The dreaded collection notice can be a costly affair in Germany, where collection services can charge fees equal to what it would cost a lawyer to go after the debt. Nearly six million Germans have gotten such a notice, which isn’t surprising given the fact that one in 10 is overindebted.
But consumer advocates criticize the stiff fees. “In most cases, they charge more for a simple form letter than what a lawyer is allowed to charge on average for a full legal scrutiny,” said Christian Rumpke, director of the Brandenburg consumer agency.
The payment itself is often fully automated, giving the collection service a fat profit margin.
Not a high priority
Buried in the coalition pact for Chancellor Angela Merkel’s government is a pledge to evolve the legal framework in a consumer-friendly way. But so far there’s been nothing but silence from the government — not the least indication what direction such an evolution could go.
The only consumer help right now, since the beginning of the year, is a “collection service check” offered by the consumer agencies. This allows customers to verify that they truly do owe the amount being dunned and that the service is entitled to collect it.
“The collection service check potentially solves a central problem,” acknowledges Gerd Billen, state secretary in the consumer ministry.
There is also a link to verify whether legal services in general are properly registered. These two consumer aids can help avoid the widespread fraud of false collection notices threatening to garnish wages or salaries to pay off a debt.
Supervision too fragmented
The professional association of collection services opposes the consumer central service and the use of data gathered from it to pressure them. Collection services are necessary, and it’s in everyone’s interest that deadbeats be called to account and pay what they owe, the organization argues. The fees were based precisely on normal legal fees.
Everyone, including the professional association, agrees that supervision of collections is too fragmented. Each state spreads supervision out among too many courts. Nor is there any exchange of information among them, said Billen. This raises the question of whether it would be helpful to set up a national supervisory body.
One thing the government rejects is the consumer call to cap the costs. “This government,” said Billen, referring to the center-right leadership, “would have a hard time proposing cost caps.”
But the official confirmed the government’s desire to do something about the fees. One proposal is to set an arbitration court, but that would require the consent of both parties. The earliest Berlin will act, however, is probably in the second half of next year.
Frank Drost covers finance and consumer sectors for Handelsblatt in Berlin. Darrell Delamaide adapted this article into English for Handelsblatt Global. To contact the author: [email protected]