Debt Bill will not tackle fees’
High interest rates and massive fees are not tackled in new legislation designed to crack down on loan sharks, lawyers have said.
A list of “significant concerns” was outlined by John Hindess of legal firm Marshall, Diel & Myers in a submission to the Government’s consumer affairs department before the consultation period on new debt legislation ended last month.
Mr Hindess, a senior associate in the Litigation and Advice Team, wrote: “The Bill does not address the major problem with these agencies — the often punitive interest and fees that they attach to the debt.
“It says they cannot charge any such fees or interest that are unlawful and that they must be agreed but that is it.
“It should be more explicit and perhaps cap the interest and fees that these businesses can charge, Mr Hindess said. “There is no explicit exclusion of lawyers, accountants or banks who often carry out the work described in the Bill but who do not do it as their primary business.”
He also said fines for failure to comply with the law were “draconian” and “far larger than in other jurisdictions”.
Mr Hindess highlighted a penalty of up to $10,000 for offences in connection with licence-holders taking excess fees, which compared to a similarly worded clause in Australia where the punishment was $100.
He said it is designed to cover offences by corporations and was “potentially concerning” because it “essentially means that a secretary at a company can be personally liable for offences under the Bill”.
Walton Brown, the Minister of Home Affairs, said the Debt Collection Act 2018 would mean oversight by a licensing authority in a bid to “eliminate abusive practices” such as harassing phone calls and “predatory” lending when he tabled the Bill in July.
But Chris Swan, of Christopher E Swan & Co, said: “One of the problems with the legislation, in my view, is that it’s a sledgehammer trying to crack a walnut.
“What it doesn’t do effectively is define things like harassment. There are debtors who actively tell collection agencies, ‘call me at the end of the month and tell me to make my payment’; that can’t be harassment.”
He added: “One of the areas that has caused some concern is that there’s no legislation that actually says the debt collection fee that you can charge is ‘X’, it’s all based on the contractual arrangement you have with your client.”
Mr Swan added that the legislation also failed to tackle “the issue of debt collection agencies collecting exorbitant fees”.
He said aggressive collection techniques reported in other countries were not used in Bermuda.
Mr Swan explained: “We don’t have the practices that people have in the States where you get letters and letters, phone calls at 2am and threats.
“The debt collection agencies here don’t descend to that level.”
A spokeswoman for the Ministry of Home Affairs said the draft Bill “proposes to regulate agencies where their sole business is collecting debt”.
She added: “The aim is to eliminate abusive practices through the creation of a regulatory framework under which creditors and debt collectors may conduct business.”
The spokeswoman said the legislation also wanted to “regulate payday lenders who lend money at extraordinary interest rates’.
She added: “Our current debt collection practices are creating further consumer indebtedness due to exorbitant interest and administrative charges.
“This indebtedness is compounded by the lack of transparency and accountability to the debtor within the industry.
“Currently there is no legislative requirement to have proper documentation from the creditor to verify the debt is owed, recognise the debtor’s right to review the paperwork from the creditor or provide proper accounting of debt and interest repayments documentation to the debtor.”
The spokeswoman said: “There is also no legislative authority to prevent predatory lending, misrepresenting or deceiving a debtor, making harassing phone calls, using deceptive documents, misrepresenting the amount owed or communicating with third parties.
“We are looking to address all of these problematic areas with the draft Bill.”
The Government earlier emphasised that the proposed legislation was designed to regulate agencies “where their sole business is collecting debt”.
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