INTRODUCTION
1. The Consumer Council is pleased to submit its views on the consultation paper put forward by the Law Reform Commission on the regulation of debt collection practices. This paper outlines the Council's response to a number of recommendations made by the Sub-committee of the Commission that aim to address the problem of inappropriate debt collection practices; and in response to specific matters to which the Sub-committee has asked for comments.
COUNCIL RESPONSE TO RECOMMENDATIONS
Creation of a criminal offence
2. The Council supports the recommendation that specific criminal prohibitions be created in relation to inappropriate debt collection practices. However, the Sub-Committee may wish to consider whether there is a need to adjust the wording of one of the proposed prohibitions to avoid any unintended consequences from its application as currently worded. The proposed prohibition is that which states that a person would be guilty of a criminal offence if that person:
'harasses the other with demands for payment which, in respect of their frequency or the manner or occasion of making any such demand, or of any threat or publicity by which any demand is accompanied, are likely to subject him or members of his family or household or any other person to alarm, distress or humiliation'
3. While agreeing wholeheartedly with the need for specific prohibitions to be introduced and enforced, the Council notes that different views exist with regard to setting an appropriate threshold level for the proposed criminal prohibitions.
4. It could be argued that even a legitimate attempt by a credit provider to recover a debt would necessarily involve a degree of threat or publicity and of certain frequency, resulting in alarm, distress or humiliation. Accordingly, if the threshold for infringing the prohibition is set too low, legitimate credit providers may be reluctant to provide credit to certain sectors of the community because of the perceived difficulty in collecting a debt. In time this could drive a section of the credit industry's clientele 'underground', i.e. having to deal with unscrupulous credit providers and collectors who choose not to work within the system.
5. It is acknowledged that invoking the prohibition will be at the discretion of the appropriate regulatory authority.
6. The Council notes that the Sub-committee has referred to Section 60 of the Australian Trade Practices Act, amongst others, as a reference, when considering an appropriate prohibition against inappropriate behaviour by debt collectors. That section provides that a corporation shall "not use physical force or undue harassment or coercion in connection with the supply or possible supply of goods or services to a consumer or the payment for goods or services by a consumer".
7. That section was for the first time recently examined by Federal Court of Australia [1] which noted that:
"adding the word 'undue' provides an extra layer of evaluation" to the issue of harassment or coercion.
8. The judgment of the Court was issued on 1 August 2000, subsequent to the Sub-Committee's Consultation Paper. The Council suggests that the Sub-Committee may wish to consider the Australian Federal Court's observations on the issue of threshold levels.
9. This being a complicated issue, where different views exist, the Council does not have a firm view on whether the wording of the prohibition as proposed is appropriate. However, it considers the issue suitable for wider consultation within the community.
Creation of a licensing regime
10. The Council supports the creation of a licensing regime as proposed by the Sub-committee, with the noted exemptions. Licensing would help promote the image of the debt collection industry, and provide a convenient method of applying subsidiary rules for licensees to follow.
11. As regards the choice of a licensing authority, the Council shares the view of the Sub-committee that the Government is in better position to decide the appropriate body for overseeing the licensing work.
Licensing criteria
12. The Council supports the recommendation proposed by the Sub-committee that the licensing criteria used to determine whether a person is fit and proper to engage in debt collection should be similar to that used under the UK Consumer Credit Act 1974. In addition to the above, having regard to the Hong Kong situation, the Council agrees that the licensing authority should also be empowered to take into consideration whether the applicant or its employees have committed any triad-related offences.
An industry code of practice
13. The Council supports the Sub-committee's recommendation of introducing a code of practice specifically to address the nuisance-type of debt collection activities.
14. The creation of criminal offences for engaging in unacceptable behaviour, and the various provisions governing whether a person is fit and proper provide a basic foundation for governing the conduct of debt collectors. The criminal provisions prohibiting harassment and coercion (leaving aside the question of appropriate threshold levels noted above) seem to be clear enough. However, the licensing criteria lack a degree of specificity that could be improved through a code of practice, particularly in reference to what constitutes engaging in "business practices appearing to be deceitful or oppressive", or "otherwise unfair or improper whether unlawful or not".
15. In previous submissions to government agencies that have proposed codes of practice to govern industry behaviour, the Council has suggested that the codes should include provisions that reflect the Government's approach to using self-regulatory means to promote a competitive market place [2] . In addition, the Council has also suggested at times, that in order to cover a deficiency in the current Trade Descriptions Ordinance, which does not prohibit misleading advertising of services, but only goods, that a code of conduct be used to regulate unfair marketing practices in relation to services.
16. It is acknowledged that the code of practice envisaged by the Sub-committee is not 'self regulation' as such because the provisions of the code would be licensing conditions enforced by the licensing body; breaches of which could result in significant sanctions, i.e. the loss of livelihood. A question arises therefore as to whether including competition and unfair marketing practice provisions in the code of practice are appropriate. This is because in clarifying what is meant by unfair or improper conduct, through including competition and marketing practices in the licensing provisions, the code might in effect be prohibiting behaviour that is not in other circumstances illegal in Hong Kong. [3]
17. Nevertheless, a relevant point to note is that in suggesting a benchmark for the various prohibitions and safeguards in Hong Kong, the Sub-committee has used as a reference the standards of marketplace behaviour in other jurisdictions of similar advanced economies; in particular, the UK and Australia. Both of these jurisdictions have general competition laws and extensive prohibitions against unfair marketing practices in the supply of services; administered by the same authority that oversees the prohibitions against unacceptable debt collection practices. The provisions governing anti-competitive conduct, and unfair marketing practices are therefore an integral part of the general regulatory mechanisms that are used in those jurisdictions in regulating the behaviour of debt collection agencies, in addition to specific debt collection provisions.
18. For example, in the recent Australian court case alleging the conduct of a debt collector had breached the Trade Practices Act, orders were sought not only in relation to section 60 (Harassment and Coercion) but also in relation to
Section 52 - "A corporation shall not in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive." and
Sub-Section 53 (g) - "A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services, make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy."
19. Having regard to the fact that the Sub-committee has acknowledged the efficacy of foreign legislation in addressing inappropriate conduct in the debt collection industry, the Council suggests that the inclusion of anti-competitive conduct and unfair market practice prohibitions, similar to those noted above, would be appropriate for inclusion in the proposed code of practice.
OTHER MATTERS
Positive credit information
20. The Sub-committee also recommended that relevant authorities should review the existing limitations imposed on the collection and use of certain positive credit data. The suggestion was made from the perspective of alleviating bad debts and abusive debt collection practices, and to take into consideration the fact that positive credit data is available to credit providers in other major financial centres.
21. The Council has noted previously, when being asked for comments on the collection of positive credit information on consumers, that while it feels there may be some merit in the collection, use and retention of positive credit exposure information on consumers, the concerns on consumer interest and privacy outweighed any perceived benefits. The Council considered that concerns in relation to privacy cannot be marginalised in the haste to address real problems of indebtedness in the community. In coming to this view, the Council noted, amongst other concerns:
The proposal would increase the store of centralised personal information on citizens in the hands of one commercial entity. Moreover, such positive credit exposure information could include mortgage loans which normally have a time span of 15 years or over. Consequently, the information kept on an individual would last for an extremely long time.
While the Privacy Commissioner has a role to ensure there are adequate safeguards in place to protect the information from being misused, and the Council has full confidence in his diligence, the track record of the commercial sector in ensuring data privacy, is far less than reassuring. This is evidenced by the continual 'cold calling' by estate agents on property owners, and various cases of leakage and unauthorised sale of personal data etc.
Moreover, the magnitude of the data bank may create an entity that is difficult to monitor. For example, the importance of the data bank may attract hackers into the system and pressures could arise to expand the usage of the range of information collected.
22. The Council has therefore come to view that the privacy issues have to be addressed before it could consider supporting the collection and retention of positive credit information.
Self-regulation
23. The Sub-committee has asked for comments on whether self-regulatory mechanisms may be suitable to address problems in the industry.
24. Self-regulation can be viewed in two ways. In the first instance, there is unilateral self-regulation where individual market participants recognise that to serve a wider objective than purely commercial self-interest, there are certain standards of behaviour that they should observe to maintain community standards and preserve civil society.
25. Another form of self-regulation is when individual market participants come together in an industry association to not only maintain appropriate community standards, but also to provide a unified and strong lobbying base. The purpose being to counter what the industry might view as unnecessary government intervention in their industry, and to share information and ideas concerning the future of their industry. Often this form of self-regulation can work in tandem with a government-funded agency tasked with enforcing legislative standards, to make enforcement more effective. For example, by disseminating information amongst members on how to best observe legislative standards, by operating training courses, and by providing other forms of assistance to make members operate more efficiently.
26. It is recognised that there is a role for self-regulation in this industry to serve the objectives, such as disseminating information and providing 'self help' as noted above. However, there is a need for basic legislative standards to be put in place. This is particularly the case because the first form of self-regulation noted above, i.e. unilateral self-regulation, has not produced satisfactory outcomes, as evidenced by the Sub-committee's research on current practices in Hong Kong. Moreover, where there is legitimate scepticism that self-regulation by itself cannot be entrusted to totally safeguard the wider community interest, government has an obligation to set and maintain, at the very least, basic minimum standards. The role for an industry association in these circumstances would be to assist in maintaining those basic minimum standards.
27. The Council therefore submits that self-regulation could serve a purpose in providing information to industry on the new laws and how to observe them. However, the Council does not consider the prospect of industry members regulating their own behaviour, to address the problems faced by debtors, is practical in the current circumstances.
Dispute resolution
28. Closely associated with the issue of codes of conduct is the issue of dispute resolution. A code of conduct will be of little assistance to consumers if it does not have an easily accessible means of resolving disputes and achieving redress, and which is readily available to complainants. The Government could explore with the relevant industry associations, appropriate mechanisms for introducing dispute resolution procedures.
Community education
29. The Council will, as a matter of course, take appropriate action to inform consumers of problems that might be faced in the industry, and of relevant legislative and self regulatory redress mechanisms, through its statutory function under the Consumer Council Ordinance, of disseminating information to consumers. However, the Government and its relevant agencies could also take an active role in assisting the community to understand the way in which legitimate debt collection practices should operate, and the circumstances where they consider legislative measures might apply.
Remarks:
1. Australian Competition and Consumer Commission -v- McCaskeyFCA 1037 (1 August 2000).
2. For example, with reference to other similar recommendations made by the Council, an appropriate code for this industry, in relation to competition could be that
'Having regard to the Government's May 1998 Competition Policy Statement issued in May 1998, licensees are required to refrain from introducing restrictive practices that impair economic efficiency or free trade. If a licensee intends to engage in practices that come within the examples of restrictive practices given in the Government's Competition Policy Statement, it is required to subject such practices to public scrutiny, thereby enabling both consumers and competitors to gauge:
- whether the practices limit market accessibility or contestability;
- impair economic efficiency or free trade; and
- are not in the overall interests of Hong Kong.'
3. The Government in its May 1998 Competition Policy Statement issued in response to the Council's November 1996 Report 'Competition Policy - The Key to Hong Kong's Future Economic Success' indicated that it did not intend to introduce a general competition law, as recommended by the Council, choosing instead to utilise a sector specific approach through administrative and self regulatory means.
