Guidelines on Debt Collectors' Access to Enter into Agreements on Additional Benefits in Connection with Debt Collection Assignments – "Pay Back"

CIRCULAR Guidelines on the debt collector's access to enter into agreements on additional benefits in connection with debt collection assignments – “pay back” CIRCULAR: 5/2014 DATE: 23 June 2014 THE CIRCULAR APPLIES TO: Foreign debt collection companies Branches of foreign debt collection companies THE FINANCIAL SUPERVISORY AUTHORITY Postboks 1187 Sentrum 0107 Oslo

Guidelines on the debt collector's access to enter into agreements on additional benefits in connection with debt collection assignments – “pay back” 2 | The Financial Supervisory Authority 1 Introduction This circular summarizes the Financial Supervisory Authority’s statements regarding contractual terms for the debt collector’s access to enter into agreements on additional benefits in connection with debt collection assignments (“pay back”). This circular replaces circular 18/2012. The most significant changes are: • An extension of the debt collector’s maximum financial framework for the refund of funds, cf. section 3.2. • A prerequisite for the refund of funds to take place at all is that the debtor actually pays the debt collection costs, cf. sections 3.1 and 3.2. • The sending of letters on behalf of the creditor is covered by benefits that the debt collector cannot provide free of charge, cf. section 4. The Financial Supervisory Authority will, in its supervisory activities, base its interpretations and assessments on those outlined here. 2 The Legal Starting Point The debtor is obligated to compensate for the “necessary costs” the creditor has incurred in out-of-court debt collection, cf. the Debt Collection Act § 17. This applies to both costs incurred by engaging a debt collector and costs incurred by collecting the claim oneself. Agreements on “pay back,” where the debt collector, as a condition for taking on the assignment, commits to providing remuneration to the creditor in the form of money and/or other benefits, may result in the debtor being charged a higher amount than what the creditor pays for the debt collector’s out-of-court debt collection. This may imply that the debtor is charged more than the creditor’s “necessary costs.” The Ministry of Justice and Public Security stated in an interpretative statement on 21 January 2011 that there is permission to enter into certain types of agreements that imply that the debt collector, under given prerequisites, can both refund the creditor parts of the debt collection fee that the debtor is obligated to pay in out-of-court debt collection, and deliver other benefits free of charge to the client, cf. section 4, without this being considered contrary to the basic principle of the Debt Collection Act § 17. Benefit solutions beyond those specified cannot be offered, even if these are financed through other income sources than the debt collector’s fee income. 3 Refund of Debt Collection Costs 3.1 Refund of Fee-based Compensation The creditor has the right to fee-based compensation regardless of the actual costs, cf. the Debt Collection Regulation § 1-1. On this basis, it is generally permitted that the debt collector refunds the creditor parts of the debt collection costs that the debtor is obligated to pay in out-of-court debt collection within certain limits and under the following prerequisites: • The refunded amount corresponds to the fee calculated according to Chapter 1 of the Debt Collection Regulation, which was charged to the debtor in the reminder/debt collection notice/payment request and which has been paid. • Refund to the client can occur when the debt collector has received the claim for collection, even if the debtor has not paid at this time. In such cases, a subsequent settlement must occur against cases where the debtor has not paid fees that the debt collector has advanced. • The requirements for the content of the reminder/debt collection notice and payment request must be met. Refund of debt collection costs cannot be made in cases where: • The debt collector sends a debt collection notice and/or reminder and • The debt collector and the creditor have agreed that the refund of fee-based compensation to the creditor only occurs if the debtor pays after the debt collector has sent the debtor a payment request. In other words, the debt collector retains the fee-based compensation if the debtor pays before the payment request is sent. It is contrary to the legal starting point in the Debt Collection Act § 17 to agree that the timing of the debtor’s payment determines whether the debt collector retains the fee-based compensation. The timing of the payment cannot be given significance for what constitutes the “creditor’s necessary costs” under the Debt Collection Act § 17. This implies that the debt collector cannot refund debt collection costs for cases covered by such agreements. 3.2 Refund of Standard Compensation The Ministry of Justice and Public Security issued an interpretative statement on 16 January 2014 in connection with changes to the Debt Collection Regulation, cf. the Debt Collection Regulation §§ 1-5 and 2-6. The regulatory changes imply a right for the creditor to charge the debtor, in their capacity as a business operator or public administration/authority, a standard compensation for debt collection costs according to the Interest Act § 3a, first paragraph. The standard compensation can be charged regardless of the creditor’s actual costs, and accrues no earlier than when default interest can be claimed according to the Interest Act § 2. The debt collector may, vis-à-vis a creditor who charges the debtor standard compensation according to the Interest Act § 3a, first paragraph, refund an amount up to the size of the standard compensation. This presupposes that the debtor actually pays the charged standard compensation. Refund to the client can occur when the debt collector has received the claim for collection, even if the debtor has not paid at this time. In such cases, a subsequent settlement must occur against cases where the debtor has not paid standard compensation that the debt collector has advanced.

Guidelines on the debt collector's access to enter into agreements on additional benefits in connection with debt collection assignments – “pay back” 4 | The Financial Supervisory Authority 4 The Right to Agree on Other Additional Benefits In addition to refunding parts of the debt collection costs, the debt collector may deliver certain other types of benefits free of charge to the client, regardless of the economic value of these benefits. The prerequisite for this is that the benefits aim to streamline the debt collector’s work with the collection and/or to raise the quality of the execution of the debt collection assignment. Examples of such benefits are: • Discounted and/or free courses organized by the debt collector on collection-related issues directed at the client’s employees. • Legal services provided during the out-of-court debt collection process (up to the first legal collection measure), without extra remuneration or at a reduced price, and which are linked to claims sent to the debt collector. • Handling of returned mail and updating of debtor addresses on behalf of the client. • Preparation of statistics/status information for cases/portfolios in accordance with the Debt Collection Act § 15. • Compilation of data to facilitate the best possible tailored, efficient, and qualitative collection at the debt collector with regard to the individual debtor group (segmentation models). • Conducting customer satisfaction surveys with the debtor using certain standard questions via the debt collection/case processing system. • IT solution for file transfer of case information from the client to the debt collector, including any upgrade and/or further development of such a solution, to facilitate the debt collector’s work. The following benefits are considered by their nature not to have such an efficiency-enhancing or quality-improving effect on the debt collector’s execution of the debt collection assignment, cf. above: • Sending of letters on behalf of the creditor. • Agreements on guaranteed recovery rates that imply that if the debt collector does not achieve a given percentage (guaranteed) recovery rate within a pre-determined deadline, the debt collector must pay the difference between the achieved recovery rate and the guaranteed recovery rate to the client. • The debt collector contributes marketing support to profile the client’s goods/services. • The debt collector administers salary payments or other administrative support schemes on behalf of the client. • The debt collector pays for the client’s access to searches on credit information (payment remarks). • The debt collector pays for access to the basis for each claim presented to the debtor. • The debt collector pays for market research on behalf of the client, which is prepared/conducted by an external company. • The debt collector compensates the creditor for work performed at the out-of-court stage, beyond the refund of debt collection costs, cf. section 3. • Free or discounted services as a result of the creditor’s payment of subscription/annual fees to the debt collector.

Guidelines on the debt collector's access to enter into agreements on additional benefits in connection with debt collection assignments – “pay back” The Financial Supervisory Authority | 5 • The debt collector compensates the creditor financially in connection with a claim being sent to a foreign debt collection company that settles commission based on the principal amount of the claim if the debtor pays. These types of benefits will therefore not be offered as additional benefits that the debt collector shall pay for wholly or partly. However, it can be agreed that the debt collector covers the part of the value of such benefits that lies within the framework for the refund of debt collection costs, cf. section 3. In such a case, the debt collector does not have the permission to additionally refund debt collection costs. 5 “No cure no pay” Agreements between the debt collector and the creditor based on the “no cure no pay” principle imply that the debt collector assumes the cost risk if the debtor does not pay. This practically means that the debt collector does not charge the client (creditor) debt collection fees, any additional fees in connection with taking legal steps, nor any accrued court fees. The cooperation agreement can limit which additional fees and accrued court fees are covered. Agreements based on the “no cure no pay” principle can in this sense be considered a benefit solution. The Financial Supervisory Authority finds, however, after a concrete assessment, that such an agreement does not naturally fall within a “pay back” context. 6 Administrative Companies Administrative companies typically have the task of handling invoicing and accounts receivable follow-up or conducting bidding and purchasing procedures on behalf of clients (creditors), and in doing so, they forward clients and debt collection cases to the debt collector. As economic compensation for this, the debt collector pays, for example, a percentage share of accrued debt collection costs based on cases received from the clients to the administrative company. Services provided by the administrative company to the respective clients (creditors) are difficult to see as having any relevance to the practical collection of overdue monetary claims. The Financial Supervisory Authority therefore believes that such payments from the debt collector must be considered as if they were made directly to the client. Such benefits are not considered suitable to streamline the debt collector’s work with the collection and/or to raise the quality of the execution of the debt collection assignment. 7 Practical Implementation Prior to the transfer of funds and/or other benefits to the client, the debt collector must: • Establish routines to calculate the financial framework for the refund of debt collection costs to the client.

Guidelines on the debt collector's access to enter into agreements on additional benefits in connection with debt collection assignments – “pay back” 6 | The Financial Supervisory Authority • Thereafter, compile the accumulated financial framework against the funds/values of the benefit(s) paid/delivered to the respective client. The purpose of such a compilation is to ensure that the funds/values of the benefit(s) to the individual client do not exceed the accumulated financial framework for the respective client. As a general starting point, the underlying agreement between the debt collector and the client provides guidance on the start and end times for the calculation of the debt collector’s accumulated financial framework for the refund of debt collection costs. This also includes any other benefits the debt collector provides to the client that are not assumed to have an efficiency-enhancing or quality-improving effect on the debt collector’s execution of the debt collection assignment. If no time is specified in the cooperation agreement for the measurement/reconciliation of the economic value that the debt collector provides to the client, it is natural that the calculation occurs from the start of the agreement. Anne Merethe Bellamy director for market supervision Wilhelm Mohn Grøstad section chief Contact persons: Special Advisor Stein Tore Næprud, tel. 22 93 98 07, email: stein.tore.naeprud@finanstilsynet.no Special Advisor Arne Solberg, tel. 22 93 98 05, email: arne.solberg@finanstilsynet.no

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