impacting debt collection:

• the Consumer Credit Act 2006 reforms – which provided the OFT with new powers to facilitate better regulation of the sector

• the growth of debt sale and purchase – the practice whereby creditors sell on their debt fully to specialist purchasers rather than outsource it for collection on their behalf

The revised OFT guidance was published in October 2011 and as a result of this, the debt collection industry is facing an increased level of scrutiny regarding the fair treatment of debtors when engaging in debt recovery activity.

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The OFT guidance sets out standards that the OFT expects of all businesses engaged in the recovery of consumer credit debts. To assist businesses in meeting these standards, it identifies types of behaviour that it considers falls within the category of unfair or improper business practices .

In general terms, to comply with the principles of good practice businesses should:

• treatdebtorsfairly• betransparentintheirdealings

with debtors and others• exerciseforbearanceand

consideration – in particular towards debtors experiencing difficulty

• actproportionatelywhenseeking to recover debts

• establishandimplementclear,effective and appropriate policies and procedures for engaging with debtors, particularly

The guidance also goes on to cover what would be considered unfair and improper practices. These include the following.

Principles of Good Practice

In respect of data accuracy the guidance provides the following examples of what may constitute unfair or improper practices:

• businessespursuingdebtorsfordebtrepaymentwithout taking reasonable steps to verify the accuracy and adequacy of relevant data

• creditorsfailingtoensurethataccurateandadequateinformationheld about a borrower is made available to its own staff involved in the debt recovery process

• creditorsfailingtoidentifytoprospectivedebtpurchasersdebtorsunderstood to be ‘gone-aways’

• businessesfailingtoupdatesystemsorrecordsorCRAdata(whereapplicable), where it has been established that an individual being pursued for a debt is not the actual debtor, or the debt has been paid

• businessesnegligentlypassingoninaccurateorinadequateaccountdata to other parties involved in the debt recovery process

The guidance states that dealings with debtors and others are not to be deceitful and/or unfair. Examples of this include:

• sendingdemandsforpaymenttoanindividualwhenitisuncertainthat they are the actual debtor

• refusingtoengagewithathirdpartyrepresentativesuchasfreedebt advice centre or a debt management business unless there is a justifiable reason to do so

• contactingdebtorsdirectlyandbypassingappointedrepresentatives• inappropriatelypassingondebtor’sdetailstoleadgenerators,debt

management businesses, creditors, debt collectors or brokers

Deceptive and/or unfair methods

Data Accuracy

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By sharing

information about

existing collections

activity the debt

owner is in a much

better position to

be able to make an

informed decision

about where to

place this debt for

collection based on

the good practice

principles

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Addressing the challenges

It seems clear that in order for the collections industry to ensure compliance with the OFT guidance, there is a need for greater levels of data sharing to improve data accuracy and customer experience, whilst at the same time working within the current legislative environment, and in particular the obligations around processing of personal data set out in the DPA.

Data SharingAn important element in enabling compliance with the new guidelines is a shared database, holding details of debtors and the relationships that they currently have with organisations within the collections sector such as debt owners, debt collection agencies (DCAs), third party debt managers (3DPM) and Insolvency Practitioners (IPs). We believe that only by understanding these existing relationships will it be possible to ensure that debts are collected in a way that meets the expectations of the OFT.

Existing data sharing at an account level can only indicate whether a defaulted account is currently being repaid as a result of changes to the outstanding balance. However, this does not allow the owner of a debt to identify the organisation that the individual is working with to repay this debt and potentially others, making it virtually impossible to comply with the recommendations listed in the OFT guidelines, and in particular ensuring that the number of DCAs contacting the individual is kept to a minimum and identifying third party debt management relationships with a debtor.

One of the key considerations around data sharing is where the dataisstored.CreditReferenceAgencies(CRAs)areinauniqueposition to hold this data as individuals will have been notified at the point of taking up a credit agreement that their personal data will be passed to this type of organisation and used by them for the purposes of debt collection and tracing.

Typically we would expect debt owners to have a relationship with a large number of debt collection organisations. By sharing information about existing collections activity by these organisations and allowing the debt owner to search this data for a match to a newly acquired debt, the debt owner is in a much better position to be able to make an informed decision about where to place this debt for collection based on the good practice principles referred to above.

As well as meeting the good practice principles, we also feel that this has the potential to provide significant cost savings for those businesses involved in the collection of debt.

Only by

understanding

these existing

relationships will

it be possible to

ensure that debts

are collected in a

way that meets

the expectations

of the OFT.

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Data ProtectionA fundamental consideration in sharing personal data is compliance with the DPA. In order to share data in this way there has to be a “condition for processing” as defined within the Act. Generally speaking this will be either direct consent from the individual concerned to share the data or the legitimate interests of the owner of the debt in recovering monies owed.

If relying on the legitimate interests condition only, the individual will need to have been notified at the point at which their personal details were collected that their data may be used for debt collection/tracing purposes and may be passed on to a CreditReferenceAgency.Webelievethat these elements are routinely included in fair processing notices by organisations providing credit facilities.

Data AccuracyData accuracy goes hand in hand with the centralisation of data about collections as this allows for details about an individual from multiple sources to be collated under a single identifier. This allows for standardisation of name and address details where appropriate and reduces the possibility of contacting an individual in error.

This not only benefits the collections industry in improving the effectiveness of their collection strategies but also, in line with the OFT Guidance, helps to reduce the potential stress on individuals as a result of being erroneously contacted in connection with a debt.

A Better Customer ExperienceThe above measures in turn should help to:

• Reducethenumberofindividualorganisations chasing an individual for debts

• Allowforamorecontrolledrepayment regime for individuals

• Reducetheincidenceof“innocent” individuals being chased for other peoples debts

• Ensurethatexistingindividualagreements with Debt Management companies are identified and complied with.

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In January 2012, the Office of Fair Trading (OFT) agreed in principle that the concept of a collections network addressed a key regulatory concern:

“…issues surrounding data quality are particularly relevant to the debt sale and purchase sector”

Office of Fair Trading Debt Collections Guidance October 2011

In March 2012, the OFT provided a supportive public quote in relation to the sharing of collections data:

“All businesses involved in Debt Recovery need to take reasonable steps to ensure that they maintain accurate and adequate data. Reasonable steps should be taken to ensure that accurate data is passed on to other businesses involved in the debt recovery process, whilst ensuing all the data protection obligations are met.

We are aware of a number of industry initiatives specifically designed to assist businesses to improve the exchange and use of accurate and up to date debt recovery data. We see participation in these and similar initiatives as a positive step by businesses seeking to adhere to the recently revised OFT Debt collection guidance.”

Jane Shepherd, Principle Debt Policy Officer, OFT, agreed by David Fisher, Director of Consumer Credit, Office of Fair Trading, March 2012

Also in March 2012, the Lending Standards Board reviewed the concept and was extremely supportive. They felt this approach was consistent with the spirit and letter of the Lending Standards Code.

Finally, in April 2012, the British Bankers Association’s (BBA) Working Group on Data Management were consulted regarding the sharing of data in this way.

Industry discussions

In producing this document, Experian has consulted with some of the leading organisations involved in the collections industry, including credit providers, debt management companies, and debt collection agencies, to understand what challenges they face and to formulate the potential approach detailed in this document. In September 2011 Experian discussed the DPA implications of sharing data on collections activity in the way outlined in this document with the Information Commissioners Office (ICO). No objections were raised during these discussions.

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WewouldexpectaformalTermsofReferencedocumenttobeputinplace for this kind of solution to ensure that all contributors are following compliant practices.

The positive feedback from the regulatory stakeholder community is a result of Experian’s review of a recent product pilot for data sharing in the collections industry. Experian has been running a pilot product since November 2011 with industry participants, and has shared the positive compliance results of the pilot with the regulatory stakeholders above, which have been positively received.

“…issues surrounding data quality are particularly relevant to the debt sale and purchase sector”

Office of Fair Trading Debt Collections Guidance October 2011

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Useful Information

More information on the OFT guidance can be found on the Office of Fair Trading web site at:

http://www.oft.gov.uk/about-the-oft/legal-powers/legal/cca/debt-collection

For more information about data protection see the Information Commissioner’s Office web site at:

http://www.ico.gov.uk/for_organisations/data_protection.aspx

Lending Standards Board http://www.lendingstandardsboard.org.uk/

British Bankers Association http://www.bba.org.uk/

DBSG http://www.dbsg-uk.com/

Credit Services Association http://www.csa-uk.com/

Experian Collections http://www.experian.co.uk/business-services/debt-collection.html

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