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Reformers get tough on debt collectors


Debt collection tactics are notorious in Hong Kong, where many practices are still largely unregulated. A number of cases have been reported recently about debt collection agencies using strong-arm tactics to recover credit.

By 1998, the aura of illegality surrounding some agencies' methods was so pervasive the Law Reform Commission set up a sub-committee chaired by Mr Justice Henry Litton to consider the regulation of debt collection practices in the SAR.

Public concern about outrageous practices used by some debt collectors was initially sparked by extensive media coverage of several particularly unsavoury incidents.
In January 1999, for instance, inflammable substances were poured into a Kwai Chung flat, resulting in a fire and the evacuation of 150 inhabitants from the estate.

As inhabitants of the flat were indebted to several credit card and finance companies, the episode was widely believed to be related to debt collection activities.

Recognising the need to consider reform of the law governing debt collection tactics, the sub-committee issued a consultation paper earlier this year, with the consultation period closing at the end of this month.

The paper lists five main recommendations to regulate the way debts are collected outside the court system in Hong Kong. Included in the recommendations is a proposal for the creation of a new criminal offence, described as harassment of debtors.

However, Bobby Rozario, was concerned about this recommendation.

"We cannot have laws and regulation protecting debtors too much," said Mr Rozario, who is vice-chairman of the Hong Kong Credit and Collection Management Association (HKCCMA).

The association had been particularly concerned about the negative image of credit and collection companies, and Mr Rozario believed this could have weighed too heavily on the minds of the sub-committee.

Charles Booth, associate professor in the Department of Professional Legal Education at the University of Hong Kong, and sub-committee member, rejected this contention.

"I don't think that's the case. We were aware of the negative reports, but it was much broader than just that," he said.

Mr Rozario said the wording of this recommendation was too ambiguous to be effective.

The paper states coercion may become a criminal offence if a debtor is subject to demands which, by their frequency, manner or occasion, are likely to subject the debtor or members of his household to alarm, distress or humiliation.

Mr Rozario said: "We have difficulty in understanding this. We have to call people and if we have to stop, it will be unreasonable and unfair. How can I humiliate somebody by making two calls a day?"

The recommendation for the creation of a new criminal offence stems from the sub-committee's conclusion that the existing criminal and civil framework does not provide adequate protection against the less extreme tactics used by debt collectors.

Mr Booth said: "We needed to enact a scheme tailored to debt collection practices. You can use many of the existing criminal law sanctions for the more egregious tactics."

He said less flagrant practices were "an especially grey area".

In this respect, the HKCCMA's own code of ethics also fails, as it only prohibits its members from resorting to illegal tactics.

Mr Rozario said: "The code of ethics in itself is not sufficient."

Examples of non-criminal tactics include posting repayment notices outside the debtor's home and office, alleging the debtor is in financial difficulty and, perhaps most commonly, making persistent but non-threatening phone calls and personal visits. The new law will, hopefully, offer protection against such nuisance strategies.

The sub-committee also recommends the formation of a new licensing authority, so all debt collection agencies will be required by law to have a licence. The new licensing regime is expected to cover consumer and commercial debts, in a departure from established practice in other countries such as the United States.

The paper notes, however, that Hong Kong is unique in this respect, as debt collection agencies often collect commercial and consumer debts, and there is no clear delineation of the two.

The licensing proposal has met with favourable reaction from most quarters.

Mr Rozario said licensing was largely welcomed by the debt collection industry.

"We are encouraged to see this. It helps promote the image of the industry."

However, it remains to be seen whether a licensing regime will curb illegal activities, as delinquent operators may simply continue to exist outside the licensing regime.

The fact that many other countries have a licensing system in place may have been a decisive factor in the sub-committee's conclusion to propose such a scheme.

The sub-committee recommends certain categories of creditors or persons are exempted from obtaining a licence, including a creditor collecting his own debt, and an authorised financial institution.

Mr Rozario said this could lead to some confusion.

"What about credit insurers? Moneylenders should also be exempted. This recommendation is not clear," he said.

He felt the wording might become clearer, noting that it could take four to five years before the proposals became law.

Another recommendation of the sub-committee is for the formulation of a code of practice, the breach of which could result in the suspension or revocation of a debt collector's licence. This practice has been adopted in other countries.

For example, a similar code in Australia contains conduct principles on a range of practices, from communicating with the debtor at his workplace to the language and physical force to be used when paying the debtor a personal visit.

While Mr Rozario agreed with this recommendation, he voiced concern on the process by which provisions in the mooted code would be drawn up.

"There must be adequate representation on the [regulatory] body," said Mr Rozario, adding that the represented interests should include "credit and collection practitioners, money-lending organisations, the police and the Hong Kong Monetary Authority".

The consultation paper also includes a description of the causes of abusive debt collection. Among which are the lack of professionalism among some debt collectors, the economic downturn and the possible inefficiency of the judicial process in debt recovery.

Mr Booth believed the causes may run deeper than this.

"There are underlying social problems. The working group can take a look at part of the problem but not all the overlapping areas," he said.

Chief among Mr Booth's concerns is the inability of lower economic groups to borrow capital.

"There's a whole group of people in Hong Kong who can't get access to capital," Mr Booth said. He believed such people had no other recourse than to borrow from unauthorised moneylenders.

He felt many debtors were wary of filing for bankruptcy, and would rather "disappear" than put their faith in the law.

"There's a sense that the legal mechanism isn't going to work for you. Debtors become caught in a spiral that they can't get out of."

Created on 2000-09-17 10:58:13 by HKCCMA.

Last Edited on 2011-04-09 10:58:13 by HKCCMA.