New laws proposed to regulate debt collection firms including mandatory police screening of collectors

SINGAPORE — Debt collection firms here may soon require a licence to operate and their staff will need to be screened and approved by the authorities if proposed laws to regulate the sector are passed.

The Ministry of Home Affairs (MHA), which introduced the Debt Collection Bill for first reading in Parliament on Monday (Aug 1), said that the proposed laws would provide police with the necessary levers to stem "problematic debt collection conduct”.

This comes as a high number of police reports were lodged against errant debt collection companies and collectors over the past few years, said the ministry in a media release on Monday.

The number of police reports lodged against such companies went up from 134 in 2015 to 590 in 2018, and averaged around 255 in the past three years.

LICENSING AND APPROVAL 

Under the proposed laws, companies which collect debt on behalf of another person or collect debt that they have purchased from another party will have to apply for a licence to carry out their activities.

They will be held accountable for the conduct of their collectors who will need to submit a joint application with the company for the police’s approval and will be subjected to a background screening by the police before becoming a debt collector.

Debt collectors will also not be able to display or use any physically threatening words, behaviour, writing, sign or visible representation or put up any notice relating to debt on a property that does not belong to the debtor.

They are required to first verify the identity of the debtor they are approaching, and stop attempts to collect money from or communicate with the person if the individual is not the debtor, or if the debtor has informed that they wish to settle the debt through other legal means. 

Approvals for debt collectors can be rescinded if they break the law, said MHA.

Any unlicensed debt collection activities will be criminalised with penalties including fines and jail for up to five years.

Currently, there are no existing laws governing debt collection activities, though there have been cases where errant collectors were prosecuted under harassment laws.

CLASS LICENSING REGIME 

The proposed Bill also includes a class licensing regime for regulated businesses conducting business primarily in the lending of money and collecting of money owed to their own business.

“This will include banks, merchant banks, licensed credit card or charge card issuers, finance companies, and licensed and exempt moneylender,” said the ministry.

These entities will not be required to be individually licensed, but will need to adhere to class licensing conditions.

The conditions include being required to put in place measures, including proper training, to ensure that in-house debt collectors understand and comply with the debt collection rules.

“Compared to individual licences, a class licensing framework allows the police to impose regulatory conditions on such lower risk groups, while minimising regulatory compliance costs,” said MHA.

Collectors from these regulated businesses, however, will not require approval by the police.

EXEMPTIONS AND EXCLUSIONS

Individuals recovering personal debts owed to themselves or in-house credit control departments collecting on accounts receivable will be exempted under the proposed laws. 

MHA said that entities whose activities have been assessed to pose a low risk of public disorder will also be excluded from the Bill.

Examples of such entities include:

• persons carrying out court-administered debt collection activities, 
• licensed insolvency practitioners, 
• regulated legal practitioners and non-practitioners, 
• joint law ventures, 
• licensed foreign law practices, 
• qualifying foreign law practices, and 
• Singapore law practices

TODAY previously reported that while debt collection firms welcomed the Government’s intent to regulate the industry, some had expressed worries that there may be unintended effects such as debtors using these laws to dodge payments.

They were also concerned that regulations would affect debt recovery rates and ability to hire staff in an already manpower-tight industry.

MHA in response to TODAY's queries then said that it seeks to "balance the extent of regulatory requirements to impose on debt collection entities, against the risk that such entities might engage in problematic debt collection conduct".