Debt collection: Europe could end unjustifiable and wide-spread malpractices

Finance Watch’s recent report on debt collectors’ practices and the protection of debtor household income highlighted that a legislative vacuum and a lack of consumer protections  are encouraging bad practices in debt collection. The absence of harmonised rules creates an uneven playing field leading some debt collectors to employ more aggressive behaviour in order to increase already remarkable profitability. This leaves consumers vulnerable to harassment, abuse and violations of their privacy by telephone, email, text and other means. It obscures information about consumers’ rights and protects debt collectors who try to collect debts after the legal deadline or with deceptive or misleading representations, including aggressive and obscene language.

Misleading and unfair practices in debt collection: results of the 2019 Finance survey. See p. 35 of our report on debtors’ dignity

Empirical evidence collected from Finance Watch members – actively engaged in consumer protection and debt advice – confirms studies indicating that vulnerable citizens (such as low income household, unemployed, ill, socially marginalised, etc.) are particularly at risk of being victim of such abuses. Individuals already affected by a wide range of life shocks (such as unexpected unemployment, physical and/or mental illness, issues related to aging, death of a close relative, single parenthood responsibilities, divorce etc.) are disproportionately hit by debt collection malpractice.

EU regulation should ensure that the conditions for authorisation and control of credit servicers  are harmonised across Member States, in compliance with debtor protection principles and GDPR rules. Creating an even playing field appears even more urgent as several EU countries do not sufficiently protect borrowers’ income to guarantee a decent standard of living. Without the introduction of a minimum income protected from seizure, debtors’ Human Dignity – one of the Fundamental Rights of the European Union – is at risk.

Comparing the limits on funds that can be seized with the poverty threshold. p. 23 of our report on debtors dignity

The misinforming of debtors and the implementation of unfair commercial practices are common. They include omission of information during a sale, misrepresentation of commercial information in marketing strategies and this facilitates malpractices such as threatening the (illegal) seizure of movables.

EU Member states should adopt a list of the actions that credit servicers are prohibited from employing when dealing with debtors and follow a set of minimum EU standards for credit servicing. In addition, a standardised debt notification document should be provided before any debt collection starts, aiming at supporting individuals through the labyrinth of obscure information concerning consumers’ rights.

Availability of debt advice in the EU, 2019, p. 31 of our report on debtors dignity

What’s more, the support of professional, independent and free debt advice should be available to all EU citizens. Currently, debt advice across Europe is still rather fragmented, which exacerbates the lack of information citizens have about their rights. It is broadly agreed that debt advice can play a crucial role as it benefits all involved actors: it helps over-indebted people to face an unsustainable debt burden or economic distress which, in turn, increases the chances creditors will be repaid.

In sum, the European Commission should urgently protect European borrowers by amending the proposed directive on credit servicers (vote expected in March 2020) and by incorporating these protections into the expected review of the consumer credit directive. There is no economic or ethical rationale that can justify debt collection practices that push EU citizens into poverty and threaten their right to dignity.

Giulia Porino