The Regulation of Debt Collection Practices

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: [email protected] Website: http://www.info.gov.hk/hkreform THE LAW REFORM COMMISSION OF HONG KONG Report The regulation of debt collection practices ______________________________________________________ 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 i 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 ii 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 iii 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 iv 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 v Preface __________ 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: The Hon Mr Justice Sakhrani Judge of the High Court (Chairman since September 2000) Mr Robert G Kotewall, SBS, SC Senior Counsel (Vice-Chairman) Mr Charles D Booth Associate Professor Department of Professional Legal Education University of Hong Kong Mr John R Brewer formerly Secretary & Chief Financial Officer First Ecommerce Asia Limited Ms Carman Y F Chiu Senior Manager (Banking Development) (member until March 2000 Hong Kong Monetary Authority and then since October 2001) 1 Mr Junius K Y Ho Council Member The Law Society of Hong Kong Ms Rita S C Ho Assistant Principal Solicitor Companies Registry Mr Robin McLeish Barrister, Temple Chambers formerly Deputy Privacy Commissioner for Personal Data Mrs Rita L Y Tong Manager, Customer Assistance Standard Chartered Bank Mr Tsang Wai-hung Chief Superintendent (Organized Crime & (member since October 2001) Triad Bureau) Hong Kong Police Force Miss Eliza K C Yau Principal Assistant Secretary (member since August 1999) Security Bureau Ms Cathy Wan Senior Government Counsel (Secretary) Law Reform Commission 4. Former members who contributed to the work of the Sub- committee are: Hon Mr Justice Litton, GBM Non-permanent Judge of the (Chairman until September Court of Final Appeal 2000) Mr Philip K Y Chan (then) Principal Assistant Secretary (member until August 1999) Security Bureau Mr Thomas Chan Wai-ki Chief Superintendent (member until October 2001) Hong Kong Police Force Miss Margaret Mary Y F Leong Senior Manager (member from March 2000 Hong Kong Monetary Authority until October 2001) 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 2 addressed in the Consultation Paper.

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