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Concerns over prohibition against debt collection service

Article 6 Investment Law 2020 stipulates that “Debt Collection Service” is one of the businesses that are prohibited from investment. This regulation will come into force on 1 January 2021, whereby service contracts for debt collection concluded before that will be invalidated. Accordingly, contractual parties involved have to liquidate the contract as stipulated in the provisions of civil law and other relevant legislation. [1]

Banning against debt collection service has resulted from that many enterprises, for recent years, have taken advantage of this business to appropriate assets or practice usury. Such acts cause social disorder and safety, leading to many consequences for the community (according to the Government’s Report).

Entities are performing debt collection activities

Debt collection means requiring debtors to pay creditors outstanding due or overdue amount or property as obligated by a contract or by a decision of a competent State’s authority. In addition to debt collectors operating under Decree No. 104/2007/ND – CP, which is prohibited under the Investment Law 2020, lawyers and law firms are able to practice debt collection as a professional field.

However, approaches to recover debts between lawyers and collecting firms are obviously different. Lawyers collect debts by negotiation, conciliation or filing a lawsuit to arbitration or court, and by enforcement of State’s agency. The recovery process is properly conducted with costs and plans prescribed by laws. Meanwhile, debt recovery companies often run the business by all possible methods, whether legal or not, to achieve the purpose with costs as a percentage of the recovered amount.

herefore, the debt collection process of a lawyer is influenced by many different factors amongst which there are two main and most important ones are the legality of the collecting dossier and the solvency of debtors. Creditors must have a legal basis and a set of evidence debt payment demand. Especially, at the stage of judgment execution, debtors must have assets to obey the Court’s judgement. In contrast, debt recovery companies coerce debtors into signing debt statements, or they keep sticking, pushing or pressuring families, partners, customers, etc. of these people. Such measures are to push debtors close to the dead-end and, despite having no assets, they must borrow or seek money, even by breaking laws to escape the pressure from debt collecting companies. Unsurprisingly, the debt recovery ratio of such enterprises reaches 90%, compared to that of the judgment enforcement agencies, which is only 50%. [2]

Thus, it can be said that without the existence of debt collecting service firms, creditors are still able to claim for their money by various methods by themselves, or through lawyers and law firms.

“Debt collection service” is disguised after being banned

There are some perspectives showing that, after the 2020 Investment Law comes into effect, the debt collection companies can no longer operate the service. As a result, they have to create other business models, other disguised activities to continue to collect debts for customers. For example, debt collectors and their clients enter into a debt trading agreement, which is in fact there is no “buying and selling” but papers. Instead of collecting debts under debt recovery service contracts, the collecting companies base on debt trading contracts to fulfil the purpose. This method, however, can only be done few times because of restrictions under Decree 69/2016/ND-CP of the Government providing conditions for debt trading enterprises.

Accordingly, an enterprise or an individual must register the business line of debt trading if he continually one of the following activities for the purpose of profit-making, including: debt purchase, debt sale, brokerage to trade debts, consultancy to trade debts, and debt exchanges. Enterprises operating in debt trading activities must meet conditions on internal management regulations, conditions on enterprise managers, and conditions on charter capital … [3] Especially, stipulatory capital for this service must be at least VND 100 billion, and must annually report to People’s Committees of provinces and cities under central authority about the total of debts which is purchased and sold, the value of brokerage or consultancy contracts. These conditions are definitely barriers for organizations and individuals wishing to switch from debt collection business to debt trading.

In addition, a debt trading transaction must have a written contract, accompanied by proper invoices, and tax returns. Any debt trading contract made to conceal the debt collection service can be completely invalidated as it is considered to be a falsification. [4] It is assumed that if a debt collector and a creditor entered into a debt trading agreement to conceal its debt collection service, did the buyer has the right to claim debts or not if, according to a normal debt trading agreement, the buyer shall pay the seller first to be transferred the right to own the debt? In case the debt collector is contractually entitled to claim debts under the debt trading agreement, even though the debt trading value is not paid yet, he is considered to owe his client. Then, if the debt collector after finishing his job does not pay the creditor, then the creditor has to continue to claim the collector for his debt. On the other hand, if the debt collector paid the debt trading value, the debt trading transaction is considered to be real and risks are transferred to the collect if he could not collect debts. This is definitely not what a debt collecting enterprise wants because its purpose is collecting money not buying debts. Moreover, a debt trading enterprise may have its operation license revoked if it violates the regulations on the scope and conditions of their operations. Therefore, bypassing the law by converting debt collection into debt trading is not a good idea.

There is another way that a debt collector chooses is to operate through authorization with a fee. However, the fee must be fixed and is unable to be determined on a percentage basis, which is an advantage of debt collection service to be lost in case of authorization. If the fee for authorization is only for presenting debtors and distracting State’s authorities from another agreement consented by debt collectors and creditors, the authorization shall be abolished for falsification, and the debt collection agreement will be null and void for breaching laws. [5] Risks in this transaction will be on both sides.

Of course, if debt collection enterprises operate in compliance with laws and do not cause social disorder, perhaps this service will not be banned. In other words, misbehaviors of debt collecting companies result in the prohibition against this service rather than the nature of the business, which is governed by Decree No. 104/2007/ND-CP. If the law and competent agencies do not have proper sanctions and control, debt collection enterprises will likely continue to misbehave. Therefore, the above assumptions are entirely possible to happen. Also, there is no guarantee that if there is a conflict arisen from disguised debt trading transactions, debt collectors will not use the same “gangster” measures to threaten their own clients.

According to the law of supply and demand, where there is a demand there is a supply, and debt collection is a factual demand. Despite the outstanding advantages of hiring a lawyer or law firm, which are ensuring the law compliance and order of society, drawbacks are that the long proceedings of court, the low rate of success and the delay of judgment enforcement agencies. Meanwhile, the proceeding process is prolonged, the debt recovery rate of judgment enforcement agencies is low and delayed. Thus, the judicial reform must be stronger whereby proceedings at court must be shorten, more transparent and the final judgement must be precise to be executed. Additionally, the Law on Enforcement Of Civil Judgments needs a change to make the process of applying emergency measures easily and quickly to freeze debtor’s assets, and to enforce debtors to obey the judgement. Thus, the debt recovery through lawyers and law firms will be more efficient and trusted by creditors.

Article By Pham Thi Thoa

Amid coronavirus economic recovery, Ohio can help prevent a consumer debt crisis

As Ohio reopens with mounting uncertainty, we see promising signs of recovery from COVID-19. But the hope for economic recovery locally and nationwide will be tempered as millions of Americans confront paying down debt they accrued while unemployed for months.

American families that lost jobs or were furloughed and small business owners dealing with massive revenue reductions face crushing credit card and medical expenses. Since mid-March, more than 50 million Americans, including more than a million Ohioans, are unemployed. These are our family and neighbors, many who own small businesses in our communities.

They now risk falling further behind on debts, additionally straining our already shaky economy. Consumers fortunate enough to receive temporary forbearance will face a harsh reality as programs end. No doubt, delinquent consumer debt will cause bankruptcies and foreclosures, flooding our courts and weakening our communities.

Consumers are scrambling for relief from creditors. But as in the 2008 crisis, most creditors are ill-prepared for the dramatically increased demand for customer service. Vulture marketers and scammers are bombarding consumers with empty promises. The environment confuses and stresses consumers trying to make smart credit decisions.

Fortunately, we know what needs to be done to assist these struggling Americans. In 2008, the federal government funded programs to help consumers restructure debt repayments with sustainable long-term modifications. The government established a centralized response involving not-for-profit counselors and lenders to create a smooth system for consumers, and it worked.

In response to the COVID crisis, nonprofit credit counselors, many of whom are accredited by the National Foundation for Credit Counseling, can help millions of American families and small businesses right-size their debt. Credit counselors navigate consumers through payments to multiple creditors, combining obligations into one payment. Consumers receive support for all their accounts simultaneously, so they get the information needed to make intelligent decisions.

Research shows nonprofit credit counseling is effective in steering consumers toward financial well-being. A study from Ohio State University showed consumers working with counselors reduced their debt and grew savings more than those without this support. These services have a proven track record of success.

As part of a nationwide response to the COVID-19 challenge, Apprisen, a nonprofit credit counseling agency based in Ohio and member of the National Foundation for Credit Counseling, has worked alongside nearly 80 nonprofit U.S. credit counseling agencies, creditors and banks to launch a new, nationwide program for people in financial distress from the coronavirus crisis. Together with these leaders, Apprisen has coordinated closely with regulators in developing a simple, specific scalable solution.

Now is the time for Congress to step in and support counseling as an essential component of coronavirus relief. Rep. Steve Stivers, a Republican from Columbus, and Representative David Scott, a Democrat from Georgia, are leading a bipartisan effort to push for substantial federal funding for two years of credit counseling, calling for funds to reach millions of households. In a letter to House leadership, the representatives wrote, “By investing in credit counseling, we can support the financial stability of American families and small businesses and prevent a wave of bankruptcies and bailouts that would further undermine our economy.”

The potential savings that could result from programs such as these are substantial — nonprofit credit counseling could help millions of consumers avoid bankruptcy and save communities $5.5 billion in foreclosures and community costs. Overall, counseled Americans could have a sustainable way to repay more than $11 billion in restructured debt, providing stability to our economy.

Nonprofit credit counseling is a proven solution. Additional federal support for these essential programs will spur our nation’s economic recovery, reduce future dependency on overwhelmed community resources and ensure those Ohioans hit hardest during the economic shutdown have a chance for long-term financial recovery as well.

Community group opposes Pine Bluff court debt collection proposal

In tough times, the Pine Bluff City Council is considering a proposal to sic a private debt collection agency on people with unpaid fines and fees.

The Arkansas Community Organizations has written the mayor and city council to ask them reject the proposal.

One reason is added economic hardships on people already struggling during the pandemic.  The letter also says any estimate of a windfall for the city is likely overestimated.

As an alternative, the group urges the city district court to develop a tool to assess a person’s ability to pay a fine or fee and to forgive portions of money owed.

They’ve included a report on a study of an effort to reduce debt in Southern households. Court costs are one of the four biggest contributors (and, until some recent progress, too many courts have reinforced the cycle of poverty by jailing people for failure to pay fines and for cascading charges that could never be paid off.)

With an eviction crisis looming and the end of added federal unemployment benefits, a push to collect overdue fines is a trifecta of hardships for many people.

Article by Max Brantley

TCPA’s 2015 Government-Debt Collection Exception Struck Down- Now What?

The Supreme Court’s recent decision in Barr v. American Association of Political Consultants held the government-debt exception of the TCPA unconstitutional under the First Amendment’s Free Speech Clause.  This means that going forward, companies that make “debt-collection” calls on behalf of the federal government can only do so with the prior express written consent of the called individuals.

The plaintiffs in this case had argued that the TCPA violated the First Amendment because it was a content-based restriction on speech that did not serve a compelling governmental interest. Their concern related to the TCPA prohibition (in many situations) of unsolicited, automated calls to cell phones. In particular, the 2015 amendment to add a new exception only for unsolicited automated calls related to the collection of debts on behalf of the federal government. The American Association of Political Consultants and other political nonprofit organizations challenged this “government debt” exception on First Amendment grounds, arguing that the 2015 amendment favored speech made for collecting government debt over political and other speech.

By a 6 to 3 vote, the Supreme Court agreed and struck down the government-debt exception and affirmed the ruling of the Fourth Circuit. The Supreme Court concluded that the government could not exempt calls attempting to collect government debts while unsolicited calls to collect private debts remained illegal.  Instead of striking down the entire statute, however, the court held the exception was severable from the rest of the TCPA. Therefore, only the government debt collection exception was thrown out. The rest of the TCPA still stands.

Putting it Into Practice: The most significant outcome of this decision to leave the bulk of the TCPA intact. Although the government debt-collection exception was scrapped, the TCPA’s prohibition on unsolicited automated calls to cell phones still applies to all calls except those made for an “emergency purpose.” Government-debt calls are now treated the same as all other automated calls to cell phones—as they were before the 2015 amendment.

Article by David M. Poell

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Article by Basavraj