Creditor Action - debt recovery processes

Get impartial, independent advice from leading debt charity, the CCCS, on how to take your first steps to get out of debt.

If you fall behind with credit repayments, knowing what creditors can and cannot do, and understanding their processes, can remove uncertainty and help you deal with the situation effectively.

Charges and interest

If you miss payments or go over your borrowing limit, you will be charged a penalty by creditors on top of normal interest charges. Charges are stated upfront in the credit application terms and conditions you’ll sign, but can be altered by creditors.

If you believe a creditor has added the charges unfairly, you may be able to claim these back by complaining or through civil court action, but in most cases you can’t stop them being added.

Collection process

Once you default, creditors will try to collect arrears by:

• Calling and sending letters from their in-house collections department, requesting payment - gradually becoming more threatening, mentioning possible court action
• Sending a default notice if you miss a number of payments (usually between three and six), or make reduced payments, if the debt is regulated by the Consumer Credit Act
• If you cannot pay, the agreement is cancelled, and the debt usually passed to a collections subsidiary, or sold to an external agency
• Court action to force repayment can be tried once a default notice is issued

Contact by creditors

Creditors are entitled to contact you by letter, phone or home visit, but must obey set guidelines established by the Office of Fair Trading (OFT), downloadable from its website. Read these to know your rights.

Letters will often describe ‘possible’ actions creditors ‘could’ or ‘may’ take, rather than what they will or can do. Do not ignore letters, as important paperwork may arrive by post, such as legal documents.

Phone calls from creditors can be upsetting. It is easy for creditors to pressure you for payments. You should not ignore creditors, but do not need to take calls if they upset you or you are repeating yourself.

Unfair practice

Unfair debt collection practice, as determined by the OFT, includes:

• Placing phone calls “at unreasonable times and at unreasonable intervals” – although no actual limits are set
• Calling you at work without permission
• Discussing your debts with employers or family members
• Refusing to deal with advice agencies such as CCCS
• Pressuring you to borrow more money to pay off debts
• Pretending to have legal powers they do not have
• Adding unreasonable charges
• Contacting you when a debt is being disputed

The OFT can issue warnings and fines to, or withdraw credit licences from, creditors repeatedly breaching guidelines.

Making a complaint

If a creditor treats you unfairly, complain based on what you believe is “unreasonable”.

Make a written record of calls, voicemails and letters you get. Note the date, time, who called, and what was said. This evidence forms the basis for a written complaint, which should:

• Explain what you feel they are doing wrong, giving as much information as possible
• Refer to sections in the OFT guidelines that they are contravening
• Tell them what you would like them to realistically do to rectify things
• Ask for a copy of their complaints procedure
• State that you will contact the Financial Ombudsman Service if your complaint is unsatisfactorily resolved
• Ask all action to be stopped while your complaint is investigated, as stipulated by the OFT
• Ask them to reply in writing only
• Be sent by recorded delivery, keeping a copy yourself, and of any replies

Although OFT guidelines regulate creditors’ actions, the OFT does not investigate complaints from individuals. Consumer Direct is a good source of help and advice.

• Watch our video: The truth about bailiffs