Understanding Debt Collection Law – Part 2

The UK has a lot of laws in place that govern everything from how to behave in public to what kind of information on stocks is legal to share and when. So it’s no surprise that there are laws that govern debt collection too. Understanding the UK’s legal debt collection framework is critical for business owners, who could easily become creditors, debtors or both. These frameworks exist to ensure fair and ethical practices in recovering debts, offering protection and setting clear guidelines for all parties involved. So no matter which end of the agreement you’re on, it’s important to know what to expect, and how a debt collector should be behaving.

Today, we’re going to give you a top-level overview of some key aspects of the UK’s debt collection laws and regulations. There is a lot to get through, so we may make this a 2-part series!

This information is accurate as of the time of writing (2025), but be aware that these laws can change, so it’s always worth making sure you’re up to date.

The Legal Framework

In the UK we have several laws and regulatory bodies that govern debt collection practices. These include:

The Financial Conduct Authority (FCA): They regulate financial firms providing services to customers.

Prudential Regulation Authority (PRA): Part of the Bank of England, they regulate the supervision of banks, building societies, credit unions, insurers and major investment firms.

Trade Associations: Including the Credit Services Association (CSA). These associations set out codes of practice for their debt collection agency members. Any business that is part of one of these associations is required to adhere to their principles.

The Fair-Trading Act 1973: This act saw the birth of the Office of Fair Trading (OFT) and the Consumer Credit Act 1974 (CCA), all of which provided essential guidelines and legal parameters for collecting debts related to agreements covered by the CCA. This includes the all-important rules around communication, harassment and unfair business practices.

Fair Practices

The core functions of the FCA are to protect customers from unscrupulous debt collectors, promote ethical practices and provide clear and accurate information. This includes treating debtors fairly and respectfully, and ensuring there are no aggressive or misleading tactics being used. In other words, ensuring fair practices are being followed in the industry.

There are a fair few regulatory safeguards in place for consumer debt, like mortgages, credit cards, bank accounts, loans, hire purchases or even bank overdrafts. They, and the collection of them are regulated by the Consumer Credit Act 1974, which lays out the formalities that have to be followed, along with the fact that any debt collector who pursues a debt regulated by the CCS must themselves be regulated by the FCA. All simple so far.

Where it gets complicated is business-to-business debt recovery, which is completely unregulated. That means that anyone can set themselves up as a debt collection agency and start collecting business debts. However, having experience and the proper ethical approach does matter, and it’s why we always recommend that businesses only ever work with a debt collector who have adopted explicitly disciplined and legitimate recovery processes that will keep the reputation of their clients intact.

Communication

Any debt collector should behave professionally. Being unregulated doesn’t give them an excuse to do what they want – they still need to have clear principles and conduct themselves ethically during all engagements. This means that debt collectors can’t contact debtors at unreasonable times, use vile language or make threats. If they do, they run the risk of being charged with harassment, or demanding money with menace. Both of which are serious criminal offences that would see their business shut down.

On the opposite side, a creditor doesn’t get to accuse a debt collector of harassment just because they’ve decided to ignore them and hope they go away, or to not pay the debt.  This is why all debt collection agencies should have clear documentation in place for every contact made, so that they can prove there was no harassment.

Interest, Charges and Fees

Thankfully, the law is very straightforward about what interest and fees can be applied to any agreement regulated by the CCA. For the business side of things, interest and compensation for B2B or commercial transactions for the supply of goods or services are set out under the Late Payment of Commercial (Interest) Debts Act 1998 (Amended 2002). That’s a mouthful! But essentially under that Act, businesses can charge interest and compensation to debtors once payment is late. In 2013 an amendment was added, (called the Late Payment of Commercial Debts Regulations 2013), which means that businesses can also add their reasonable debt recovery costs to their debtors too. But this only applies is there is something called ‘consideration’ (which means payment for goods or services), and the two businesses need to have a legally binding agreement.

Of course, many businesses do have specific terms or agreements relating to late payment, interest and costs, in which case, the contract terms would override the statute. If there are no contractual terms or agreements relating to this then the legislation is implied. Therefore companies don’t have to warn their debtors about the legislation as these charges take precedence, providing the company doesn’t offer any terms for this.

The Act and its amendment allow specific sums for compensation, depending on the amount owed:

• £40 for invoices for £1-£999
• £70 for invoices from £1,000 to £9,999
• £100 for invoices from £10,000 upwards

If your business is owed money from a non-business customer, then the Late Payment Act doesn’t apply, so you’ll need to be specific in your terms and conditions.

It’s important to remember that this is a simplified view of some of the UK debt collection laws and regulations. Diving deeper into them gets a lot more complicated, and we’re going to share some more of them next time! But the good news is, that’s what the experts are for. At Debtcol, we pride ourselves on being an ethically run debt collection company, with strict adherence to the laws and regulations in our industry. We believe in a fair and ethical approach to debt collection and treat all of our customers and their debtors with complete respect. If you’d like to know more about how we do that, or have any questions about what we’ve discussed, get in touch with the team today.