Debt Collection in the United Kingdom

Helene Mueller
eCollect support team

UK debt collection represents the whole debt recovery process on the territory of the United Kingdom. DCAs (Debt Collection Agencies), operating within the UK, are licensed and comply with different national acts. Their actions are strictly regulated by various institutions and laws. Debt collection agencies use different collection methods, which are both legal and ethical. They can either operate only within UK’s borders or on a nationwide level. Debt recovery in the UK generally refers to the recovery of certain amounts owed on default accounts. Debt collection as a whole is the deliberate attempt of a DCA to collect a past-due obligation or delinquent amount from a second-party (debtor or “consumer”) on behalf of a first-party (original creditor, also known as “original lender”).

Consumer and commercial UK debt collection

Recovery agencies in the UK usually collect unsecured debts, both commercial and consumer, which can be: student loans, medical debts (health insurance, hospital bills, etc.), utility bills, different credit card debts, debts deriving from the purchase of goods or services, personal loans, etc.

Consumer debt collection represents the recovery process of individual unsecured debts, owed as a result of purchasing different services or goods by a consumer. Consumer debt recovery in the UK is governed by the: Financial Conduct Authority, ext. link 4; the Fair Trading Act, ext. link 5; the Competition and Markets Authority- CMA, ext. link 6; etc.

Commercial debt collection refers to the collection of business debts, also known as B2B (“business-to-business”) or corporate debts, where the debtor is also a business organisation and UK debt collection agencies collect such debts from a company on behalf of a company. Such debts occur when a commercial loan is requested in order to finance consumer’s company or invest in a business. Commercial debt collection in the United Kingdom acts under specific UK regulations and laws, such as the Late Payment of Commercial Debts (Interest) Act, ext. link 7; the EU regulation for Late Payment in Commercial Transactions, ext. link 8; the Late Payment of Commercial Debt Regulations; etc.

Third-party UK debt collection

Third-party UK debt collection attributes to recovery agencies in the UK, which are not part of the contract between the original creditor and the subject of debt. Such debt collection is used when the lender does not have the sufficient funds and spare time to recover the debts with his company’s resources. Third-party UK debt recovery means professional services provided by different UK DCAs. They usually charge an interest rate, strictly regulated by UK laws. According to national acts, a debt collection agency in the UK can charge no more than 8% of the total debt amount. Depending on DCA’s policy, the collectors can request such payment either from the original creditor or from the debtor. If charging their clients, most collection agencies in the UK operate on the principle no collection, no fee, which means they will not request payment from the creditors before the successful collection of bad debts.

Such debt collection is governed by UK laws and has the right to use different legal and ethical methods of debt recovery in order to collect the full bad debt amount from the creditor. Third-party UK debt collection agencies can send various letters of demand, use phone calls, emails and other forms of communication as pre-legal actions; they can hire bailiffs or enforcement agents, even debt collection solicitors. If necessary, UK DCA’s can start legal proceedings and transfer the case to UK court. Using third-party debt collection can bring benefits to the original creditor, such as avoiding additional costs for debt recovery process and saving time and funds for lender’s company.

UK debt collection & debt buyers

Recovery of bad debts in the United Kingdom can also be performed by debt buyers, which can be part of the third-party collection agency or a private company. Selling bad debts to debt purchasers is also a beneficial option for a creditor. If the debts have been marked as “written-off”, the sum the lender will receive from selling these past-due debts will be considered as a profit for his organisation.

After purchasing bad debt accounts from the original debt owner, the debt buyer becomes the official creditor and starts the UK debt collection process. Debt purchasers can either collect the delinquent amounts by themselves or hire a third-party DCA to continue with the debt recovery. According to UK laws, debt buyers are licensed to recover debt amounts on behalf of their own organisation, but they will not be recognised as a licensed collection agency. This means that UK laws prohibit them to charge the debtors a commission fee as a debt collection agency. However, according to Late Payment Legislation law (see ext. link 10), a creditor is allowed to charge his debtor an interest fee, if the consumer has late payments and bad debts. I.e. a debt buyer can request an additional interest payment from his debtors as a creditor, and not as a DCA. The same late payment legislation allows such interest collection to begin after a 30-days default period.

Used literature & external links