Collection Agency's Duty of Investigation in Out-of-Court Debt Collection

Circular Collection Agency's Duty of Investigation in Out-of-Court Debt Collection

CIRCULAR: 20/2016 DATE: 21.12.2016 THE CIRCULAR APPLIES TO: Foreign collection agencies

FINANS TILSYNET Postboks 1187 Sentrum 0107 Oslo

Collection Agency's Duty of Investigation in Out-of-Court Debt Collection 2 | Finanstilsynet

1 Introduction A license to conduct collection activities only permits the collection of undisputed claims. Attempts at out-of-court collection of doubtful or unjustified claims may be contrary to good collection practice. Collection agencies cannot seek direct enforcement without an enforcement basis, or register payment remarks on disputed claims.

For more information on how to assess the validity of claims stemming from subscription relationships, reference is made to the Consumer Ombudsman's letter of 29 June 2016: "Information letter on the regulations regarding the sale of subscription agreements."

2 Collection Agency's General Duty of Investigation and the Relationship to the Creditor Collection agencies normally collect several claims on behalf of the same clients. As a general rule, no individual assessment of each claim is required before the collection process is initiated. This presupposes, however, that the client is known to the collection agency and that the collection agency has reviewed the creditor's routines and found them reassuring. Therefore, an introductory meeting should be held with new clients, particularly with a view to establishing good routines for information exchange between the parties. For example, routines must be established for the creditor to inform the collection agency of any objections raised before the case is transferred to collection.

Where circumstances arise that give reason to doubt the legitimacy of the claim, these must be assessed by the collection agency before a payment request is sent1. This may be, for example, that an objection is raised against the claim. However, it can also be specific characteristics of the claim itself, such as the nature, origin, or size of the claim, or it can be matters related to the creditor—for example, that this has an unclear or complex structure, that the collection agency cannot establish contact with key personnel in the business, or that the collection agency has experience that the creditor's claims have a high dispute rate.

If the collection agency sees that claims from a single client generate an unreasonably high number of objections, the collection agency must initiate necessary measures to reduce the risk of collecting unjustified claims. As part of sound internal control, the collection agency must therefore have an overview of the number of complaints/objections and how they are distributed among the various creditors. It should be registered how the objections are distributed among the different claim types from the same creditor. If a type of claim has an abnormally high dispute rate over time, this is an indication that the claims as such are doubtful or unjustified. In the case of a high dispute rate over time, the general rule that no individual assessment of the claims is required does not apply.

The collection agency must therefore in such situations establish routines to assess the legitimacy of each individual claim before the collection process is initiated. Alternatively, the collection agency must consider declining the assignments.

Certain types of claims will normally have a higher risk of generating objections than others due to their nature. The same applies to different types of contractual bases. Examples are parking fines and goods/services sold via telemarketing/Internet.

Factors that may be included in the assessment of what can be considered "unreasonable" are therefore the type of claim, the type of contractual basis, previous experience with the specific creditor, and the measurement of the number of objections against other comparable portfolios that the collection agency has for collection.

Sound internal control implies that the company can document the assessments that have been made and the routines that are established, as well as extraordinary measures that are implemented.

3 Further on Handling Objections If an objection is raised against a claim and the objection is not obviously untenable (raised for dilatory purposes), the collection agency must stop the out-of-court collection.

All objections must be answered by the collection agency within a reasonable time. If the collection agency does not have sufficient grounds to answer the objection, this must be referred to the creditor. If the claim is still contested after this, and the creditor wishes to collect the claim, the collection must be legal. This is normally done by filing a conciliation claim. The collection agency has, in any case, an independent duty to assess the legitimacy of a claim before such legal collection takes place.2

Anne Merethe Bellamy director for market supervision Anne-Kari Tuv section chief

Contact persons: Advisor Oda Stensrud, tel. 22 93 97 61, e-mail: oda.stensrud@finanstilsynet.no Special Advisor Stein Tore Næprud, tel. 22 93 98 07, e-mail: stein.tore.naeprud@finanstilsynet.no

1 Collection Act § 10, first paragraph

Collection Agency's Duty of Investigation in Out-of-Court Debt Collection Finanstilsynet | 3

2 Collection Act § 11, first paragraph

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