The voluntary code has been tightened so that the public are protected from rogue bailiffs who use unsound, unsafe or unfair methods, while at the same time making sure businesses and authorities can still collect debts fairly.

The national standards provide guidance on a range of issues, including:

1. Creditors’ responsibilities when instructing and dealing with enforcement agents or agencies (e.g. creditors must provide a contact point at appropriate times, to allow the enforcement agent or agency to raise essential queries, particularly where there is cause for concern);

2. Professional conduct requirements for enforcement agents (e.g. the need to present appropriate identification to the debtor and to carry out their duties in a professional, calm and dignified manner);

3. Compliance with statutory or financial requirements (e.g. enforcement agencies must keep a complete record of all financial transactions in whatever capacity undertaken, and must maintain suitable and comprehensive insurance cover);

4. Training and certification. All agents, employees and contractors must be provided with appropriate training to ensure that they are able to always act within the bounds of the relevant legislation;

5. The need to operate complaints and disciplinary procedures with which agents are fully conversant. Enforcement agents/agencies are encouraged to make use of the complaints and disciplinary procedures of professional associations such as The Civil Enforcement Association or the High Court Enforcement Officers Association.

6. Acceptable times and hours for enforcement activity. Enforcement should only be carried out between the hours of 6.00am and 9.00pm or at any time during trading hours. It should not be undertaken on Sundays, on Good Friday or on Christmas Day, unless the court specifically orders otherwise. Enforcement agents should carefully consider the appropriateness of undertaking enforcement on any day of religious or cultural observance or during any major religious or cultural festival.

7. What goods can be taken. Enforcement agents must ensure that goods are handled carefully and that they have insurance in place for goods in transit so that any damage is covered by the policy. Items clearly identifiable as an item belonging to, or for the exclusive use of a child under the age of 16 should not be removed. A receipt for the goods removed should be given to the debtor or left at the premises.

8. Vulnerable situations. Enforcement agents/agencies and creditors must recognise that they each have a role in ensuring that the vulnerable and socially excluded are protected (e.g. the elderly, recently bereaved, single mothers and pregnant women).) Enforcement agents must withdraw without making enquiries if the only persons present are children who appear to be under the age of 12.

A copy of the revised national standards are here.

The Government has also announced that a consultation on proposals to create a new legally binding regulatory regime for bailiffs will follow in spring 2012. These will include:

1. New rules governing the permitted modes and times of entry by enforcement agents to make it clear when and how an enforcement agent may enter a home or a business;

2. Which goods are exempt to make it clear which items an enforcement agent may not take from someone’s home or business premises; and

3. What fees bailiffs can charge for the range of debts that they collect for local government, courts and businesses.

The Government aims to introduce these changes as soon as possible.

The Guidance, which should be referred to by all businesses engaged in the recovery of consumer credit debts (e.g. debt collectors, banks and law firms), sets out the standards that the OFT expects all parties engaging in the recovery of such debts to adhere to.

The Guidance is divided into the following chapters:

1. Introduction. This sets out how the ‘fitness test’ under section 25 of the Consumer Credit Act 1974 applies to debt recovery activities;

2. Overarching principles of fair business practice. This sets out the FSA’s overarching principles of consumer protection and fair business practice that apply to all debt recovery activities. This chapter explains that businesses should treat debtors fairly, be transparent, exercise forbearance and consideration, and act proportionately. They should also establish and implement clear, effective and appropriate policies and procedures (especially for dealing with vulnerable debtors);

3. Unfair or improper business practices. This sets out the behaviours that the OFT considers to be unfair or improper business practices for the purposes of section 25(2A)(2) of the Consumer Credit Act 1974 (e.g. using Facebook or Twitter to contact debtors.) If these are engaged in, they may call into question a person’s fitness to retain, or be granted, a consumer credit licence;

4. Regulatory compliance and enforcement. This outlines the OFT’s approach to securing compliance and provides information on the regulatory options available to the OFT.

The OFT has said that it will shortly update its Irresponsible Lending Guidance to reflect this revised version of Debt Collection Guidance.

 Set out below is the background to the Late Payments Directive together with a synopsis of the proposed agreed changes.

 Background

In November 1998, the UK Government introduced legislation to give businesses a statutory right to claim interest from other businesses for the late payment of commercial debts under the Late Payment of Commercial Debts (Interest) Act 1998.   The UK was one of the first countries in the EU to introduce late payment legislation to help promote a culture of prompt payment.

 In 2000, the European Union adopted Directive 2000/35/EC on combating late payment in commercial transactions (Late Payments Directive) and this Directive was duly implemented in the UK through the Late Payment of Commercial Debts Regulations 2002 (SI 2002/1674).

 Under the revised legislation, all business owners and managers could claim reasonable debt recovery costs and could benefit from the simplification of the calculation of Statutory Interest.  Additionally, small and medium sized enterprises were able to ask a representative body to challenge grossly unfair contract terms used by their customers which did not provide a substantial remedy for late payment of commercial debts.

 However, in April 2009, due to the fact that late payment was still a general problem in the EU, with public authorities in Member States in particular displaying bad payment behaviour, the European Commission published a proposal for a Directive repealing and replacing the Late Payments Directive.  The Draft Directive was forwarded to the European Parliament and the Council of the European Union for consideration.

 At the time, the recast Directive proposed by the Commission (i) suggested that public authorities pay within 30 days or pay a flat-rate compensation of five per cent of the amount, plus interest; (ii) suggested business be entitled to claim both late payment interest and reimbursement of any recovery costs; (iii) suggested that the entitlement to exclude claims of interest for less than five euros be removed. 

 Agreed Changes

 The Agreed changes to the draft (Recast) Late Payments Directive updates the existing EU Late Payments Directive and secures important concessions for SMEs on the general payment and verification periods, the capping of payment periods by public authorities and the interest rate payable if payments are made late by public authorities or companies.

 A summary of the agreed changes is set out below:-

•  The standard deadline for both public and private sectors to pay a bill for goods of services will now be 30 days across the EU Member States.

 Previously, public authorities were not allowed to agree payment periods of more than 30 days with their suppliers (unless a longer payment period could be objectively justified) whereas private sector companies were free to agree whatever payment deadlines they liked.  The standardising of the 30 day deadline for both public and private sector companies can be seen as somewhat contentious given that the initial proposal was for a standard 60 day deadline for payments by private sector companies.

•  Proposed Statutory Interest rate of 8% over the reference rate (MEPs initially pushed for a 9% interest rate so the 8% surcharge is a compromise with the Council which wanted 7%)
•  Proposed fixed sum of €40 as compensation for recovery costs as opposed to the Commission’s initial proposal of a multi-level compensation payment system, believed by many to be too complicated and confusing
•  A proposed clear-cut verification period.

 The Commission has proposed a grace period of 30 days for verifying that the goods or services comply with the contract terms, during which interest will not start to run.  This period may be extended only if expressly agreed and provided it is not grossly unfair to the supplier.  Parliament also secured an undertaking that verification periods will not be used as a loophole to delay payment unnecessarily.

•  Public authorities and their suppliers may agree a payment period of more than 30 days if the circumstances objectively justify it but can never delay payment beyond 60 days.
•  60 days capping for public authorities: Public entities providing healthcare will be given payment deadlines of up to 60 days to take account of the special nature of bodies such as public hospitals which are largely funded through reimbursements under social security systems.

 Analysis of the proposed Changes

The agreed changes are likely to be welcomed by SMEs across Europe.  Figures revealed in a recent pan-European survey undertaken by the Swedish Credit Management Services company Intrum Justitia affirm that in 2009, the average delay in getting payment beyond the agreed terms rose 12 per cent to 19 days from 17 days in 2008.[1]

The Intrum Justitia survey reveals how many companies, organizations and public authorities pay late as a cheap source of financing, often exploiting their size to delay paying the SMEs. The net result is that the SMEs are then faced with serious liquidity crises, which in turn can lead to slower economic growth.  The survey highlights how Governments took on average 67 days to pay their debts, compared with 57 days for companies and 41 days for consumers. It appears the worst countries for late payment include Portugal and Greece, while the best appeared to be the Nordic countries.  The survey attests that European SMEs, responsible for contributing 56% of the EU’s GDP, are the hardest hit by the rise in non-payment.[2]

The proposed extension of the standard 30 day deadline for payments to apply to both public authorities and private sector companies alike is a surprise and likely to be met with some resistance from larger private sector organisations.

It is difficult to envisage how the standard 30 day deadline will work in practice and in particular, what exceptions to this rule will be provided.  It seems likely that the ability to agree to pay by instalments will be preserved and that parties will be able to agree longer deadlines where it can be objectively justified in the light of the nature of the contract.

It also remains to be seen whether the Commission’s proposal to impose an obligation on public authorities to pay lump-sum compensation to suppliers for overdue payments (over and above the interest on the late payment) will be dropped. Parliament’s draft report suggested this proposal would be deleted but the Parliament press release does not confirm this.

What next

It is expected that an amended draft Directive will be put forward to the European Parliament in plenary session to be held in October 2010.

We shall provide a further update once the revised draft Directive is published.

Tim Constable comments: “Statutory late payments interest claims are an effective weapon in the armoury of a business. Creditor controllers can and should use this legislation far more than they tend to do. See us for further advice on how and when to make a claim.”

Tim Constable is a Partner in the LitigationTeam of Matthew Arnold & Baldwin;  Justine Ash is an Assistant Solicitor in the Litigation Team of Matthew Arnold & Baldwin

[2] Figures taken from Intrum Jusitita website and 10.05.2010 press release “European written of debt reaches €300 billion”;

HMRC has indicated that the debt collectors will primarily (but not exclusively) focus on individuals who have smaller debts of up to £2,000; this would mirror the pilot scheme, where debt collectors reportedly focused on individuals who owed, on average, £1,000.

Before debt collectors are instructed, HMRC will write to the errant taxpayer to ask him or her to either pay the outstanding tax or reach an agreement on settling the debt. If the taxpayer does nothing, HMRC will then ask the debt collector to pursue the individual. However, debt collectors will not be allowed to recover debts by seizing an individual’s property, as only HMRC can do this through the courts. HMRC will pay the debt collection companies a percentage of the tax they recover.

The move has angered tax advisers, as HMRC has recently been criticised in the media for wrongly deducting nearly £250m of tax from employees and pensioners. It is therefore quite conceivable (and ludicrous) that a taxpayer who is owed money by HMRC could be pursued by a debt collection agency for unpaid tax.

The draft guidance consists of a document setting out the technical legal issues for businesses and consumer advisers, and a simpler version for consumers.

The consultation is open until 21 April 2010.  The technical legal advice makes the following points:

•  Consumers have been given an exaggerated expectation of what the creditor or owner must do in order to comply with an information request as a result of misleading claims by claims management companies and inaccurate information on the internet.
• A number of creditors, appear not to understand their obligations under these sections.
• The purpose of these sections is to provide information to the consumer, not to provide a method for consumers to avoid paying their debts.
• The OFT considers that the creditor in sections 77 and 78 and the owner in section 79 includes a person who has merely bought the debts under the agreement. 
• As well as assignees ensuring that they are able to obtain from the assignor copies of the agreements and documents and historical information on the account, the original creditor should ensure that if necessary and appropriate, it is able to readily obtain from assignees any necessary information on the most recent state of the account.
• The creditor should satisfy itself that the writer of the request has the proper authority to obtain the information.  If there is no authority with the request the creditor is entitled to reply by asking to see the authority.
• If the request comes from only one debtor where there are two or more debtors, it must be complied with and the response given to both or all debtors.
• The creditor is not entitled to charge more than £1.
• The creditor can send the documents by ordinary second class post to the address given in the request.
• It is wise to retain some record of posting.
• If a claims management company does not hold a license then the OFT would expect the creditor to inform the debtor/hirer  why the information is being sent direct to him and to notify the OFT and Ministry of Justice.
• The request should be complied within 12 working days after the receipt is received.  The day the request is received is not included, but it will include the day the information is sent.
• A true copy as confirmed in the recent case of Carey v HSBC Bank plc does not mean an exact copy.
• There is no obligation to provide a signed copy.  The creditor may be able to provide evidence that its practice was always to require a signature to its agreements.
• The creditor can reconstitute a copy of the agreement.  The name and address at the time of execution must be included, but this can be taken from any source available.
• If the reason why no copy of the agreement is given to a request under these sections is that there never was an executed agreement, the creditor should acknowledge this in its response.
• Where there has been a variation, the duty is to provide the original agreement, but a copy of the latest variation or a clear statement of the terms of the agreement as varied.
• Any copy must be easily legible.
• The consultation provides details of the documents to be provided.
• The consultation also provides details of the statements of account that should be provided.
• The duty does not apply if the agreement has been paid off or terminated.
• It does not apply where judgment has been obtained unless there is an interest-after judgment clause in the agreement which the creditor or owner has not expressly waived.
• If the creditor fails to comply with the duty, it is not entitled, while the failure to comply continues, to enforce the agreement.
• If sections cannot be complied with, the debt does not disappear and it is perfectly acceptable for a creditor to seek to pursue the debt and to register any arrears or default with a credit reference agency.
• If a creditor were to threaten court action, knowing that such action is not possible, this would be misleading and oppressive.
• Where an agreement is unenforceable because of non-compliance with the sections:
• The OFT would expect the creditor to take steps to check that there was an agreement and that there are monies outstanding.
• No communications or requests should threaten court action or other enforcement of the debt where the creditor is aware that it cannot or will not be entitled to enforce the agreement.
• The creditor should make it clear in communications that the debt is unenforceable.  Failure to do so would unfairly mislead the debtor.
• Where a creditor has satisfied itself that a debt does exist and is correctly described, it is acting fairly in registering a default with credit reference agencies and informing the debtor or hirer that it intends to do so. 

Having heard all the evidence, the Judge decided that it was overwhelmingly likely that whoever signed the guarantee with its distinctive signature was duly authorised to do so.  There were many documents disclosed which had the same signature.  The probability was that these other documents were signed by the same signatory as the guarantee, with authority from FGH.  It was unrealistic that FGH were unaware of these documents.  The Judge also relied on the adverse view she took of FGH’s witness. She concluded that the authority was either expressly given or impliedly given from a course of dealings. 

This case demonstrates that where the authority of the signatory is dispute, evidence can be produced to establish that it was either expressly given or impliedly given by a course of dealings. 

A/S Dan Bunkering Limited v F G Hawkes (Western) Limited and others [2009]  EWHC 3141

 Judge David Waksman held that the banks could satisfy its duty sunder s78 by providing a reconstituted version of the executed agreement which may be from sources other than the actual signed agreement itself.

It is estimated that claims management companies have been looking at  thousands of cases in an attempt to exploit s78 of the Act.  S78 imposes an obligation on the bank to provide a copy of the executed agreement under a regulated agreement for running-account credit within 12 days after receiving a request in writing from the debtor and a payment of a fee of £1.

Sometimes the banks were unable to provide an exact copy of the agreement and these claims management companies sought to claim that the debts were not enforceable.  The Judge disagreed although held that the s78 copy must contain the name address of the debtor as it was at the time of the execution of the agreement.  The creditor can provide the name and address from whatever source it has of those details.  It does not have to take them from the executed agreement itself.  If an agreement has been varied by the creditor under a unilateral power of variation, the creditor must still provide a copy of the original agreement, as well as the varied terms.

The Judge also decided that a breach of s78 this does not of itself give rise to an unfair relationship within the meaning of section 140A of the Act thus defeating a significant number of claims.

 This decision is truly a triumph of common sense.  When introduced, the aim of the Act was to release the credit industry from outdated restrictions and allow it to develop a framework to encourage competition whilst at the same time providing consistent and adequate protection for consumers across the whole spectrum of credit transactions.  The attempts by the claims management companies to exploit the provisions of the Act achieved none of these goals.

 This decision is certainly good news for the banks and what with the failure of the OFT in the Supreme Court to challenge bank charges, 2010 will have a more optimistic start.

At the times the loans were made, they made good business sense for the defendant and so were legally binding agreements.  There was an imbalance in their relationship as the defendant looked up to the claimant because of his greater education and achievements.  To charge an interest rate almost three times greater than the base rate was completely out of line with the terms of the original loans and in the circumstances exorbitant.  

The court has a very wide discretion under section 140B of the Consumer Credit Act 1974 and so reduced the sum payable by the defendant. 

This case provides a good example of when a court will intervene under the Consumer Credit Act 1974  to ensure that the terms of a loan agreement are fair.

Patel v Patel [2009] EWHC 3264 10 December 2009