Debt collection activities: new rules
Pepeliaev Group would like to advise of material changes in the regulation of activities relating to the return of individuals’ overdue debts.
This relates to Federal Law No. 230-FZ dated 3 July 2016 “On protecting the rights and lawful interests of individuals when activity is performed in relation to the return of overdue debts and on amending the Federal Law “On microfinance activities and microfinance institutions”.
The provisions of this Law which set the rules for actions connected with the return of overdue debts come into force on 1 January 2017.
The Law establishes general rules for actions aimed at the return of individuals’ overdue debts, methods of contacting an individual debtor and requirements for implementing such methods. It also sets the grounds for contact with an individual debtor to be limited or discontinued, and requirements for companies that perform operations relating to the return of individuals’ overdue debts, as well as terms and conditions for such activities.
Methods of contacting an individual debtor and requirements for implementing such methods
Federal Law No. 230-FZ regulates in detail the methods of how the creditor and parties engaged by it should contact an individual debtor. This can be done either through direct contact (personal meetings or telephone calls), or by sending different types of messages or postal items.
The Law establishes that a creditor may not engage two or more parties at the same time to perform in its name and/or in its interests any actions aimed at the return of overdue debts, and that it must notify the debtor that it has engaged such parties.
Contact with the debtor (unless through postal items) may take place only on business days from 8 am to 10 pm and on weekends and holidays from 9 am to 8 pm and not more than once a week if by personal meetings, not more than once a day and twice a week if by telephone conversations, and not more than twice a day and four times a week if by way of personal messages.
A creditor and the parties engaged by it may contact third parties including the debtor’s relatives and those who live together with him/her for the purposes of the return of the overdue debt only with the debtor’s and such parties’ consent.
It is prohibited to engage parties located outside Russia (provided that the debtor is within Russia) or persons who have an unexpunged criminal record or unspent convictions for an offence against the person, for an economic offence or for an offence against public order and public safety, to contact a debtor.
When actions are performed that are aimed at the return of an overdue debt, it is prohibited, among other things, to use physical force upon the debtor or any other persons, to destroy or damage property, to threaten to use such actions, to apply methods that are dangerous to people’s life and health, to impose psychological pressure on the debtor or other parties, or to abuse rights.
It is also prohibited to disclose to third parties any information about the debtor and the debt without the debtor’s consent. Regardless of whether such consent has been granted, it is prohibited to disclose information about the debtor, the overdue debt and the collection of it, or any other personal data of the debtor to the public at large, including by uploading such information to the internet or displaying it in a residential facility, house or any other building, construction or structure, or communicating it to the debtor’s place of work.
PG comments: The significant number of restrictions and conditions that regulate the procedure for contacting individual debtors which both the creditor and the party engaged by it must comply with, increase the risk of collectors’ being liable for performing unlawful actions aimed at the return of overdue debt.
The debtor’s right to refuse to contact the creditor and the parties engaged by it
Starting from 1 January 2017 and once four months expire from when the delay in performing an obligation arises, the debtor may send to the creditor and/or the party acting in its name and/or in its interests, a notice of refusal to contact. When such notice is received, the creditor and the party engaged by it may send only postal items to the debtor. If the court adopts a decision that the overdue debt be recovered, the debtor’s notice of refusal to contact is suspended for two months.
The debtor will also have a right to send to the creditor and/or to the party acting in its name and/or in its interests, a notice that contact should be performed only through an attorney appointed by the debtor.
Additionally, an individual debtor may at any time revoke the following previously granted consents: a consent to methods of contact being used that are not provided for by Law No. 230-FZ; a consent to contact with third parties, or a consent to information about the debtor and the debt being disclosed to third parties.
PG comments: Debtors being granted a right to refuse contact essentially blocks debt collectors’ activities and makes such activities unproductive. Accordingly, creditors (primarily, lending institutions) will essentially lose one of their formerly most widely used instruments for collecting bad debts.
Requirements for companies that are engaged in the return of individuals’ overdue debts, as well as the terms and conditions for such activities
PG comments: Among the relationships to which Law No. 230-FZ applies are those connected with the return of overdue debt based on circumstances which had arisen before this Law came into force. However, this Law does not apply to the recovery of debt from individual entrepreneurs if such debt arose in connection with entrepreneurial activities.
The Law establishes certain requirements for companies for which the return of overdue debts is a primary activity.
In particular, the company’s net assets should not be less than RUB 10 million, its liability for causing losses to a debtor should be insured and the company should be entered into the register of operators that process personal data. It should also have a website whose address should include a domain name owned by this company, and it should have no financial obligations to creditors that are overdue by more than 30 days after the relevant court decision has come into effect.
Such companies’ managers and employees should also meet certain requirements. These include not having an unexpunged criminal record or any unspent convictions for an offence against the person, for an economic offence or for an offence against public order and public safety.
Starting on 1 January 2017, companies for which the return of overdue debts is a primary activity will have to keep audio recordings of all their direct contacts with debtors or other persons that are aimed at the return of overdue debts, to keep records of all text, voice and other messages as well as to keep all hard copies of documents that are transferred during contacts with debtors.
PG comments: The authors of the law are introducing brand new requirements for companies for which the return of overdue debts is a primary activity. This will significantly increase the costs of collecting overdue debts from individuals, both when such activity is performed by the creditor itself and when the creditor engages a specialised company.
Conclusions and recommendations
Federal Law No. 230-FZ introduces new rules for performing actions aimed at the return of individuals’ overdue debts, new conditions which should be met during contacts with a debtor and special requirements for companies for which it is a primary activity.
Since some provisions of the Law have already come into force and some changes will apply starting from 1 January 2017, we advise that all companies which systematically encounter a need to ensure the return of individuals’ overdue debts take action to develop new standards for contacting existing debtors and blend these standards into their existing standards for contacting individual debtors, taking into account the changes in the legislation we have described above.
If you engage specialised companies to ensure the return of overdue debts, we advise you to make sure that such companies meet all the new legislative requirements.
Help from your adviser
Pepeliaev Group’s experts have successful experience of settling bad debts, including out of court.
We are also ready to provide the required legal assistance to bring your companies’ corporate documents and bad debt policies into line with Law No. 230-FZ.
This relates to Federal Law No. 230-FZ dated 3 July 2016 “On protecting the rights and lawful interests of individuals when activity is performed in relation to the return of overdue debts and on amending the Federal Law “On microfinance activities and microfinance institutions”.
The provisions of this Law which set the rules for actions connected with the return of overdue debts come into force on 1 January 2017.
The Law establishes general rules for actions aimed at the return of individuals’ overdue debts, methods of contacting an individual debtor and requirements for implementing such methods. It also sets the grounds for contact with an individual debtor to be limited or discontinued, and requirements for companies that perform operations relating to the return of individuals’ overdue debts, as well as terms and conditions for such activities.
Methods of contacting an individual debtor and requirements for implementing such methods
Federal Law No. 230-FZ regulates in detail the methods of how the creditor and parties engaged by it should contact an individual debtor. This can be done either through direct contact (personal meetings or telephone calls), or by sending different types of messages or postal items.
The Law establishes that a creditor may not engage two or more parties at the same time to perform in its name and/or in its interests any actions aimed at the return of overdue debts, and that it must notify the debtor that it has engaged such parties.
Contact with the debtor (unless through postal items) may take place only on business days from 8 am to 10 pm and on weekends and holidays from 9 am to 8 pm and not more than once a week if by personal meetings, not more than once a day and twice a week if by telephone conversations, and not more than twice a day and four times a week if by way of personal messages.
A creditor and the parties engaged by it may contact third parties including the debtor’s relatives and those who live together with him/her for the purposes of the return of the overdue debt only with the debtor’s and such parties’ consent.
It is prohibited to engage parties located outside Russia (provided that the debtor is within Russia) or persons who have an unexpunged criminal record or unspent convictions for an offence against the person, for an economic offence or for an offence against public order and public safety, to contact a debtor.
When actions are performed that are aimed at the return of an overdue debt, it is prohibited, among other things, to use physical force upon the debtor or any other persons, to destroy or damage property, to threaten to use such actions, to apply methods that are dangerous to people’s life and health, to impose psychological pressure on the debtor or other parties, or to abuse rights.
It is also prohibited to disclose to third parties any information about the debtor and the debt without the debtor’s consent. Regardless of whether such consent has been granted, it is prohibited to disclose information about the debtor, the overdue debt and the collection of it, or any other personal data of the debtor to the public at large, including by uploading such information to the internet or displaying it in a residential facility, house or any other building, construction or structure, or communicating it to the debtor’s place of work.
PG comments: The significant number of restrictions and conditions that regulate the procedure for contacting individual debtors which both the creditor and the party engaged by it must comply with, increase the risk of collectors’ being liable for performing unlawful actions aimed at the return of overdue debt.
The debtor’s right to refuse to contact the creditor and the parties engaged by it
Starting from 1 January 2017 and once four months expire from when the delay in performing an obligation arises, the debtor may send to the creditor and/or the party acting in its name and/or in its interests, a notice of refusal to contact. When such notice is received, the creditor and the party engaged by it may send only postal items to the debtor. If the court adopts a decision that the overdue debt be recovered, the debtor’s notice of refusal to contact is suspended for two months.
The debtor will also have a right to send to the creditor and/or to the party acting in its name and/or in its interests, a notice that contact should be performed only through an attorney appointed by the debtor.
Additionally, an individual debtor may at any time revoke the following previously granted consents: a consent to methods of contact being used that are not provided for by Law No. 230-FZ; a consent to contact with third parties, or a consent to information about the debtor and the debt being disclosed to third parties.
PG comments: Debtors being granted a right to refuse contact essentially blocks debt collectors’ activities and makes such activities unproductive. Accordingly, creditors (primarily, lending institutions) will essentially lose one of their formerly most widely used instruments for collecting bad debts.
Requirements for companies that are engaged in the return of individuals’ overdue debts, as well as the terms and conditions for such activities
The only party other than the creditor which may make any contact (except for sending postal items) with a debtor for the purposes of the return of an overdue debt, is a party engaged by the creditor, provided that such party is a lending institution or a company for which the return of overdue debts has been a primary activity since it was entered into the state register of legal entities.
PG comments: Among the relationships to which Law No. 230-FZ applies are those connected with the return of overdue debt based on circumstances which had arisen before this Law came into force. However, this Law does not apply to the recovery of debt from individual entrepreneurs if such debt arose in connection with entrepreneurial activities.
The Law establishes certain requirements for companies for which the return of overdue debts is a primary activity.
In particular, the company’s net assets should not be less than RUB 10 million, its liability for causing losses to a debtor should be insured and the company should be entered into the register of operators that process personal data. It should also have a website whose address should include a domain name owned by this company, and it should have no financial obligations to creditors that are overdue by more than 30 days after the relevant court decision has come into effect.
Such companies’ managers and employees should also meet certain requirements. These include not having an unexpunged criminal record or any unspent convictions for an offence against the person, for an economic offence or for an offence against public order and public safety.
Starting on 1 January 2017, companies for which the return of overdue debts is a primary activity will have to keep audio recordings of all their direct contacts with debtors or other persons that are aimed at the return of overdue debts, to keep records of all text, voice and other messages as well as to keep all hard copies of documents that are transferred during contacts with debtors.
PG comments: The authors of the law are introducing brand new requirements for companies for which the return of overdue debts is a primary activity. This will significantly increase the costs of collecting overdue debts from individuals, both when such activity is performed by the creditor itself and when the creditor engages a specialised company.
Conclusions and recommendations
Federal Law No. 230-FZ introduces new rules for performing actions aimed at the return of individuals’ overdue debts, new conditions which should be met during contacts with a debtor and special requirements for companies for which it is a primary activity.
Since some provisions of the Law have already come into force and some changes will apply starting from 1 January 2017, we advise that all companies which systematically encounter a need to ensure the return of individuals’ overdue debts take action to develop new standards for contacting existing debtors and blend these standards into their existing standards for contacting individual debtors, taking into account the changes in the legislation we have described above.
If you engage specialised companies to ensure the return of overdue debts, we advise you to make sure that such companies meet all the new legislative requirements.
Help from your adviser
Pepeliaev Group’s experts have successful experience of settling bad debts, including out of court.
We are also ready to provide the required legal assistance to bring your companies’ corporate documents and bad debt policies into line with Law No. 230-FZ.