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Hong Kong Law Reform Commission |
5.1 At present, debt collection agencies and debt collectors operating
in Hong Kong are not required to be registered or licensed. The only statutory
administrative requirement they face prior to commencing business is to obtain a
business registration certificate under the Business Registration Ordinance (Cap
310).
5.2 Whilst there is no licensing requirement to operate a debt
collection business, banks and other authorized institutions providing consumer
credit are subject to regulation by the Hong Kong Monetary Authority and persons
carrying on business as money lenders are required to be licensed annually under
the Money Lenders Ordinance (Cap
163).[183]
5.3 In 1997, the Hong Kong Association of Banks (“the
HKAB”) and the DTC Association (“the
DTCA”)[184] jointly issued a
non-statutory Code of Banking Practice in 1997 (“the Code”). The
aim of the Code is to foster customer confidence in the banking system through
the promotion of good and fair banking practices. Although the Code was issued
on a voluntary basis, the Hong Kong Monetary Authority (“the HKMA”)
monitors its compliance as part of its regular supervision of authorized
institutions.[185]
5.4 A comprehensive review of the Code was conducted in 2001 by a
working group comprising representatives of the HKMA, HKAB and the DTCA. The
working group consulted industry associations and the Consumer Council with the
objective of revising the Code to ensure that it strikes a reasonable balance
between consumer rights and efficiency of banking operations. The revised Code
took effect from 1 December 2001, and authorized institutions are expected to
comply with the new provisions by 1st June 2002 at the latest, except for those
provisions requiring system changes, in which case, another 6 months is allowed
for compliance.
5.5 The Code contains seven chapters. Chapter 5 lays
down guide-lines on debt collection work conducted by parties other than
authorized institutions. The guide-lines have been expanded and improved in the
revised Code.[186] The relevant
clauses are as follows:
“36. Debt Collection by Third Party Agencies
36.1 It is essential that debt collection agencies should act within the law, refrain from action prejudicial to the business, integrity, reputation or goodwill of the institutions for whom they are acting and observe a strict duty of confidentiality in respect of customer information. Institutions should enter into a formal, contractual relationship with their debt collection agencies which, among other things, enforces these requirements. The contract should make it clear that the relationship between the institution and the debt collection agency is one of principal and agent.
*36.2 Related to the above, institutions should specify, either in the contract or by means of written instructions, that their debt collection agencies must not resort to intimidation or violence, either verbal or physical, against any person in their debt recovery actions. In addition, institutions should require their debt collection agencies not to employ harassment or improper debt collection tactics such as the following:
(a) Harassment tactics
(i) putting up posters or writing on the walls of the debtor’s residence or other actions designed to humiliate the debtor publicly;
(ii) pestering the debtor with persistent phone calls;
(iii) making telephone calls at unreasonable hours; and
(iv) pestering the debtor’s referees, family members and friends for information about the debtor’s whereabouts.
(b) Other improper tactics
(i) using false names to communicate with the debtor;
(ii) making anonymous calls and sending unidentifiable notes to the debtor;
(iii) making abusive or threatening remarks to the debtor; and
(iv) making false or misleading representations with an intent to induce the debtor to make a payment.
36.3 Institutions and their collection agencies should not try to recover debts, directly or indirectly, from third parties including referees, family members or friends of the debtors if these persons have not entered into a formal contractual agreement with the institutions to guarantee the liabilities of the debtors. Institutions should issue written instructions to their debt collection agencies, or include a clause in the contract with their agencies, to this effect.
36.4 Institutions should not pass information about referees or third parties other than debtors or guarantors to their debt collection agencies. If the referee is to be approached for information to help locate the debtor or guarantor, this should be done, without causing nuisance to such third parties, by staff of the institution.
36.5 Institutions intending to use debt collection agencies should specify in the terms and conditions of credit or credit card facilities that they may employ third party agencies to collect overdue amounts owed by the customers. Institutions which reserve the right to require customers to indemnify them, in whole or in part, for the costs and expenses they incur in the debt recovery process should include a warning clause to that effect in the terms and conditions.
36.6 Institutions should remain accountable to customers for any complaints arising out of debt collection by third party agencies and should not disclaim responsibility for misconduct on the part of the debt collection agencies.
36.7 Institutions should give the customer advance written notice (sent to the last known address of the customer) of their intention to commission a debt collection agency to collect an overdue amount owed to the institution. The written notice should include the following information -
(a) the overdue amount repayable by the customer;
(b) the length of time the customer has been in default;
(c) the contact telephone number of the institution’s debt recovery unit which is responsible for overseeing the collection of the customer’s debt to the institution;
(d) the extent to which the customer will be liable to reimburse the institution the costs and expenses incurred in the debt recovery process (if the institution requires the customer to indemnify it for such costs and expenses); and
(e) that the customer should in the first instance report improper debt recovery actions taken by the debt collection agency to the institution.
36.8 Institutions should not engage more than one debt collection agency to pursue the same debt in one jurisdiction at the same time.
36.9 Institutions should require their debt collection agencies, when collecting debts, to identify themselves and the institution for whom they are acting. Institutions should issue authorization documents to their debt collection agencies which should be presented to the debtor for identification purposes when required to do so.
36.10 Institutions should establish effective communication with their debt collection agencies and systems for prompt updating of the agencies on the amount of repayment made by customers so that the agencies will stop immediately all recovery actions once the debts are settled in full by the customers.
36.11 If a customer owes several debts to more than one institution that are being collected by the same debt collection agency, the customer has the right to give instructions to apply repayment to a particular debt.
*36.12 Institutions should stop their debt collection activities on a debtor once they become aware that a bankruptcy order has been issued in relation to the debtor.
37. Management of Relationship with Debt Collection Agencies
*37.1 Institutions should have proper systems and procedures in place for the selection of debt collection agencies and the monitoring of their performance. These systems and procedures should be subject to regular review and should consist of the following essential elements –
(a) a review of the background information of the debt collection agency including a company search to identify the owners and directors of the debt collection agency;
(b) a basic assessment of the financial soundness of the debt collection agency;
(c) a site visit to ascertain the business address of the debt collection agency;
(d) an evaluation of the operation of the debt collection agency; and
(e) in the case of appointing a new debt collection agency, a procedure to obtain references from at least two of the existing clients (preferably authorized institutions) of the agency.
37.2 Institutions should encourage their debt collection agencies to aspire to the highest professional standards and, where appropriate, to invest in suitable systems and technology.
37 3 Debt collection agencies should not be given a free hand as to recovery procedures. Institutions should establish effective procedures to monitor continuously the performance of their debt collection agencies, particularly to ensure compliance with the provisions in paragraphs 36.2 and 36.3 above.
*37.4 Institutions should evaluate on a regular basis whether the charges of the debt collection agencies employed by them are reasonable having regard to the prevailing market practices. They should assess the reasonableness of any charge before passing it on to the customer concerned.
37.5 Institutions should require debt collection agencies to inform customers that all telephone communication with customers will be tape recorded and the purpose of doing so, and to keep records of all other contacts with customers. Such records should include information on the agency staff making the contact; the date, time and place of contact; and a report on the contact. Both the tape and the records should be kept for a minimum of 30 days after the contact is made.
37.6 Institutions should make unscheduled visits to the agencies to inspect their professionalism, operational integrity, the involvement of suitably trained personnel and the adequacy of resources to cope with the business volumes assigned to them and to ensure agencies’ compliance with their contractual undertakings.
*37.7 Institutions should have established procedures to handle complaints received from debtors. They should carry out a careful and diligent inquiry into the complaint to check whether there is any misconduct on the part of the debt collection agency and whether there is any violation of the requirements contained in the Code. Institutions should require debt collection agencies to take appropriate remedial actions if necessary.
37.8 Institutions should maintain a register of complaints about improper actions taken by their debt collection agencies and should respond promptly to the complainants after investigation.
37.9 Institutions should not delegate authority to the debt collection agencies to institute legal proceedings against customers without the institution’s formal approval.
37.10 Institutions should specify in their contracts with debt collection agencies that the agencies should not sub-contract the collection of debts to any other third parties.
37.11 Where institutions are aware that their debt collection agencies perform similar functions for other institutions, the sharing of information as to their performance, approach, attitude, behaviour etc is encouraged.
37.12 Institutions should bring apparently illegal behaviour by debt collection agencies to the attention of the Police. Institutions should also consider whether to terminate the relationship with a debt collection agency if they are aware of unacceptable practices of that agency or breaches of its contractual undertakings.”
5.6 Although
the HKMA’s principal function in relation to banking supervision is to
promote the general stability and effective working of the banking system, it
has also undertaken to promote and encourage proper standards of conduct and
prudent business practices amongst authorized institutions. Failure by an
institution to comply with the Code may call into question whether it continues
to meet the criteria for authorisation.
5.7 Since the Code was introduced
in 1997, the HKMA has undertaken to monitor compliance as part of its regular
supervision. To step up its efforts in this aspect, a new self-assessment
framework has been introduced and banks will be required to file annual
assessment reports to HKMA starting in September 2002. In addition, the HKMA
will continue to conduct special examinations on a selected basis if required,
and monitor compliance through processing customer complaints lodged against
banks.
5.8 The Personal Data (Privacy) Ordinance (“the
Ordinance”) lays down six data protection principles that provide for
general requirements for parties that collect, hold, process or otherwise use
personal data. Two of the data protection principles are of particular
relevance to debt collection activities.
5.9 Data Protection Principle
2(1) requires that all reasonably practicable steps be taken to ensure that
personal data are accurate and if personal data are known to be inaccurate, to
ensure they are not used or are deleted. Consequently, a creditor should not
disclose inaccurate personal data to a debt collection agency, and a debt
collection agency should not use inaccurate personal data for debt collection.
The use of inaccurate personal data contrary to Data Protection Principle 2(1)
could include disclosure by a creditor to a debt collector of a previous address
of a debtor. It could also include the situation where a debt collection agency
deliberately sends demand letters ostensibly addressed to a debtor to
neighbouring addresses to humiliate the debtor.
5.10 Data Protection Principle 3 limits the use of personal data to
purposes for which the data were to be used when they were collected, or
purposes directly related thereto, unless the consent of the data subject has
been obtained for some other use of the data. The use of personal data includes
disclosure of the data. Subject to the data subject’s consent, a
creditor, therefore, should not disclose to a debt collection agency any
personal data that were not collected for the purpose of debt collection or a
purpose directly-related thereto. For example, information relating to loan
referees is not collected by creditors for debt collection purposes and should
therefore not be disclosed to debt-collectors.
5.11 Contravention of a
data protection principle is not an
offence,[187] but an individual
who suffers damage as a result of such a contravention in relation to his
personal data has a civil cause of
action[188] entitling him to
damages, including damages for injury to feelings. In addition, such an
individual could make a complaint to the Privacy Commissioner for Personal Data
(‘the Privacy Commissioner’). On receipt of such a complaint, the
Privacy Commissioner may carry out an investigation and, in an appropriate case
may issue an enforcement
notice[189] containing specific
directions requiring future compliance with the data protection principle that
has been breached. Non-compliance with such an enforcement notice constitutes
an offence.[190]
5.12 A Code of Practice on Consumer Credit Data was issued by the
Privacy Commissioner for Personal Data in February 1998 pursuant to the powers
conferred on him by Part III of the Personal Data (Privacy) Ordinance (Cap 486).
The Code took effect on 27 November 1998. A revised version of the Code was
gazetted by the Privacy Commissioner on 8th February 2002 and took effect on 1st
March 2002.
5.13 Although the provisions of the Code are not legally
binding, breach of any provision by a data user will give rise to a presumption
against the data user in any legal proceedings under the Personal Data (Privacy)
Ordinance (Cap 486).[191] The
basic aim of the Code is to regulate the handling of consumer credit data by
credit providers and credit reference agencies. The Code has no application to
commercial credit.[192] The Code
covers the handling of consumer credit data by credit reference
agencies,[193] and by credit
providers in their dealings with credit reference agencies and debt collection
agencies. With respect to debt collection agencies, the Code is concerned only
with the disclosure of information by credit
providers[194] to such agencies
and their use of such information.
5.14 If a credit provider uses the
service of a debt collection agency, the following provisions have to be
complied with:
- a formal contract has been executed to require, or written instructions have been issued under such a contract to require, the debt collection agency to follow such conduct as stipulated by the Banking Code[195] in relation to debt collection agencies instructed by authorised institutions; and
- the credit provider is satisfied, on the basis of previous dealings with the debt collection agency, the reputation of such debt collection agency or other reasonable grounds, that the agency will fully comply with the requirement as aforesaid.[196]
[183] The annual licence
fee is at present HK$8,800. The processing time of first-time applications is
normally 3 months.
[184] The
Hong Kong Association of Restricted Licence Banks and Deposit-taking
Companies.
[185] Paragraph 1.4
of the Code of Banking Practice
1997.
[186] Clauses marked
with asterisks below are new
provisions.
[187] Section
64(10).
[188] Section
66.
[189] Section
50.
[190] Section
64(7).
[191] Section 13 of the
Personal Data (Privacy) Ordinance (Cap
486).
[192] Clause
4.1
[193] This aspect will be
discussed later in this Consultation
Paper.
[194] “Credit
provider” is defined as “any data user who carries on a business
involving the provision of consumer credit to individuals, whether or not that
business is the sole or principal activity of that data
user.”
“Consumer credit” is defined as “any
loan, overdraft facility or other kind of credit provided by a credit provider
to an individual in his personal capacity, not for the purpose of or related to
any commercial enterprise. In this context, an individual acquiring consumer
goods from a credit provider on lease or on hire-purchase is deemed to be
provided with credit by the credit provider to the extent of the value of those
goods, any amount overdue under the lease or hire-purchase agreement is deemed
to be an amount in default under the individual’s account with the credit
provider, and all related terms and expressions are to be construed
accordingly.”
[195]
Code of Banking Practice discussed
earlier.
[196] Clause 3.8.