Lenders will be held responsible for their agents and third parties, warns John Perez

Under the Consumer Credit Act 1974 the Office of Fair Trading (OFT) must be satisfied that the holder of a consumer credit licence is deemed to be a person ‘fit’ to engage in the activities identified on the licence application. Upon the granting of a licence the required standards of fitness must be maintained at all times to avoid sanction.

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This article sets out the responsibility upon such licence holders, not only to maintain their own standards by competently engaging in the activities covered by their licence without operating unfair or illegal business practices, but, also, the responsibility imposed upon such licence holders for the actions of those agents or third parties with whom they chose to do business, regardless of the fact that the agents or third parties may hold their own licences.

We are currently witnessing a significant rise in Citizen Advice Bureau and other consumer-focused agencies raising alleged breaches of Debt Collection Guidance (DCG) in what would be routine collection activity. Lenders should be aware that if they simply outsource debt collection activity to agents or third parties who hold their own licences, they can still be exposed if that agent or third party breaches any aspect of the DCG.

Lenders should carefully scrutinise and familiarise themselves with the actions of their agents or third parties when carrying out collections and recoveries activities, because their operation of unfair or illegal business practices can affect the lenders’ own licence.

The DCG recommends that care is taken in the selection process of such agents and third parties, that complaints received are properly investigated, and that effective action is taken to avoid recurrence of problems.

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From a compliance perspective, the OFT expects businesses engaged in the recovery of debts arising from regulated credit agreements to ensure they have taken reasonable and proportional steps to operate suitable business practices and procedures to facilitate their own compliance and that of any agents or third parties with whom they are associated.  The expectation is that this will be achieved through training, monitoring, record keeping, disciplinary procedures and the inclusion of appropriate contractual terms in any service level agreement, together with any other measure which may be deemed appropriate to that particular business.

Evidence of such compliance is crucial. Policies, practices and procedures should be documented and capable of being made available for inspection by the OFT and/or relevant Trading Standards Service.

John Perez is a partner and head of finance litigation at Chafes LLP