Regulatory Alerts2016-12-19
Guidelines for Debt Collectors' Collection and Handling of Legal Case Costs
The Norwegian Financial Supervisory Authority issued these guidelines to address inadequate internal procedures among foreign debt collection agencies regarding the collection and handling of legal case costs from debtors. The document clarifies that debt collectors and creditors are jointly liable for court fees and must treat paid fees as client funds held in trust until official invoices are settled or legal judgments are rendered. It further stipulates that while legal costs cannot be demanded without reservation before a court decision, collectors may present claims for out-of-court settlement provided they document the disclosure of relevant legal and factual information.
Guidelines for the Collection and Handling of Legal Case Costs by Debt Collectors
2 | Financial Supervisory Authority
1 Introduction The Financial Supervisory Authority has, in connection with supervision, experienced that some debt collection companies have deficient and inappropriate procedures regarding the collection and handling of legal case costs from debtors. The purpose of this circular is to clarify the guidelines for this.
2 Collection of Legal Case Costs Section 17 of the Debt Collection Act states that the debtor has an obligation to compensate the creditor for the necessary costs the creditor has incurred in out-of-court recovery. For costs related to legal recovery, the rules of the Code of Civil Procedure regarding case costs apply, cf. Section 21 of the Debt Collection Act. The Court Fees Act regulates the plaintiff's obligation to pay court fees to the state in, for example, conciliation proceedings and enforcement. The Enforcement Act regulates which costs can be claimed as compensation from the debtor in enforcement claims. In conciliation board proceedings, this is regulated by the Dispute Act.
When the debt collector claims enforcement or submits a conciliation complaint, a court fee claim from the state will normally arise. The court fee arises when the judicial instance has registered the claim/complaint. This does not apply, however, if a conciliation complaint is withdrawn before a notice of response or a summons is sent to the defendant1.
The debt collector and the creditor are jointly and severally liable for ensuring that the court fee is paid to the state2. The court fee is invoiced in arrears by the State Collection Service3. When the judicial instance decides the case, the plaintiff may be awarded compensation for this court fee claim. A decision will also be made regarding any claim for compensation for other costs the plaintiff has incurred with the legal recovery. This means that the debtor may be held fully or partially liable to compensate for the legal case costs – including the court fee – but also that the debtor may be exempted from liability for compensation to the debt collector/creditor4.
Until the decision from the judicial instance is available, the debt collector/creditor has not yet obtained the basis for enforcement for the legal case costs. Therefore, the debt collector cannot demand payment of the legal case costs from the debtor without reservations before these have been awarded to the creditor by the judicial instance. Nevertheless, there is an opportunity for the debt collector to present the case cost claim to the debtor as soon as the legal step has been taken, if the purpose is to achieve an out-of-court settlement. The debt collector is then obliged to provide information on relevant legal and factual matters necessary for the debtor to take a position on the case cost claim. It should be clarified that the debtor will not have the case cost issue reviewed if the case is withdrawn. The debt collector must be able to document that this information has been provided.
1 Cf. Act on Court Fees of 17 December 1982 No. 86 Section 7, second paragraph 2 Cf. Act on Court Fees of 17 December 1982 No. 86 Section 2, first and third paragraphs 3 Cf. Regulation under the Court Fees Act etc. of 15 February 1983 No. 86 Chapter 3 4 Cf. for example Act on Mediation and Legal Proceedings in Civil Disputes of 17 June 2005 No. 90 Chapter 20 and the Enforcement Act of 26 June 1992 No. 86 Chapter 3
Guidelines for the Collection and Handling of Legal Case Costs by Debt Collectors Financial Supervisory Authority | 3
3 Paid Court Fees are Trust Funds Court fees paid by the debtor as part of an out-of-court settlement are client funds, on par with advance payments of court fees from the creditor. The funds must be kept in the client account until the invoice from the State Collection Service is paid. If the debt collector has received full or partial payment for court fees from debtors in connection with an out-of-court settlement, and the court fee is nevertheless not invoiced by the state, the amount must be refunded to the debtor in full.
If such a settlement is not entered into, and the debtor's liability for compensation for case costs is to be established legally, the debtor's payment of the court fee will be client funds until the invoice from the State Collection Service is paid and a legal decision is available.
The fee must be booked as client liability throughout the period, and included in the debt collector's ongoing client account reconciliations. Reference is also made to the Financial Supervisory Authority's Circular 7/2013 regarding the reconciliation of client funds.
Anne Merethe Bellamy director for market supervision Anne-Kari Tuv section head
Contact persons: Advisor Oda Stensrud, tel. 22 93 97 61, e-mail: oda.stensrud@finanstilsynet.no Special Adviser Arne Solberg, 22 93 98 05, e-mail: arne.solberg@finanstilsynet.no
FINANSTILSYNET Postboks 1187 Sentrum 0107 Oslo