Debt collectors up the ante as money pressures mount

SILENT phone calls, bailiff threats and late-night visits may sound like loan shark antics, but Scots in debt difficulties are discovering that banks and credit card providers are capable of the same underhand tactics.

A growing number of people approaching Citizens Advice Scotland (CAS) for help with their debts are complaining of harassment by creditors, with reports of aggressive and often illegal debt recovery methods.

Debt collection agencies - often working on behalf of banks - tend to be the worst culprits. Complaints about the firms have soared since the start of the banking crisis, reflecting an increase in the number of creditors referred to collection agencies by financial services providers.

The Financial Ombudsman Service received over 3,000 inquiries and more than 500 formal complaints about debt collecting in the year to April, with 42 per cent found in favour of the consumer. It's not only collection companies, however, with banks and card providers themselves guilty of unfair treatment of debtors, according to CAS.

Lucy McTernan, its chief executive, said: "Over 40 per cent of Citizens Advice Bureau debt clients have told us they have gone without food or fuel in order to try and pay off their debts - in many cases because they were being pressurised aggressively by their creditors."

The claim is made at a time when new figures suggest that many households north of the Border are close to financial breaking point. Recent research by insolvency trade body R3 found that in the last three months more than 500,000 Scots have taken on additional debt, including credit cards and loans. More than 200,000 have taken out payday loans in the past year in an attempt to make ends meet, but one in five has struggled to repay them.

But for some Scots struggling to dig their way out of debt, the situation is being exacerbated by the actions of creditors. Those unable to clear payday loans on time face not only face the steepest repayments, but often the most intrusive approach to debt collection, CAS evidence suggests.

One firm sent two representatives to the home of a West of Scotland woman with mental health problems, who suffered distress when the two men entered her home asking for repayment.

But the trend extends as far as high street banks. Another West of Scotland CAS client claimed to have received silent calls from his bank, some as early as 8am and others late at night. The bank argued that the calls were a result of administration difficulties, implying that the client was not alone in getting such calls. Some CAS clients have also been threatened with bailiff action that is illegal north of the Border. One East of Scotland women was told by her credit card provider that the bailiffs would be sent around unless she increased her repayments. The company became "aggressive and insulting" once the debtor pointed out that bailiffs were not allowed to operate in Scotland, she claimed. She was fortunate in having an understanding of her rights, but creditors are adept at exploiting consumer ignorance.

If you're not sure of your rights, then get in touch with someone who can help, such as Citizens Advice or the Consumer Credit Counselling Service (CCCS). A spokeswoman for the CCCS said: "People who are being hassled by a creditor or collections agency should get in contact with a debt charity for help with their debts, then let the creditor or collections agency know that they are getting help from a debt charity. They should then give them time to sort their debts which the charity, such as CCCS, should be able to help them with."

One way of reducing your chances of problems with creditors is to take the initiative in the event of difficulties. Anne Buchanan, corporate recovery partner at PKF, said: "The best way to avoid harassment by creditors is to keep them well informed and let them know why you have missed payments and what you intend to do to repay the debt.

"In general, they don't want to take legal action - but if they don't know details of your circumstances then they will assume the worst and may then take legal action.

"A creditor will continue to contact a debtor until they find out what is happening with the debt. If the debtor ignores calls and letters, the creditor will assume that they are not going to get paid and this can lead to an escalation in what measures the creditor takes to recover the debt."

This, as many people have discovered to their cost, can mean passing the buck to a debt collection agency, which may prove harder to deal with.

"Therefore, it is essential that if you get into debt, you must keep communicating with the creditor," said Buchanan.

"Banks and credit card companies genuinely don't want to initiate bankruptcy proceedings against individuals if they can help it and are usually open to negotiating payment terms."

If you miss debt repayments the first step is to ask the creditor if they will accept reduced payment terms over a longer period.

"However, you must be realistic in setting terms so that if you agree to payments over a fixed period you will actually be able to keep to that agreement," said Buchanan. "Agreeing terms that are unrealistic and guaranteed to fail will only upset the creditor and increase the likelihood of them taking more severe action against you."If you're dealing with a debt collector, note that they are regulated by the Office of Fair Trade. To find out if a particular firm is licensed to collect debts, call the OFT on 08457 224499.

Under the Lending Standards Code, the self-regulatory guidelines for banks, building societies and credit card providers, consumers have a right to breathing space provided they can demonstrate that they are taking steps to get help or to develop a repayment plan. In such cases, firms are expected to stop debt collection activities for at least 30 days, including calls and letters.

If the debtor can show they are making progress in developing a "genuine repayment plan", they are supposed to be given an additional 30 days of breathing space. For more information on the code, visit www.lendingstandardsboard.org.uk.