New provisions appear in a revised Code of Banking Practice dealing with debt collection agencies in Hong Kong. These are significant in that they prohibit the use of certain improper or harassment tactics and require banks and financial institutions authorized under the Banking Ordinance (AIs) to stop collecting debts once the debtor is adjudged bankrupt. They also impose systems and procedures for the selection of debt collectors and the monitoring of their performance. AIs are required to comply with the revised Code on or before June 1 2002.
Because a creditor owes a debtor a common law duty to exercise reasonable care in the selection and appointment of debt collectors to recover debts on its behalf, the revised Code will serve as an important yardstick for courts to decide whether an AI has fulfilled such common law duty.
The revised Code requires that the relationship between AIs and debt collectors should be one of principal and agent. In order to escape responsibility for unlawful actions of the debt collector, the agency contract between a creditor and a debt collector usually requires the debt collector to use only lawful means to collect the debt, and this arrangement sometimes does save the day for the creditor.
However, recent case law indicates that the court will make a stricter interpretation of the scope of liability of creditors, with more attention being paid to the selection of the collection agent and supervision of its conduct. The revised Code further provides that a person who is upset by the tactics of an AI-appointed debt collector can file a complaint directly to the Hong Kong Monetary Authority.
Regrettably, Hong Kong still does not have a similar code applicable to other types of creditors, such as individuals, trade creditors and moneylenders, which, unlike AIs, can resort to more excessive methods for collecting outstanding debt, despite civil and criminal protections offered by the law.
In essence, the revised Code requires AIs, among other things, to review the background information of the debt collection agency, assess its financial soundness and evaluate its operations, establish procedures to handle complaints received from debtors, and carry out careful and diligent inquiry into the complaint to check whether there is any misconduct on the part of the debt collection agency and if so, to require the agency to take the appropriate remedial action.