Conducting business as a creditor has its ups and downs. Part of the risk you are taking is dealing with clients that become delinquent in payments. Unfortunately, multiple unpaid accounts can hurt the business and affect your bottom line. The good thing is, a creditor has rights when it comes to debt collection. However, it is essential to understand that a creditor’s powers are not unlimited when it comes to collecting payment from a debtor. Specific debt collection UK rules apply and through the guidance of these rules, a creditor can protect their business.
In this article, we will discuss the various actions a creditor can take when dealing specifically with unsecured debt from individual borrowers.
The rule on interest, charges, and fees
In the UK, a creditor can add charges and interest when a payment is overdue. But the amount only depends on what is stipulated in the agreement. It is not possible for a creditor to suddenly increase the interest rate or add excessive charges to an overdue payment.
Do banks have the right to offset a debt?
It is possible for a creditor to collect payment from a debtor’s bank account even without their permission. For example, if a debtor has a bank account and credit card with the same institution, the bank can take money from the bank account to pay for the credit card debt. Nevertheless, it is still the responsibility of the creditor to notify the debtor before taking such action.
Rules on contacting the debtor
It is a standard procedure for creditors to contact the debtor using various channels. They can send emails, letters, or make phone calls to attempt collection. Creditors can also hire a debt collection agency that will personally visit the debtor even if the creditor has not obtained a court order. Nonetheless, these collectors do not have the same responsibilities and rights as bailiffs or enforcement agents.
Hiring a collection agency
Debtors can rest assured that creditors will not sell the debt to a third-party debt collection agency unless they have been adequately notified and given ample time to try and settle their overdue payments. Once a creditor hires a collection agency to collect the debt, the agency will take over the obligation, and the original creditor loses the relationship with the client. Creditors often resort to this process when the payment is extremely overdue, and debtors are not showing any effort to repay their debt.
Sending default notices to debtors
One of the primary responsibilities of a creditor is to send default notices to debtors. This way, you are giving the debtor a chance to honour their commitment and make payment. Note, however, that this regulation only applies when the Consumer Credit Act regulates the debt. Some examples include credit card debt, payday loans, and personal loans.
Creditors need to avoid harassing debtors during collection. The debtor can also request that creditors only contact them through a preferred communication channel. Lastly, it is not possible for creditors to breach privacy and security laws to try and collect payment from the debtor.
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