Debt Collection Agencies/Refunds

[labman]

Re: Debt Collection Agencies/Refunds

Picking up on something I read earlier around this (may have been a post on here, I've read a bit about it today!) one bank said it was their policy to use the money against the debt. I guess, if they've sold their own product, there might be some mileage in this, but there's still the issue of putting the customer back in the position they were prior to taking out the ppi.

With a DCA under an Absolute Assignment it is totally different. There is no legislation of which I'm aware which allows them to decide where the money goes.

I've read a fair bit today that it constitutes fraud, and possibly theft.

[di30]

Re: Debt Collection Agencies/Refunds

Ok this was 2004, wonder if there's been any changes of updates within the FOS since this one?

http://www.financial-ombudsman.org.u.../40_setoff.htm

Nothing though in regards of absolute or equitable assignments!
banking: firms' right of "set off"

It is not unusual for a customer to have a current account, a savings account and a credit card account – all with the same bank or building society. The same customer might also have a loan, an ISA and a mortgage with that firm. And some of those accounts might be held jointly with someone else, usually a spouse or business partner.
In this article we look at what the firm can (or should) do where a customer does not have enough money in a particular account to make payments due from that account, but does have sufficient funds in one of their other accounts with the firm.
For example, when an overdraft facility on a current account runs out and the customer fails to pay the amount owed, can the firm take money from the customer’s savings account to reduce or clear the debt? Or, if a customer fails to make credit card or mortgage payments, should the firm use available funds from that customer’s current or savings account to make the missing payments, thereby helping the customer to avoid extra interest or charges?

The basic position is that a firm has a right – but not a duty – to look at a customer’s overall position and to "combine" the accounts held by that customer. This is sometimes called a right of "set off" or a right to "combine" accounts. A firm has this as a general right, whether or not it mentions the right in the account terms. So, in the examples above, the firm can transfer money from an account that is in credit in order to make payments due on another account. But it does not have to do this.

Certain conditions must be met before the firm can exercise its right of "set off".

• the account from which the firm transfers funds must be held by the customer who owes the firm money.
• the account from which the firm transfers the money – and the account from which the money would otherwise have come – must both be held with the same firm.
• the account from which the firm transfers funds – and the account from which the money would otherwise have come – must both be held in the same capacity by the customer concerned. So, for example, if Mrs C holds a savings account in her capacity as treasurer of a local society, the firm cannot take money from that account to pay Mrs C’s personal credit card bill that she normally pays from the current account she holds in a personal capacity.
• the debt must be due and payable. For example, if a customer misses making a loan payment, then (at least until it calls in the loan) the firm can take only the missed payment – not the balance of the loan.

We would not usually expect a firm to warn customers before it exercises its right of "set off". A warning might prompt customers to move their money to an account with a different firm. But we think that it is usually good practice for a firm to tell a customer as soon as possible after it has made a transfer.
We would not generally expect a firm to use "set off" before giving the customer a reasonable opportunity to pay the debt. However, what is "reasonable" might depend on the customer and the history of the account.
The general position can be modified by agreement between the firm and its customer. This might include:

• an agreement that "set off" be available to a firm’s mortgage arm, where it is a separate legal entity;
• an agreement to regularly "sweep" any money over a certain balance out of a current account and into a savings account;
• an agreement that money held by a customer in one capacity can be used to pay debts owed by the same customer in a different capacity.

[Bill-K]

Re: Debt Collection Agencies/Refunds

For info, this is the FSA rule from the PPI Redress Handbook in PS 10/12. The 'Alternative redress' is where the complainant would have bought PPI elsewhere at a cheaper rate, in which case a reduced payout is made.
" DISP APP 3.7.2 Where the firm concludes that the complainant would not have bought the payment protection contract he bought, and the firm is not using the alternative approach to redress (set out in DISP App 3.7.7 E to 3.7.15 E) or other appropriate redress (see DISP App 3.8), the firm should, as far as practicable, put the complainant in the position he would have been if he had not bought any payment protection contract. "

Where the OC has admitted mis-selling, then DISP APP 3.7.2 seems to say that they should refund to the borrower the PPI already paid to them, and then re-schedule the remaining debt without the PPI - effectively reducing balance owing, and thus the remaining payments. If the debt has been passed to a DCA for collection only (equitable assignment), then of course the payments should be reduced as above.

Where the debt has been absolutely assigned, then perhaps we should remember that what was 'bought' by the DCA was the remaining debt, plus the right to collect payment on it, etc. So, the OC kept the payments received by them, and did not pass them to the DCA. Therefore, IMO the OC should refund the PPI portion of those payments to the borrower, and not to the DCA - because the DCA was never 'assigned' that part of the debt. The DCA for their part, has similarly inherited the obligation to refund the PPI portion of all payments made to it and re-schedule the remaining debt as above. However, assuming that this debt was in arrears when the DCA acquired it, then I think they will have the right to reduce the balance owing by crediting any refundable PPI to it. This follows the principle of the 'Right of Set-Off' as shown in Di's post above, and is 'nailed down' in DISP APP 3.9.1:-
" DISP APP 3.9.1 Where the complainant’s loan or credit card is in arrears the firm may, if it has the contractual right to do so, make a payment to reduce the associated loan or credit card balance, if the complainant accepts the firm’s offer of redress. The firm should act fairly and reasonably in deciding whether to make such a payment. "

So, I think if the FSA rules are to be properly observed, the type of assignment is an important factor. If it is equitable, then the OC appears to have the right to use any PPI redress toward clearing arrears. But if the assignment is absolute, then the OC should make a refund directly to the borrower, and passing it to the DCA is misappropriation. The DCA has no right to this money, as it was never a part of any agreement with the OC.

What need not concern us - but may be worth considering - is that if the DCA bought the debt in 'absolute,' then the price they paid for it should technically be reduced to account for the fact that the debt is worth less than when they originally bought it. OK - this is not our problem - but I daresay the DCA will be seeking compensation from the OC for this. It strikes me as quite likely that the OC might attempt to 'mitigate' this further loss by paying all or part of the borrower's PPI refund to the DCA instead of to the borrower, in lieu of a compo payment to the DCA. This may be one reason why our PPI refunds are 'redirected' in this way sometimes.

If this happens, I guess we have to insist on a clear letter of assignment, stating equitable or absolute. If it's absolute, then I think we may have a good case to demand our PPI to be refunded directly to us.

[labman]

Re: Debt Collection Agencies/Refunds

I've just stumbled across this interesting ruling:

In Van Lynn Developments Ltd v Pelias Construction Co Ltd [1968] 3 All ER 824, Lord Denning repeated below for your commented:

“It seems to me to be unnecessary that it should give the date of the assignment so long as it makes it plain that there has in fact been an assignment so that the debtor knows to whom he has to pay the debt in the future. After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid, and that the assignee can give him a good discharge."

If this could be turned into a letter requesting sight of an assignment, it would put a nice stop to the DCA's little tricks of misleading us as to what type of assignment has taken place.

This wouldn't in itself answer the question posed, but it would stop us barking up the wrong tree for a while.

[labman]

Re: Debt Collection Agencies/Refunds

Heavy, but interesting reading from Pinsent Masons. It states clearly the customer should be put back in the position they were in before they purchased the ppi.

http://www.out-law.com/page-10509

[Bill-K]

Re: Debt Collection Agencies/Refunds

...After receiving the notice, the debtor will be entitled, of course, to require a sight of the assignment so as to be satisfied that it is valid, and that the assignee can give him a good discharge."

If this could be turned into a letter requesting sight of an assignment, it would put a nice stop to the DCA's little tricks of misleading us as to what type of assignment has taken place.

This wouldn't in itself answer the question posed, but it would stop us barking up the wrong tree for a while.

Excellent find Labman !!! If it's a piece of Denning caselaw, then it's almost as good as statute, innit ? Is such assignment covered by the CCA does anyone know ?

The piece from Pinsent Masons is a synopsis of PS 10/12. Although based on law, these are FSA guidelines. I prefer to refer to them as FSA rules, myself, as it gives them a little more weight. With PPI issues, it is generally accepted that reliance on the FSA rules is the best way forward. The FOS takes ages, but their eventual ruling can be enforced in court (in theory !) Going directly through the courts seems to be very risky - I'm not sure why this is, but EXC seems to understand why.

[labman]

Re: Debt Collection Agencies/Refunds

http://www.legislation.gov.uk/ukpga/1974/39/section/82A

http://www.bllaw.co.uk/sectors/finan...greements.aspx

http://www.finance-law.info/financel...-act-2006.html

companies sometimes assign finance agreements in default to third party debt purchasers. Clearly, whether an assignee of such a debt under the Consumer Credit Act 1974 (CCA) can enforce its debt as a creditor is of crucial importance to both buyers and sellers of the debt. The High Court recently confirmed the position in favour of the assignee in Jones v Link Financial Ltd. Jones had entered into a fixed-sum consumer credit agreement with GE Money Consumer Lending Ltd (GE). Following default, GE issued a default notice and subsequently a demand for payment, which the court found complied with its obligations under the CCA. Payment was not made and the agreement was terminated.
GE subsequently assigned "all rights, title, interest and benefit" in the debt to Link Financial Ltd (Link), as provided for under the credit agreement. Notice of the assignment was given to Jones by Link. Link then issued proceedings against Jones for the sums that were due.
Jones defended the proceedings on the basis of two issues:

• Only a creditor, as defined by section 189 of the CCA can enforce a regulated credit agreement.
• An assignee was not a creditor under the CCA, as only rights and not duties passed by assignment.

The High Court held (on appeal) that s189 of the CCA clearly contemplated that an assignee may become a creditor. The assignment of a regulated agreement puts the assignee into precisely the same position as the original creditor. There were no limitations on the obligations transferred with the agreement once the assignment was completed by notice being given to the debtor. The assignor was therefore the creditor and so entitled to enforce an assigned debt.
The 'duties' referred to in s189 of the CCA were those that the assignee had to perform in order to enforce its assigned rights. Those duties had to pass by assignment, as it was only through this process that the assignee would become obliged to fulfill them. The assignee could not assert its rights under the regulated credit agreement without accepting the statutory obligation to perform duties under the CCA relating to enforcement.
That would not be the case where an equitable assignment took place, of which no notice had been given to the debtor. In this situation, the debtor would remain liable to the assignor and the assignor would continue to be responsible for the performance of the statutory duties relating to enforcement – for example, the provision of notices.
As Link was the creditor in this particular case, it was unnecessary to consider the first issue raised.

[Bill-K]

Re: Debt Collection Agencies/Refunds

Well done Labman. That seems to confirm that duties, as well as benefits, are assigned when absolute - even if the CCA doesn't specifically prescribe this.

It might be an interesting exercise to see if the CCA s.77-79 can be used to procure a Deed of Assignment. If we send a DCA such a request, then the best we will get is a copy of the original agreement we made with the OC, along with a statement of account. But this does NOT prove that the DCA has the right to pursue the debt or enforce that agreement. A letter of assignment may suffice, but if the debtor is seeking proper clarification of their new legal position under the original agreement, then the Deed of Assignment would seem a necessary document that they should be entitled to inspect. The debt itself - like the car illustrated earlier - is inanimate, and has no rights as such. The debtor, however - if he is to continue to be held responsible for that debt - must have at the very least the right to know what is being done with it.

I have a right to sell my Rolls-Royce to whoever I choose, and whoever chooses to buy it has the right to do so. But the chauffeur has the right to at least know who he is now going to call 'sir' !!!

Putting the CCA aside, I note Lord Denning says "...of course..."
"...the debtor will be entitled, of course..."
This seems to imply that the entitlement to inspect the Deed is enshrined quite clearly somewhere. Perhaps in the murky depths of contract law ?

[jax50]

Re: Debt Collection Agencies/Refunds

So, if a notice of assignment does not specifically mention the word 'duties' but mentions rights..?

[di30]

Re: Debt Collection Agencies/Refunds

For info, this is the FSA rule from the PPI Redress Handbook in PS 10/12. The 'Alternative redress' is where the complainant would have bought PPI elsewhere at a cheaper rate, in which case a reduced payout is made.
" DISP APP 3.7.2 Where the firm concludes that the complainant would not have bought the payment protection contract he bought, and the firm is not using the alternative approach to redress (set out in DISP App 3.7.7 E to 3.7.15 E) or other appropriate redress (see DISP App 3.8), the firm should, as far as practicable, put the complainant in the position he would have been if he had not bought any payment protection contract. "

Where the OC has admitted mis-selling, then DISP APP 3.7.2 seems to say that they should refund to the borrower the PPI already paid to them, and then re-schedule the remaining debt without the PPI - effectively reducing balance owing, and thus the remaining payments. If the debt has been passed to a DCA for collection only (equitable assignment), then of course the payments should be reduced as above.

Where the debt has been absolutely assigned, then perhaps we should remember that what was 'bought' by the DCA was the remaining debt, plus the right to collect payment on it, etc. So, the OC kept the payments received by them, and did not pass them to the DCA. Therefore, IMO the OC should refund the PPI portion of those payments to the borrower, and not to the DCA - because the DCA was never 'assigned' that part of the debt. The DCA for their part, has similarly inherited the obligation to refund the PPI portion of all payments made to it and re-schedule the remaining debt as above. However, assuming that this debt was in arrears when the DCA acquired it, then I think they will have the right to reduce the balance owing by crediting any refundable PPI to it. This follows the principle of the 'Right of Set-Off' as shown in Di's post above, and is 'nailed down' in DISP APP 3.9.1:-
" DISP APP 3.9.1 Where the complainant’s loan or credit card is in arrears the firm may, if it has the contractual right to do so, make a payment to reduce the associated loan or credit card balance, if the complainant accepts the firm’s offer of redress. The firm should act fairly and reasonably in deciding whether to make such a payment. "

So, I think if the FSA rules are to be properly observed, the type of assignment is an important factor. If it is equitable, then the OC appears to have the right to use any PPI redress toward clearing arrears. But if the assignment is absolute, then the OC should make a refund directly to the borrower, and passing it to the DCA is misappropriation. The DCA has no right to this money, as it was never a part of any agreement with the OC.

What need not concern us - but may be worth considering - is that if the DCA bought the debt in 'absolute,' then the price they paid for it should technically be reduced to account for the fact that the debt is worth less than when they originally bought it. OK - this is not our problem - but I daresay the DCA will be seeking compensation from the OC for this. It strikes me as quite likely that the OC might attempt to 'mitigate' this further loss by paying all or part of the borrower's PPI refund to the DCA instead of to the borrower, in lieu of a compo payment to the DCA. This may be one reason why our PPI refunds are 'redirected' in this way sometimes.

If this happens, I guess we have to insist on a clear letter of assignment, stating equitable or absolute. If it's absolute, then I think we may have a good case to demand our PPI to be refunded directly to us.

Excellent stuff Bill, and Labman too.

This is becoming a very interesting subject, and I must agree on the points raised, and as you said, if "absolute" it should be the matter of having the PPI refunded directly to us customers.

My friend as stated above, also has a case in about being mis sold a banking account package, as most of the products he would not have been eligble for, or he already had separate cover with the same bank for what the products enclosed within the package.
I understand this is another matter being looked into by he FSA over the next year or so, so imagine this will be a new area to work on in time.

However, with the bank not agreeing to his complaint, it is with the FOS, so as its not exactly PPI, but still like an insurance as such, as the products within he account package are just like separate insurance packages.

I am currently arguing on mine too, because the bank never discussed the packages, but said it was essential to have, a difficult one to prove, but not everything in that particular package I required because of already being covered etc. (also by the same bank lol).

But in my friends case, his account is with Cabot as mentioned in above posts, as assigned as absolute, so whether the FOS will agree that the refund comes back to him or not we are not sure on how they will see it.

[Bill-K]

Re: Debt Collection Agencies/Refunds

So, if a notice of assignment does not specifically mention the word 'duties' but mentions rights..?

The way I read Jones v Link Financial Ltd. in Labman's post #82, provided the assignment is absolute, and has been properly executed as such, then the assignee becomes the new creditor. As such, the assignee inherits ALL the OC's rights and duties, regardless of whether or not they are specified in the assignment documents. Basically, the CCA is saying that - for a CCA-regulated agreement to be lawfully assigned, the agreement must remain unaltered, and that to alter it would be a breach of the CCA and therefore unlawful. As such, the assignment would be unlawful, and the debt unenforceable by the assignee.

That's my take on it, Jax.

[Bill-K]

Re: Debt Collection Agencies/Refunds

Di - that looks like a 'Packaged Account,' which Leclerc predicted would follow in the wake of the PPI reclaims. I believe it is already accepted that these accounts were widely mis-sold, and that the majority of the so-called 'benefits' were useless to many people. If the bank never discussed the packages but said it was essential to have a packaged account, then that certainly looks like mis-selling to me. Any documented evidence of this ?

Regarding how to make a claim with a packaged account - I'm not sure how to go about it, or how to evaluate it - but I guess Turbo and I need to look into that. Unless the FSA or FOS bring out any specific guidelines for packaged accounts, then I would be inclined to take the FSA's PS 10/12 guidelines as applying in principle. So DISP APP 3.7.2 seems reasonable to apply, in which case I guess you would need to revert back to the 'non-packaged' account you had previously (or an equivalent to it). Then we would need to work out how much extra you were paying for the package, and refund this along with 8% SI. It may be possible to reclaim any penalties that would not have been debited if the package fee was not being charged.

I don't think I was being very clear in my earlier post, Di. My view is that if the assignment is equitable, then the DCA is simply collecting for the OC, and any PPI is reclaimed from the OC (not the DCA). If there are arrears, then the OC has the right to use the PPI to reduce or clear the arrears, but any remaining PPI has to be refunded - and ALL 8% SI.

If the assignment is absolute, then the DCA becomes the new creditor. The OC has to refund all the PPI which they collected, plus 8% SI. The DCA has to refund all the PPI which they have collected, and reduce any remaining payments. However, the DCA now has the right to use the PPI to reduce or clear any arrears, but any remaining PPI has to be refunded - and ALL 8% SI.

[jax50]

Re: Debt Collection Agencies/Refunds

I hadn't read it that way,but how you have explained it makes complete sense. It does however mean it is difficult for a debtor to determine from what they receive if this is absolute or equitable. I'm presuming assignment notices can be sent out in both cases ?

[jax50]

Re: Debt Collection Agencies/Refunds

One might wonder how much of the interest charged on a credit card is to cover for bad debts, fraudulent card use and the guarantee against faulty or undelivered goods bought on the card ? Obviously the cost has to be covered somewhere, but is there a choice ?

[di30]

Re: Debt Collection Agencies/Refunds

Di - that looks like a 'Packaged Account,' which Leclerc predicted would follow in the wake of the PPI reclaims. I believe it is already accepted that these accounts were widely mis-sold, and that the majority of the so-called 'benefits' were useless to many people. If the bank never discussed the packages but said it was essential to have a packaged account, then that certainly looks like mis-selling to me. Any documented evidence of this ?

Regarding how to make a claim with a packaged account - I'm not sure how to go about it, or how to evaluate it - but I guess Turbo and I need to look into that. Unless the FSA or FOS bring out any specific guidelines for packaged accounts, then I would be inclined to take the FSA's PS 10/12 guidelines as applying in principle. So DISP APP 3.7.2 seems reasonable to apply, in which case I guess you would need to revert back to the 'non-packaged' account you had previously (or an equivalent to it). Then we would need to work out how much extra you were paying for the package, and refund this along with 8% SI. It may be possible to reclaim any penalties that would not have been debited if the package fee was not being charged.

I don't think I was being very clear in my earlier post, Di. My view is that if the assignment is equitable, then the DCA is simply collecting for the OC, and any PPI is reclaimed from the OC (not the DCA). If there are arrears, then the OC has the right to use the PPI to reduce or clear the arrears, but any remaining PPI has to be refunded - and ALL 8% SI.

If the assignment is absolute, then the DCA becomes the new creditor. The OC has to refund all the PPI which they collected, plus 8% SI. The DCA has to refund all the PPI which they have collected, and reduce any remaining payments. However, the DCA now has the right to use the PPI to reduce or clear any arrears, but any remaining PPI has to be refunded - and ALL 8% SI.

Cheers Bill for your input into this one too.

Yes I know what you saying Bill, "in regards of equitable assignment" it's me the one getting my wording confused lol.