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Harmonization of Regulation of Abusive Non-Judicial Debt Collection in the European Union: Models, Benefits and Challenges

Periodic Reporting for period 1 - ECHO (Harmonization of Regulation of Abusive Non-Judicial Debt Collection in the European Union: Models, Benefits and Challenges)

Reporting period: 2019-09-01 to 2021-08-31

The overall aim of ECHO is to contribute to the improvement of the legal base and regulation of non-judicial debt collection practices (NJDC) across the European Union (EU). The project lays the foundation for a functional legal framework for NJDC, including a sufficient number of mechanisms and safeguards to monitor the activities of debt collectors to avoid abusive NJDC. NJDC designates all methods employed by a creditor for debt recovery that do not involve the judiciary or other state agents (bailiffs, sheriffs, or police officers). In other words, it is a form of private enforcement. NJDC methods are rampant in practice today in all 27 EU jurisdictions, yet they are regulated only by nine of them. Due to the absence of due process and other procedural guarantees generally offered by judicial enforcement, NJDC services are sometimes abusive. Abusive NJDC refers to debt collection practices infringing the consumer's rights to privacy, dignity, safety and health, and economic and other legal rights.
In a business-to-consumer relationship, especially in an internal market setting, NJDC is problematic for several reasons. The first is the high likelihood of abuse posed by those practicing NJDC, stemming from the absence of due process and other procedural guarantees generally offered by judicial enforcement. The second is the market size, amounting to over 450 million consumers that may be subjected to potentially abusive NJDC. The third is the cross-border context because free movement of services enables a debt collection business from one member state (MS) to engage in operations in another MS. The fourth reason is the heterogeneity and the characteristic traits of legal systems and regulatory frameworks addressing NJDC across the EU. At the individual MS level, various models and approaches stretch from developed and updated legislation to the absence of any sector-specific legislation or regulation whatsoever. This may create disruptions in the collection process (thus affecting the performance of services). It also leads to unjustified different treatment of consumer debtors (thus creating a discriminatory treatment of consumers within the EU).
Given all the above, the project is vital to society. The topic impacts not only the collection industry and consumers but also national and EU legislators or regulators, practitioners, NGOs, and policymakers, for it touches upon crucial EU prerogatives such as the proper functioning of the internal market, consumer welfare and fair competition. Moreover, the EU is currently preparing to implement the Directive on Credit Servicers, which will cause significant legislative changes at both EU and MS levels, as national legislatures will have to transpose and implement the Directive. Thus, the importance of the topic is only expected to grow in the near future.
ECHO has resulted in four peer-reviewed publications, three of which are open access. The first publication examines the fitness of the Unfair Commercial Practices Directive to tackle abusive NJDC effectively. The second publication provides an empirical account of how and where abusive NJDC practices are regulated and sanctioned in the 26 respondent MS.The third publication uses the empirical and normative data to answer whether a Scandinavian model for regulating abusive NJDC practices exists. It finds that despite apparent similarities, the variety of institutional approaches, which are central to any regulatory model, undermine the idea of a region-specific system. The fourth publication analyzes the arguments for and against establishing pan-EU sector-specific legislation dedicated to abusive NJDC practices. It examines the interaction of the 2018 proposal for a Directive for Credit Servicers with other consumer financial protection instruments to identify the best solution for harmonizing the regulation of NJDC practices at the EU level.
Two more project outputs are currently. The first is a volume edited by the PI that gathers country reports and contributions from nine MS plus the UK concerning the regulation of abusive NJDC practices at the national level. The second is a single-authored monograph proposing A Theory of Good Practices in Regulating Abusive Informal Debt Collection in the EU, to be submitted to Hart Publishing.
Other initiatives for the dissemination of the research output generated by ECHO include: presenting early-stage papers at the host institution and other local and international fora; sharing the results of my analysis with EU Members of the Parliament working on the Proposal for a Directive for Credit Servicers; speaking at international conferences; organizing a concluding conference at the host institution; and setting up a website where all data gathered will be shared and made available to all interested parties.
ECHO contributes with new insights into a comparative analysis of NJDC and abusive NJDC at both EU and MS level in at least three areas: first, it fills a gap in EU legal scholarship which has, so far, constantly disregarded the topic of abusive NJDC, as well as their effects on the functioning of the internal market; second, it identifies and evaluates types of abusive NJDC and types of remedies, which allows ECHO to group, identify and evaluate various models in tackling the issue; third, it conducts a thorough comparative analysis of the existing normative framework, empirical data and relevant case law regarding abusive NJDC, thus setting the premises for assessment of the potential and need for harmonization of said practices across the EU.
The impact of ECHO will be long-term. With the envisioned adoption of the Directive for Credit Servicers, the issue of adequate and effective regulation of abusive NJDC practices at the EU and MS levels will gain more importance.
I trust that my research will help policymakers and regulators get a clearer image of the current situation, better understand the available solutions, an overview of the existing models and approaches, and an inspiration to design their own. My book project, while directed primarily at a scholarly audience, also aims to reach a wider audience, consisting of all relevant stakeholders: debt collectors, consumer debtors, and consumer organizations, legal practitioners, judges.