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Crisis winners: Debt collection

In the year 2019, 19,005 companies filed for insolvency in Germany and there were 86,838 private insolvencies. The average amount of damages per insolvency case for private insolvency creditors, including banks, suppliers and other lenders, amounted to EUR 910,000.

The employees of the insolvent company are always among the victims of insolvency. The number of jobs affected in Germany totalled 218,000.

Experts expect at least ten percent more insolvency proceedings and a total of 223.5 billion euros in damages in 2020. But there are also winners in insolvency proceedings, especially the debt collection companies.

For the debt collection industry, people’s over-indebtedness is an extremely lucrative business. It generates around five billion euros annually in Germany, and the trend is increasing. After all, online retail and growing consumption are bringing with them more and more unpaid bills. Almost seven million people are already over-indebted to us.

Debt collection companies have always had a dubious aura, because no one admits to knowing them, there are no official statistics for these companies and the industry is only talking about ‘black sheep’ when it is wrong.

According to the “Federation of German Debt Collection Companies”, just over 2,000 registrations for debt collection services are currently registered in Germany. According to old figures, in 2011 around 750 debt collection service providers were actively involved in the market, holding a receivables volume of almost 27 billion euros and collecting five billion euros from them in the year. These are mainly regional smaller enterprises. It is assumed that more than two thirds of all debt collection agencies employ a maximum of five people. At that time, 560 companies were organized as members of the BDIU, representing about 90 percent of the receivables volume.

The main task of debt collection service providers is to collect claims that have been commercially warned but not yet asserted in court. The claims may have been assigned, sold or provided with a factoring order by the creditors of origin. In the case of authorisations, the power of representation of debt collection undertakings ends if a submission to the court of dispute has taken place during the order for payment procedure and if acts in the context of enforcement would lead to the initiation of a disputed procedure or if acts in a disputed procedure are necessary.

Many debt collection companies also offer additional services such as commercial auxiliaries in the field of supply and invoicing, as well as long-term monitoring of currently unrecoverable titulated receivables. There is always an expensive double commissioning of debt collection companies and lawyers.

Debt collection companies compete with lawyers and the company’s own dunning departments and must aggressively show that they are working “more effectively”.

As with all lucrative transactions, where the value of the debt is estimated at more than EUR 50 billion, a momentum of its own has developed with legal grey areas. In the meantime, there is a real trade in the receivables, in which receivables are resold, passed on as packages tied up and sometimes a claim from several companies is collected several times. Debtors often do not even know who is currently processing the original claim and when it was passed on to whom.

Over the last 5 years, a lively debate has ignited about the practices of debt collection companies. Many over-indebtedness situations would not have arisen so drastically, or even at all, if debt collection agencies did not create or exacerbate debt situations with unjustified and unacceptably high fees and costs. Often these costs double or triple the original claim and previously common free reminders are not sent at all, but in the event of a delay in payment, the claim is handed over directly to the debt collection company.

Out of ignorance, fear of the Schufa entry and bad conscience of the debtors, the payment is usually unaudited and thus the important material basis for the debt collection industry is created.

Many consumer organisations and initiatives offer an online “collection check” in which claims are checked free of charge, the amount of costs is calculated and the necessity of the expensive measures is questioned.

One in five people who clicked through the steps of the online tool said in interviews that the debt collection company’s claims were either completely unknown or simply wrong and therefore not paid. More and more debtors are complaining about unjustified costs and rude practices of debt collection companies. Many companies are restricted by the case law, but always refer to the individual case.

Since the supervision of debt collection companies is the responsibility of the Länder, central nationwide measures and the merging of data are not guaranteed.

Many over-indebted people are vulnerable to these nasty practices of debt collection companies. Only with the opening of insolvency proceedings does a little more calm come into her life. However, as shown, it may be that they get really stressful during the procedure. Those debtors who receive advice, help and protection from a counselling centre when preparing the procedure can call themselves happy, and if they are very lucky, they are even advised and accompanied during the rather complicated procedure until the discharge of the remaining debt.

Here, the legislator is called upon to regulate wild growth, methods and rip-offs in the debt collection industry. In order to lead the debt collection companies on a slightly shorter leash, the “Federal Ministry of Justice and Consumer Protection” has prepared a draft speaker of a law to improve consumer protection in debt collection law.

In addition to the key changes to business and settlement fees, the draft aims, among other things, to exclude the double use of debtors by debt collection companies and lawyers. The aim is also to increase the awareness of debtors of the consequences of non-payment and the surrender of a debt.

In the case of small amounts of up to EUR 50, only EUR 18 can be claimed in future if payment is made after the first reminder. If payment is later made, 36 euros. In addition, there is usually a settlement fee for the costs of out-of-court settlements. This should be reduced to a rate of 0.7 when paid after the first reminder – the equivalent of 31.50 euros in the lowest value level. So far, 67.50 euros are customary here.

In addition, the old sentences are to apply. At the conclusion of the contract and at the latest at the first reminder, reference should be made to possible collection fees. In order to push back dubious money collectors, debt collection companies and lawyers will in future have to declare the supervisory authority responsible for them.

In July 2020, the Federal Government referred the draft law on “Improvement of consumer protection in debt collection law and amending further provisions” to the Committee on Legal Affairs and Consumer Protection for lead advice.

Not the big throw, but at least something.