PERSONAL FINANCE:FROM PHYSICAL intimidation to possible imprisonment, debt has become a dangerous business. And our antiquated debt-enforcement laws and inadequate consumer protections are not helping, writes CAROLINE MADDEN

We’ve all heard the urban legends, such as the high-profile property developer who has had to hire bodyguards because a Polish contractor owed money by him sold his debt on to the Russian mafia. While this is at the extreme end of the spectrum, a criminal element has crept into the booming – and unregulated – debt-collection industry.

Notorious Dublin criminal Martin “the Viper” Foley, for example, is running a thriving debt-collection agency, Viper Debt Recovery and Repossession Services Ltd, and has been accused of using his reputation to intimidate debtors.

“There’s also anecdotal evidence of eastern European criminal types engaged in the purchase of debt and the subsequent collection of that debt,” says Fine Gael spokesman for justice Charlie Flanagan.

In April, Flanagan drafted a Private Members’ Bill that would have introduced a vetting process so that people with serious criminal records or those deemed “unsavoury” would not be allowed to operate as debt collectors.

Unlike in the UK, where agents must go through a rigorous process to obtain a licence from the Office of Fair Trading, there are no barriers here – no licence or authorisation is necessary to set yourself up as a debt collector.

Agents hired by lenders regulated by the Irish Financial Services Regulatory Authority must abide by the Consumer Protection Act but, apart from that, collectors have pretty much a carte blanche.

Flanagan was prompted to draft the Bill because of the number of people contacting him who claimed to have been threatened by the Viper. The Bill was voted down by the Government, however, and Flanagan says the situation with debtor intimidation has escalated in the meantime.

“Since then this has become a real problem,” he says.

Many of the people contacting him are “hard-pressed families” and single mothers feeling threatened by debt collectors. Although he has advised some of them to contact the Garda, people are understandably fearful of doing this.

“There was an incident where a person in the construction industry had a brick through the windscreen of his car,” he says.

“What’s happening is that people are taking the law into their own hands because they feel that the law is cumbersome and lengthy. This is going to continue and the situation is going to deteriorate unless we have a regulatory framework.”

Since the publication of the Bill in April, people from all over the State have contacted Flanagan and, having gathered evidence that it is now a more serious problem than it was in the spring, he intends to pursue the issue again in the Dáil in the autumn.

There are many reputable, well-established debt-collection agencies that do not resort to such practices, and these operators are very much in favour of regulation.

“We’ve been calling for regulation in this whole area for quite a long time,” says Declan Flood, chief executive of the Institute of Credit Management, which represents a number of debt-collection agencies.

“As things become worse and people become deeper in debt, they’re more and more vulnerable and really need more protection.”

Regulation would also protect small businesspeople who get into debt, he says.

Seán Tyrer of the Debt Advice Team, a money management organisation, has noticed a high proportion of sole traders getting into difficulty, particularly those in the construction industry.

Often they owe money to several small building suppliers who, unlike large organisations, do not have proper debt-collection procedures in place and tend to be more aggressive.

“They can cause a lot of distress to individuals,” Tyrer says.

Large organisations generally have their own inhouse debt-collection departments, but in some cases they will outsource the chasing of problem debts.

“The big companies that are most prolific in chasing debt would be the telecommunications companies, the building societies, the credit unions, the banks,” says James Treacy, managing director of credit bureau BusinessPro, which publishes Stubbs Gazette.

But he says they would be “very particular” about who they would take on to do this for them.

“They don’t want to outsource their debt collection to the Viper for example,” he says. “Joe Duffy would have a field day.”

That’s not to say there haven’t been problems, though.

Recently it emerged that the ESB is using a British debt-collection agency, JB Debt Recovery (JBDR), to recover small debts left by former customers who switched to new electricity suppliers.

One former customer received a text message which asked him to “please call JBDR urgently”. When he did so, he was told that legal proceedings would be initiated over his debt of €73 if he did not pay within a very short timeframe.

Dermott Jewell of the Consumers’ Association of Ireland says this problem is not restricted to the ESB – a number of other large companies have hired agents that are frightening customers.

While they don’t resort to threats, they use what Jewell describes as “shock tactics”, and are less amenable to negotiating with customers than the company itself would have been.

In many cases, if a consumer tells the agent they will have trouble paying the debt immediately, they are told, “fine, we’ll see you in court”, and that’s the end of the phone call, Jewell says. The debt-collection agencies “take no prisoners” and adopt a “very hardened approach”, he adds.

“There’s a horrible reality biting very, very suddenly and with very determined intent from collection agencies,” says Jewell.

“I think a number of consumers, unfortunately, have missed out on the reality that if you do make an agreement with ‘your friendly provider’, whoever they are, and it fails, it goes very seriously off the rails.”

Unfortunately, the number of people getting into serious difficulty with debt is growing exponentially, and the free services available to help in these situations are under pressure.

In the first six months of 2009, almost 9,800 new clients were seen by the Government-funded Money Advice and Budgeting Service (Mabs).

Meanwhile, between January and June this year, the Free Legal Aid Centres (Flac) recorded a fourfold increase in debt-related calls to its information and referral phone line, and a doubling of debt-related visits to its legal advice centres around the State.

Due to the soaring demand for debt advice, and perhaps a lack of awareness of the free advice available from the likes of Mabs, a whole industry of private debt consultants has sprung up (many of whom also operate as debt collectors). And, as is the case with debt collection, this industry is completely unregulated, which means there is no guarantee of the level of independence, training or professionalism of these operators.

Tyrer says the Debt Advice Team charges a fixed monthly fee of either €39 or €49 for their services, and warns people against choosing an adviser that operates a percentage-based charging structure.

The percentage is often based on the amount that the person can afford to pay into their new debt-management programme (arranged by the adviser) each month. Therefore, if their circumstances improve and they can afford to pay more into the programme, their adviser’s monthly commission will rise too.

The Financial Regulator is against the idea of paying for debt advice. “Consumers do not have to go through a third party to manage debt issues or concerns,” a spokeswoman says.

“They can contact their lenders directly to discuss any issues and discuss alternative repayment plans.”

Another option is to approach Mabs, which is free. “If you are finding it difficult to get a one-to-one appointment with Mabs and you are unsure of your options or what you can afford to repay, you can still get information from their website, www.mabs.ie, or their helpline 1890-283438,” she advises.

This raises the question as to whether people are paying for debt advice elsewhere because Mabs is overstretched.

Due to a rapid increase in its workload, waiting lists developed in some Mabs offices in 2008 and 2009.

However, it was recently announced that five additional full-time and 14 part-time advisers are to be taken on by Mabs offices around the State, which will help it to deal with the surge in demand for its services.

Flac has said the appointment of the new staff will not be enough, however. Greater co-operation is needed between Government departments and agencies to offer a full range of supports to people in desperate straits, Flac director general Noeline Blackwell said earlier this month.

“The Government must provide comprehensive protection for those who are overindebted,” she said.

In a report published last month on the treatment of debtors by the justice system, Flac said Mabs “is being asked to work on behalf of indebted clients with one hand tied behind its back” because of the outdated legal system, which put 276 people in prison for non-payment of debt in 2008.

“Under current rules, judges may make instalment orders for payment without knowing the current income or circumstances of the debtor and without the debtor ever attending court,” the report said.

In addition to calling for an end to prison terms for debtors, Flac advised that all creditors (not just the banks that have voluntarily signed up to the new Mabs/Irish Banking Federation debt management protocol) should be obliged to refer customers in debt to Mabs, and to “engage in meaningful negotiations with money advisers on affordable repayments” before considering legal action.

In the meantime, the best advice for distressed debtors is to resist the natural urge to bury their head in the sand, and to contact their creditors as early as possible, before the debt collectors and solicitors get involved.