You would be surprised how often other collection agencies’ correspondance makes its way into our hands. Specifically, because we deal directly with debtors often attempting to deal with multiple creditors and multiple collection agencies. We often receive examples of collection letters, legal demands, and even draft statements of claim. While to my knowledge no one has been convicted or had their licence to practice law permanently revoked, if you review the Law Society of Upper Canada’s disciplinary pages, there have been hearings that have involved the practice of issuing draft statements of claim (www.lsuc.on.ca).
A draft statement of claim is a term often used for a Plaintiff’s Claim filed out but not actually filed with the court. This unfiled claim is often mailed or served upon a debtor, in an attempt to make the debtor believe legal action is pending, or has actually occurred.
Up until March 30, 2011 in Ontario, it was illegal to issue a “notice or form that is an imitation or a colourable imitation of any court form, and that is calculated to deceive the public”, punishable by a fine of not more than $20 under the Debt Collectors Act. And now, with the law repealed without being replaced or defined, it is now not specifically illegal to issue such a claim -- although there can be ramifications by the LSUC.
What I simply do not understand, and have not for many years – if you are going to go to the trouble of drafting a statement of claim, why not actually file a claim?
When You Should Take Legal Action
If a debtor is owing $2000 or more, and has garnishable assets such as a bank account or wages earned, it is feasible, and often recommended, to take legal action. The actual act of initiating a small claims court action for up to $25,000 in Ontario is $75.00. After having a process server deliver the papers, receiving default judgment, and issuing a garnishment order, you are looking at a grand total of $300-600 in total court fees and legal costs. And a significant portion of those costs can be requested in the judgment amount.
A draft statement of claim is often delivered by process server or registered mail, and often a lawyer or paralegal is retained to draft the claim – often the cost of issuing a draft claim is more than the actual $75.00 court fee. I’d think a creditor would rather spend their funds on an enforceable action.
Don’t Use Legal Action As A Crutch
Recently, a debtor forwarded a legal demand letter they had received to our office. It was from a lawyer on behalf of a collection agency that stated they were becoming involved over an $800 telecommunications debt. The wording on the letter had no conclusive point, and to involve a lawyer over such a small amount seems implausible.
Often collection staff rely on the threat of legal action to intimidate or collect funds, when that legal action isn’t practical – the debtor owes too small an amount, they don’t have a stable wage to garnish, the debt is outside the statute of limitations, the agency lacks a licensed paralegal or lawyer to enact their court claims, or the creditor will not authorize them to undertake legal action. In all these cases, the collection agency would be far better advised to list the account on the credit bureau as a registered item, and honestly advise the debtor of the consequences for non-payment.
I believe that threatening legal action doesn’t make a good or effective collector – working with the debtor for a voluntary resolution does.
Creditors Take Note
I believe there is a fair chance if the abovementioned telecommunications company is unaware that their agency is issuing legal demand letters in their name for amounts that would never be filed with the court. Creditors should know if their representatives are issuing draft statements of claim or legal demands on their matters, and should ask why such tactics are necessary to liquidate their accounts.
I would urge any creditor to build a transparent relationship with their agent, and should periodically ask for copies of the collection letters that may be issued on their behalf. It would also be recommended to ask for a log of all letters issued on their accounts from time to time.
As for my fellow collection professionals, I would urge you to place guidelines and controls on your form letters and collection databases, to prevent legal letters going out on clients that do not advocate legal action, or on balances below a certain threshold. I would also recommend training sessions for your collection staff to understand the legal process and explain it intelligently to debtors, and when it is reasonable to request a client to have legal action initiated.
If creditors and agencies work together, and attempt to build an ethical manner of recovering their receivables, we will all benefit from an improved reputation for ourselves, our companies, and our industry. Just because one debtor out of 100 receives a draft statement of claim or legal notice and pays their $800 account does not constitute a success, or proper business practices. Bankruptcy trustees, the Law Society of Upper Canada, authors and news publications are all turning their eye to these questionable practices, and I believe further pressure will be brought against organizations that are not accountable for proper legal procedure.
If you are a creditor or collection agency colleague, I am always interested in speaking about professional representation of clients, or proper legal process to secure a debt. I would encourage anyone who read this and has an opinion to reach out and speak with me. My office number at Kingston Data and Credit is 226-444-5695.
Kingston Data and Credit
Kingston Data and Credit