Putting Compliance at the heart of business culture
Published Thursday 16 July 2009
By Nick Ramsden - Litigation Manager of The Lewis Group
There are few business sectors that are as heavily regulated as the collections industry. The issue of compliance, therefore, is significant: the need not only to comply, but also to be seen to comply with statutory requirements, is imperative.
But compliance should be more than just a ‘tick in the box' for a prospective tender; compliance should be at the very heart of the business culture.
Those working with the industry will understand the scale of the challenge that debt collection agencies face. The Consumer Credit Act 1974, the Administration of Justice Act 1970, the Data Protection Act 1998, The Proceeds of Crime Act 2002, the Money Laundering Regulations 2007 and The Communications Act 2003 are just a handful government-led regulations to which they must comply. Added to this are the official guidance issued by the OFT, the Information Commissioners Office, and the Financial Ombudsman Service. Then there are the voluntary codes from the relevant industry bodies, the Credit Services Association (CSA) and the Debt Buyers and Sellers Group (DBSG) for example, as well as the company's own in-house codes of conduct and quality management systems (QMS).
Agencies recognise that compliance is not simply about meeting one's statutory obligations, but rather a more critical scrutiny of their operations and how that ultimately impacts on the debtor. But keeping abreast of the changes in regulation, as well as monitoring the effectiveness of internal best-practice models, can be a full-time job, certainly for agencies over a certain size.
Dedicated compliance officers
The scale of the task has increased to the point that the Lewis Group, for example, has a dedicated compliance and quality manager, and an assistant, whose principal task is ensuring the company adheres to any changes that the law dictates. Information is cascaded through weekly meetings and a bi-monthly QMS review. There are also quarterly briefings to the senior operations team, and the opportunity to escalate the entire process to the highest level in the most urgent or extreme circumstances.
Fortunately, changes to principal legislation tend not to be too frequent. Amendments to regulations, however, are being published all of the time, and to this end agencies tend to look to bodies such as the CSA and the Civil Court Users Association (CCUA) for guidance. These associations, with their connections with government ministers and relationships at the appropriate level, are a vital source of information. They have also been essential in helping the industry engage more actively on proposed new legislation at the point of consultation.
The challenge of compliance is made greater when it is not exactly clear what creditors are expected to comply with. An example is the ‘unfair relationship' provision of the Consumer Credit Act. S140A of the CCA 2006 introduced the concept of an unfair relationship between creditors and debtors to replace the previous provision relating to an extortionate credit bargain. The new provision, however, does not specify precisely what an unfair relationship is, and gives the courts wide discretionary powers to take any factors into account. So instead of making things clearer, it actually leaves the way open for significant and costly litigation whilst the courts create precedents that define what can be regarded as ‘fair' or otherwise. It will take some time for clarity to be achieved and in the meantime, creditors are exposed to potential risk.
At the other end of the scale, there are examples of where too much prescriptive detail is included. A good case in point is the latest amendments to the Consumer Credit Act that obliges agencies to send a regular statement of account to any debtor with an outstanding liability, even when they know that debtor is no longer at the address to which the letter is sent. The entire industry knows this to be a nonsense, but it does bring into focus an interesting dilemma as regards compliance. An agency that deliberately decides not to send such a statement is in breach of the Act, and whilst that would render the agreements unenforceable, it also raises the possibility that failing to comply with the Act could - in theory at least - lead to their fitness to hold a Consumer Credit License being questioned by the OFT.
Letters that arrive at an address where the debtor has long since ‘gone-away' cause a variety of residual issues, not least the likelihood of a complaint from the current householder that they are being ‘hounded' by debt collectors for a debt that isn't theirs. Most agencies, of course, will have a defined, documented complaints procedure to deal with such calls, but again it raises an interesting compliance debate: the agency is being compliant in sending the letters, but generating complaints in the process. Given that ‘compliance' is about avoiding ‘expressions of dissatisfaction', agencies can feel rightly aggrieved as to the ridiculous position they may find themselves in.
Another important area of compliance relates to the aforementioned Communications Act 2003. The regulator, OFCOM, has been especially active recently, levying fines in excess of £100,000 to those companies that have broken the rules in relation to ‘silent' calls, an unfortunate by-product of power-dialler technology.
This is an area that from a compliance perspective increasingly requires a dedicated focus. Dialler managers, for example, are now being appointed whose role is not just about maximising the efficiency of the dialler's capacity, but also about ensuring that the use of the system remains compliant with OFCOM guidelines. Since the size of the company appears irrelevant to the OFCOM in terms of the size of the fines imposed, this is an issue that few in the collections industry can afford to overlook.
Reporting to the Board
Today, compliance is rising to the top of the agency agenda, and there is an apparent appetite within government to see compliance given even greater focus by agency Boards. In fairness, most if not all of the larger agencies either have dedicated compliance officers, or else the issue is shared amongst senior executives. (At the Lewis Group, for example, compliance has always been the responsibility of a Board Directors.) For those that cannot, or will not, take the issue seriously, however, the government could play a more positive role.
Whilst there is provision within the Consumer Credit Licensing regime for an agency inspection, and Trading Standards also has specific powers, the collections industry is not subject to scheduled compliance visits, as happens, for example to IFAs. This means there is no external recognition given to an agency's performance, beyond those that their own clients demand.
Whereas few would advocate further government interference, it could be argued that asking the government to benchmark a company's compliance performance would send a positive message to potential new business. Perhaps more importantly, especially today, it would send a positive message to the outside world.
Compliance should be a visible sign of an agency's moral and ethical culture, and a sign that short cuts cannot and will not be taken in the pursuance of recovering a debt. But it should be more than this. Compliance is about delivering a first class service, and ultimately about supporting the real desire to treat debtors fairly.