The Law Reform Commission of Hong Kong

REPORT

The Regulation of

Debt Collection Practices

This report can be found on the Internet at:

<http://www.info.gov.hk/hkreform>

July 2002

The Law Reform Commission was established by the Executive Council in January 1980. The Commission considers such reforms of the laws of Hong Kong as may be referred to it by the Secretary for Justice or the Chief Justice.

The members of the Commission at present are:

The Hon Ms Elsie Leung Oi Sie, GBM, JP,

Secretary for Justice (Chairman)

The Hon Mr Justice Andrew Li, Chief Justice

Mr Tony Yen, SBS, JP, Law Draftsman

Dr John Bacon-Shone

Hon Mr Justice Bokhary, PJ

Mr Anthony Chow

Mr Victor Chu Lap-lik

Professor Y K Fan, JP

Ms Betty Ho

Mr Alan Hoo, SC

Mr Kwong Chi Kin

Dr Lawrence Lai, JP

Hon Mrs Sophie Leung, SBS, JP

Mr David Smith

The Secretary of the Commission is Mr Stuart M I Stoker and its offices are at:

20/F Harcourt House

39 Gloucester Road

Wanchai

Hong Kong

Telephone: 2528 0472

Fax: 2865 2902

E mail: hklrc@hkreform.gcn.gov.hk

Website: http://www.info.gov.hk/hkreform

The Law Reform Commission

of Hong Kong

Report

The regulation of debt collection practices

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CONTENTS

Page

Preface 1

Terms of reference 1

The Sub-committee 1

1. Debt collection in Hong Kong 4

Introduction 4

Statistics on personal credit delinquency 4

Statistics compiled by the Police 5

Statistics compiled by the Hong Kong Monetary Authority 7

Statistics compiled by the Privacy Commissioner for Personal Data 8

Industry overview 9

2. Some features of extra-judicial debt collection 12

Stages of debt collection 12

Different types of debt collection activities 12

Non-judicial debt collection 13

What causes abusive debt collection? 15

The nature of the debt collection process 15

The lack of professionalism among some debt collectors 16

Loose-lending 17

Economic downturn 17

The judicial process in debt recovery 17

Other factors 18

3. Existing criminal sanctions against abusive 19

debt collection

Criminal law sanctions 19

Intimidation 19

Criminal damage to property 21

Threats to kill or murder 22

Theft and blackmail 22

Assault 24

Mens rea for assault 25

False imprisonment 26

Forcible detention 28

Triad offences 29

Summary Offences Ordinance (Cap 228) 30

Post Office Ordinance (Cap 98) 31

Criminal sanctions for participation 31

The principal 31

Secondary participation 31

Vicarious liability 33

Corporate liability 33

4. Existing civil remedies for abusive debt collection 35

Civil remedies for abusive debt collection 35

Trespass to the person 35

False imprisonment 36

Remedies for assault, battery and false imprisonment 37

Intentional physical harm other than trespass to the person / 37

Intentional infliction of emotional distress

Trespass to chattels 39

Defamation 40

Negligence 40

Liability for tortious acts committed by others 41

Master and servant 41

Employer’s liability for independent contractors 45

Principal’s vicarious liability for torts committed by agent 45

Personal Data (Privacy) Ordinance 49

5. Other types of control on debt collection 50

Administrative control 50

Self-regulation by authorized institutions 50

Code of Banking Practice – 1997 50

Code of Banking Practice – December 2001 50

Personal Data (Privacy) Ordinance (Cap 486) and the 56

Code of Practice on Consumer Credit Data 2002

Personal Data (Privacy) Ordinance 56

Code of Practice on Consumer Credit Data 2002 57

6. Deficiencies of the existing controls 59

on abusive debt collection practices

Criminal law 59

Civil claims 60

Self-regulation by authorized institutions 61

Code of Banking Practice – December 2001 61

Personal Data (Privacy) Ordinance (Cap 486) and the 62

Code of Practice on Consumer Credit Data – 2002

7. Comparative Law 64

Introduction 64

United Kingdom 64

The criminal offence of unlawful harassment of debtors 64

Protection from Harassment Act 1997 66

England and Wales 67

Offence of harassment 67

Offence of putting people in fear of violence 67

Civil remedy 68

Scotland 68

Malicious Communications Act 1988 69

Australia 70

Federal legislation 70

Australian Competition & Consumer Commission v 71

McCaskey & Cash Return Mercantile PTY Ltd

Other provisions against abusive collection tactics 74

The United States of America 75

The Fair Debt Collection Practices Act 1977 75

Harassment or abuse 75

False, deceptive, or misleading 77

representations or means

Unfair practices 78

Communications in connection with debt collection 79

Acquisition of location information 79

Further protection to consumers 80

Canada 81

Federal 81

Alberta 81

Mainland China 83

Other jurisdictions 84

8. Licensing in other jurisdictions 85

Introduction 85

United Kingdom 85

Criteria for licensing 86

Criminal sanctions for operating without a licence 87

Civil sanctions for operating without a licence 88

Australia 88

New South Wales 89

Licensing Police, NSW Police 91

Review of the present NSW legislation 91

Victoria 92

Similar Legislation 93

Canada 95

Alberta 95

South Africa 97

9. Consumer credit data 100

Introduction 100

Personal Data (Privacy) Ordinance 100

Code of Practice on Consumer Credit Data 100

Sharing of positive credit data in other jurisdictions 101

US Fair Credit Reporting Act 102

US Equal Credit Opportunity Act 104

Australian Commonwealth Privacy Act 104

United Kingdom Data Protection Act 1998 105

Situation in Hong Kong 106

10. Proposals for reform 108

The criminal offence of unlawful harassment of debtors and others 108

Responses 109

General or specific 109

Modifications 110

Law Reform Commission Report on Stalking 111

Other features of the offence 113

Criminal sanctions for participation 114

Licensing 114

Responses 117

UK Office of Fair Trading’s review of the licensing system 117

Conclusion on Licensing 119

Whether a person who knowingly engages an unlicensed 119

collection agency equally commits an offence

Civil liability of a creditor in respect of the acts of the debt collector 119

Commercial vs consumer debts 120

Responses 120

Licensing authority 121

Responses 122

Collection agencies and collectors 122

Responses 123

Exemptions from licensing 124

Responses 124

Should credit insurers be exempted? 125

Should companies within the same group be exempted? 125

Other exempted categories suggested 126

Named organisations 126

Collecting debts as a business or otherwise 128

Criteria for licensing 128

Responses 129

Residence status requirement 129

Other requirements 130

Appeal mechanism 130

Statutory powers and duties 132

Responses 132

Code of practice 134

Responses 134

Guideline of the Australian Competition and Consumer 134

Commission

Consumer credit data 139

Responses 139

Revision to the Code of Practice on Consumer Credit Data – 2002 140

Credit application data 140

File activity data 140

Consumer credit scoring 141

Lenders’ participation in the sharing of information 141

Way forward 142

Efficiency of the judicial process 143

Responses 143

Interim Report and Consultative Paper on Civil Justice 143

Reform December 2001

Self-regulation 144

Responses 144

Conclusion 145

11. Summary of recommendations 146

Annex 1 – Responses to Consultation Paper on 151

Regulation of Debt Collection Practices

Annex 2 – ACCC’s Guidelines 153

Preface

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Terms of reference

1. On 30 July 1998, the Chief Justice and the Secretary for Justice referred the following matter to the Law Reform Commission:

“To consider the adequacy of the existing law governing the way in which creditors, debt collection agencies and debt collectors collect debts in Hong Kong without recourse to the court system, and to recommend such changes in the law as may be thought appropriate.”

2. The Law Reform Commission has been greatly assisted by the findings of the Sub-committee and wish to record here our appreciation of the hard work devoted to this reference by members of the Sub-committee.

The Sub-committee

3. The Sub-committee on Regulation of Debt Collection Practices was appointed in November 1998 to consider and advise on the present state of the law and to make proposals for reform. The sub-committee members are:

4. Former members who contributed to the work of the Sub-committee are:

5. The reference has been considered by the Sub-committee and the Law Reform Commission over the course of 18 formal meetings. Views have also been exchanged by circulation of correspondence and informal meetings.

6. On 28 July 2000, in order to seek views and comments from the community, the Sub-committee issued a Consultation Paper setting out its initial proposals on the reference. Over 60 written responses were received, many of these were substantive with practical comments on the issues addressed in the Consultation Paper. While some reservations were expressed about certain of the initial proposals for reform, the proposals were generally welcomed. The consultation exercise elicited responses from a wide range of individuals and organisations, the list of which is at Annex 1.

7. We wish to express our thanks to all those who responded to the Consultation Paper. We would like to thank the UK Director General of Fair Trading, and the UK Information Commissioner (formerly, the Data Protection Commissioner) for providing assistance and information; and the Australian Competition and Consumer Commission for their assistance and kind permission to annex part of their guidelines to this Report. We thank Credit Information Services Ltd, the Hong Kong Monetary Authority, the Hong Kong Police Force, and the Privacy Commissioner for Personal Data for providing statistical data contained in this Report.

Chapter 1

Debt collection in Hong Kong

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Introduction

1.1 It is a fundamental precept in our society that individuals should honour their debt obligations. Yet, it is equally important that debtors and members of the public generally should be protected by law from debt collection methods that overstep the bounds of acceptable pressure.

Statistics on personal credit delinquency

1.2 According to data published by Credit Information Services Ltd (“CIS”),¹ the total number of records of personal credit delinquency reported to it rose from a total of 58,792 during the second half of 2000 to 69,208 during the first half of 2001, representing an increase of nearly 17.7%. The figure further rose to 105,815 during the second half of 2001, representing an increase of 53%. Details are given in the following chart:

1.3 Statistics compiled by CIS also showed that the total number of users of consumer credit reported as failing to meet their debt repayment obligations rose from 13,011 during the second half of 2000 to 17,149 during the first half of 2001, representing a growth rate of nearly 31.8%. The figure for the second half of 2001 rose further to 39,115, representing an increase of 128%. The table below shows the details:

Statistics compiled by the Police

1.4 Statistics compiled by the Hong Kong Police on reports it receives from the public relating to debt collecting activities show an increase in non-criminal reports and a decrease in criminal reports. As can be seen from the chart below,² the number of crime reports has continued to decline since 1999, from 3,420 cases in 1999 to 2,498 in 2000, and to 1,959 cases in 2001. On the other hand, non-crime reports have been on the increase,³ suggesting that the problem of harassment type collection tactics is worsening.

5. In 2001, criminal damage accounted for a majority (1,497 reports, 76.4%) of the 1,959 crime reports received. These crimes were usually in the form of splashing paint and jamming of door locks with glue at the victims’ addresses. Criminal intimidation / blackmail (261 reports, 13.3%) came second and were usually committed by way of verbal abuses through the use of telephones. The remaining 201 reports (10.3%) involved assault, arson, false imprisonment, robbery / theft or other crimes. A breakdown of the crimes committed is shown in the table below:

1.6 Among the 13,353 non-crime reports recorded in 2001, 32.6% of the cases involved unknown creditors: either because the debtor could not be located or was uncooperative, or because several loans were owed to different creditors. The remaining non-crime reports were mostly linked to loans made by finance companies, individuals, commercial companies, credit card companies, banks and Macau loansharks. Details can be found in the table below:

Non-crime Reports (2001)