The fundamental differences between public and private sector collections

The fundamental differences between public and private sector collections.

Welcome to our blog series, exploring the key topics being discussed in the enforcement industry. Today, we consider the differences between the public and private sector and how this impacts understanding of collections processes.

When somebody is in debt, they do not always understand the different types of debt and whether they owe to a public or private creditor. At face value, owing money is owing money. But as calls for changes to public debt collection persist and comparisons are made with private sector debt collectors, it is important to understand that government debt is fundamentally different to commercial credit debt.

Debt incurred with a consumer credit provider can escalate with high levels of interest and charges for missed payments. Debts for unpaid council tax, traffic enforcement penalties and court fines do not attract interest and there is no cost to the taxpayer. Council tax charges are set according to a property element and can include means-tested reductions and exemptions. Payment reductions are applied in line with a customer’s circumstances.

Unlike private sector creditors, the public sector cannot choose who to do business with and withdraw its service for non-payment. Public debt, such as council tax, is a recurring tax that means people can continue to accumulate debt over a period of years. Councils have a legal obligation to bill residents annually. In the private sector a creditor is unlikely to lend again to an individual who already owes them overdue payment.

This is quite different to, say, utility and energy companies where debt is based on individual consumer use and behaviour, and priced accordingly. Consequently, the public sector encounters far more vulnerability in debt recovery than the private sector collectors.

With regards to debts other than council tax, Transport for London, Highways England and local authorities follow legislative processes to enforce against individuals who have deliberately contravened regulations. The integrity of the enforcement of traffic management sanctions is imperative to deliver the congestion, low emissions, moving and parking related offences on behalf of these bodies. At the same time, measures are in place to ensure that financial vulnerability can be identified, and the appropriate support provided.

Court fines are pre-determined on a statutory tariff set in magistrates’ sentencing rules, and penalty charge notices for traffic offences are regulated through the Traffic Management Act. These fines are means tested by the courts through a means inquiry form, which is a statutory requirement and calculated according to income. The minimum repayment per week against any fine is £5.

Debt collection practice in the commercial sector is often held up as a shining example for its engagement with the money advice sector, communication with customers, support for vulnerable people and affordability assessments for repayment plans. These practices are replicated in the enforcement industry and, as in private debt collection, have become integral to daily operations. The use of technology to verify details, trace debtors and assess affordability are commonplace.

However, local authorities have an additional power to demand payment through the court process. Civil enforcement agents are empowered to enforce any writs or warrants of the court, warrants, liability orders or demands for non-payment by using the procedure of taking control of the debtor’s goods. They have a legal right to visit a property and to remove and sell goods to pay off a debt. They are trained to the same highest standards as debt collectors working in debt collection agencies.

An enforcement agent’s certificate is granted by the County Court and must be renewed every two years. To qualify, the enforcement agent must satisfy the judge that they have a sufficient knowledge of the law and procedure evidenced by Level 2 or equivalent Training in the Taking Control of Goods Regulations.

Unlike private debt collection, the fees that can be charged are fixed in statute. The fees have been unchanged since 2014, despite legislation that requires them to be index-linked. The fee structure is designed to encourage contact to be made and debt resolved at an early stage.

CIVEA currently represents over 95% of the civil enforcement industry and all members operate to a strict code of practice that promotes high standards and fair treatment of the public.

CIVEA remains fully committed to all government and public health guidelines related to the coronavirus pandemic. For more on the enforcement process please see our new ‘CIVEA Guide To Enforcement’animation or, view our latest ‘COVID-19 Safe Working Practices’ video.