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On the 27th of January, an expert group mandated by the Ministry of Justice (Justis- og beredskapsdepartementet) put forward its proposal for a comprehensive renewal of the provisions in the Debt Collection Act and the Regulations to the Debt Collection Act. The report will be forwarded by the Ministry to a public hearing in the near future, and new legislation could be in force in 2 to 3 years. The Ministry has signalled, however, that the proposed changes to the various standardised debt collection fees will be implemented as early as 2020, as such changes can be made by regulations under the existing Act.
The expert group was made up of members from the Ministry of Justice (chair), the Norwegian FSA, the Norwegian Consumer Counsel (Forbrukerrådet), Virke Inkasso (trade organisation) and Finance Norway (Finans Norge).
The proposal comes as a reaction to the various changes in the debt collection industry, particularly in relation to its scope and structure, since the Act was introduced in 1989. The proposed regulations apply to debt collection in general. However, the regulations distinguish between debt collection agencies (fremmedinkasso) and first-party creditors (oppkjøps- og egeninkasso), and put far more extensive requirements on the debt collection agencies as they are not collecting their own claims, but claims on behalf of a creditor.
The expert group suggests a new structure for the calculation of fees since there is a lack of correspondence between the actual recovery costs and the liability costs, especially in some areas where the process of recovery is mostly automated. A condition for the liability has been that the costs are necessary in order to collect the debt. Instead of a necessity requirement, the expert group proposes to differentiate the recovery fees, so that the fee reflects the size of the claim. This results in a structural change from light and heavy rates, to two payment orders (betalingsoppfordringer) and two payment reminders (betalingspåminnelser), in order to facilitate a more active and forthcoming approach.
The chart shows the maximum fee a debt collection agency can charge:
* More than 1/3 of all claims falls within this bracket.
The expert group estimates that the new fee structure will considerably reduce the commissions and cause an estimated income drop of 30-35%, and up to as much as 50% or more for agencies that concentrate their business on the recovery of small claims (parking tickets, road toll, etc.).
The fees debt collectors can charge for dunning notices (purringer) and notices of debt collection (inkassovarsler) have also been reduced. A dunning notice is set to 35 NOK and a notice of debt collection to 70 NOK. Additionally, one can only charge for up to three dunning notices, or one notice of debt collection and two dunning notices.
Moreover, where a debtor has several claims to the same creditor, the debt collector must aggregate the claims, even though the claims are at different stages of the collection process. This represents an estimated income drop for the debt collection industry of 10%. However, a minority in the expert group suggests that this should only apply where the claims arise from the same legal context.
Cost absorption in relation to putting cases before an enforcement authority will be cut in half, not only to reflect the actual costs but also to limit unnecessary enforcement motions to the authorities. This also applies to first-party creditors, and the expert group estimated income drop of 7%.
The aggregated income drop on fee related revenue will be 50%, and the changes will affect the debt collection agencies differently, depending on their size, portfolio, etc. Thus, the expert group assumes that some of the agencies would not be able to continue their practice and, consequently, some of them would be likely to merge, while others would have to shut down their business.
A new fee structure for first-party creditors has also been suggested, and the structure is as follows:
The majority of the expert group wants the same fee structure to apply in situations where a debt collection agency recovers debt owned by a company in the same group (cf. section below on intra-group measures).
The majority of the expert group suggests that a first-party creditor can charge for dunning notices set to 35 NOK. Additionally, one can only charge for up to three dunning notices. On this point, the expert group’s minority does not want to distinguish between first-party creditors and debt collection agencies (which in addition can charge for a notice of debt collection set to 70 NOK), however, the majority argues that a notice of debt collection is an exclusive right for the agencies since the consequence of such a notice is that a debt collection process is in motion.
As the fee levels are much higher for debt collection outsourced to others compared to what the creditors themselves can charge, we have seen a structural adaption whereby claims are bought by a company in the same group as the one conducting the debt collection, with the effect that the higher fee levels are available.
A majority of the expert group has set forth a proposal with the aim of eliminating the fee effect of this structural approach, simply by limiting the fee level to that which is envisaged for collection conducted by the creditors. It should be noted, however, that debt collection fees charged before a claim is acquired will not be affected. If enacted, this carve-out may well prove to dampen the effects of the proposal, as the market possibly will adjust simply by pushing the time of transfer post fee accruals.
The expert group states that about 15 to 20 market participants are part of groups where one of the companies acquires non-performing debt and another conducts debt collection on behalf of the acquiring entity.
The expert group aims to make recovery more efficient, and to reduce a debtor’s credit period. This is achieved through regulations that seek to improve the debt collection process. Among the requirements the expert group wants to put in force is better communication between the debt collectors and the debtors through more frequent payment orders and more detailed information regarding fees for outstanding payments. The goal is also to make the sources of law more transparent and accessible than in today’s regulations, where the sources of law are fragmented. This enables a more predictable process of debt collection.
There is further a suggestion to include a pause instruction in the debt recovery for up to four months, under non-judicial debt restructure proceedings, to facilitate a solution for debtors with difficulties servicing their debt.
It has also been proposed that down payments shall be used to cover the face value of the claim and due down payments before debt collection fees and interest, unless the debtor has agreed to a different order of cover.
In order to improve compliance the expert group proposes a clearer regulation of management responsibility and increased competence for those who hold a debt collection license. Managers will instead be called expert advisors, and in relation to the debt collection agencies, in addition to the debt collection license, formal qualifications in law or economics on a university level will be required (one year).
The majority of the expert group proposes to discontinue the restrictions on payback (a benefit that the debt collection agency provides to the creditor for the assignment), and that «No cure no pay» agreements are forbidden.
The submitted proposal will now be considered by the Ministry of Justice, which will submit all or part of the report to a public hearing. This is expected to be initiated in the near future, and such a public hearing will normally last for three months.