COSTS AND INTERESTS IN CASE OF DEFAULT: IS LEGAL ALSO JUST?

For at least one of our ‘battle-hardened’ credit controllers costs and interests hold no more mystery, no more terror. After all, she had to pay enough back in her student days and, in later life, collecting them as credit controller. The main hurdle in paying this kind of debt is not so much the question of it being legal or not but, rather, whether or not legal is quite the same as just. In what follows Kim Rutten presents her ideas about these controversial debts.

Catholic University of Leuven. Flashback to about 14 years ago

I am stony broke, but life is good. I do the rounds: lectures, parties, philosophical discussions until the wee hours of the night, cheap dinners in the Alma. There is also a tidy stack of my favourite movies and books in the box. The only part of my ‘pen’ that seems not to have been hit by the general chaos. Whenever I want to escape from the hectic student social life, I just bury myself in a few pages of a book or spend my time watching some movie scenes.

My collection is very popular among students, and I regularly lent things out. Happily trusting I will get them back one day. Sometimes I treat myself to a trip to the video shop. Then I end up lugging home way too many hired films. I always try to return the films on time (which often implies watching them in double-quick-pronto time), because I need the fines like I need a hole in the head. But I barely succeed and usually end up paying the fines, blushing with embarrassment to the video shop sales assistant, who already recognises my face. Perhaps I should have sat down and drafted some general conditions for my own precious items …

TCM Belgium, Heverlee. The start of my career as credit controller in 2012

I quickly get to learn how real life works and increasingly start to realise what a privileged life I have been able to enjoy so far. I do not really have any money problems. Even in my student days I never once had to wake up fretting and sweating about how I was going to pay my costs. The financial support of my parents, my student’s job and, now and again, a helping hand from a friend have all helped me to keep an even keel over the years. I must however admit that I am a very ‘good’ debtor, my friends are always paid exactly on time. They have not drafted any general conditions of their own either.

The B2C cases within TCM bring me close alongside the personal lives of many different individuals in various situations. A real eye-opener that life can be damned unfair. I also often find myself justifying my choice of job to my old student friends. For one thing because, as far as they’re concerned, the debt collector is always the bad guy and, for another, because it’s sort of ironic that I, me of all people, with my track record of fines and repayments, should have ended up in this particular job.

But then, the more I think about what we are really doing in TCM Belgium, the more I am convinced of the social relevance of the debt collection sector. I believe that our work can have a positive and solid impact on individuals and enterprises. We ensure that the courts of law are not swamped, and that the associated legal costs can be avoided. Only too often we are the punching ball, but also a listening ear for many a debtor or a creditor. We can generally understand each individual story (who wants financial problems anyway?), and we also try to offer an individual solution for each file that comes our way. One that works in the interests of both debtor and creditor. At the end of the day, the amicable settlement is simply a healthy dose of teamwork between all interested parties.

Let’s talk about the elephant in the room after more than 8 years as (senior) credit controller, let’s talk about costs and interests!

Now, in 2020, I mostly work on B2B cases. But that is not so hugely different from B2C files. The way I see it, the biggest challenge of the job is still the same: each credit controller must make sure so as to protect himself/herself against prejudice and preconception. And, look out! It is not at all easy. We get to see a huge amount of files, and we often note similar situations and outcomes. But each case is unique, because figures represent people. And no two persons are one and the same. So that’s why there’s always the pressing need for the individual tracking of debt collection files, supported by IT optimisations (and not the other way around). And yet I would still like to talk about some kind of road map in my personal experiences as a credit controller.

Maybe I mean red rag, to a bull, when it comes to costs and interests, … We all see the red mist when we hear these words. Or we just pass them over in deadly silence, as if they do not exist, so we do not have to pay them. Like we either all tank up on bull’s testosterone or stick our heads in the sand like an ostrich and hope they all go away. Only few of us seem to genuinely forget to pay or will else accept it as normal that fines just have to be paid.

Now, and this surprised me the most! It is companies more often than individual persons that run hog-wild around costs and interests. As if, precisely because of their extremely sensitive situation, private individuals better understand that costs and interests according to general conditions are altogether different from legal costs. And they therefore pay using personal money, possibly via a repayment plan whereby the creditor will often agree to freeze the interest upon commencement of the plan.

Dotting the i’s and crossing the t’s in (costs) and interests.

Something must now be said about costs and interests, and there seems to be a particular need to offer some word of explanation. Below I set out a number of considerations/laws/facts about these notorious costs and interests:

• Perhaps companies prefer to pay fees to lawyers to contest costs and interests (which are usually the equivalent of that fee) instead of simply paying the costs and interests? In any case, the law does not allow lawyers (and bailiffs) – unlike debt collection agencies – to work ‘free of charge’. Is it then a question of principle? In that case I would be interested to know the underlying principle… Lawyers’ letters regularly flop through the flap trying to settle a few hundred euros worth of costs and interests for debts often paid months or even years late or overdue. So the answer and outcome are always the same: costs and interests in B2B matters must be paid either based on the creditor’s general conditions or based on the Belgian law of August 2002 combating late payment in commercial transactions.
• Logically, therefore, both must be known. Those sorts of general conditions are usually only ten items instead of ten pages long. For ease of reference we give a brief overview of the B2B law: in the absence of general conditions, by law, 8% interest may be charged per year in case of default on payment, with a minimum lump sum compensation of 40 EUR plus a general cost, accepted by the court, of 10% of the principal. A bill has recently been tabled for the amendment of the consumer law (B2C), recommending that the costs of debt collection should be capped at a maximum of 10% of the principal. In the absence of general conditions the standard legal interest rate of 1.75% is currently applicable as minimum, and no ceiling has as yet been imposed. If necessary the court shall decide what is fair and reasonable.
• As you may gather from the foregoing, the costs and interests that we claim are legitimate and/or contractually supported. For those reasons as debt, they are not ‘less important’ than the debt in principal; they issue from the principle (if we are still inclined to pursue the matter in terms of principle) that it will cost the creditor time and money to receive the payment for the outstanding debt. They will generally already have undertaken numerous attempts to collect payment before referring the case to us (or to a lawyer or bailiff). It is therefore only logical that such cost should be borne by the defaulting party.
• But watch out! That does not mean that the debtor in question has to pay the collection costs. In Belgium this is forbidden by law (in for example the Netherlands it is, however, permitted to add the collection costs on to the costs and interests). What you pay in costs and interests is not charged by the debt collection company but under the general conditions of the creditor or the B2B/B2C law. The costs and interests include all possible costs that may be claimed; the demanded sum is, in many cases, not even sufficient to cover all the real collection costs. One of the few studies conducted on the subject (by the University of St. Gallen (CH)) revealed that the sending of as few as 2 letters of reminder represents an effective cost of 243 EUR(!).
• You should also reckon with the cascade effect that you set up when you do not pay the debt in its entirety and fail to pay it on time. Do not imagine that you are a sole and solitary case and that creditors can probably cope with this cash flow drain. If you do not pay costs and interests you are assuming that the creditor in question has the space to write out loans free of charge for months, even years, without collecting the costs – not only for the time but also for the money involved in the attempts to collect your payment.

Legal but not reasonable?

Me, I am only human too (surprise!) so my view is, of course, coloured by my own experiences, principles and position. When I was a student I thought it quite normal to have to pay fines for late return of DVDs. The visual gems that I came across here and there were more than worth it alone. My privileged position (thanks to my social trawling net) may most probably have given me the room to atone financially for my sins of omission, but it has also given me (through my job) a clear perspective and the ability to analyse all sides of each story. That from the debtor’s and the creditor’s.

Besides which, I hold to the principle that promises made must be kept. I do not need any law to tell me that. There is no point complaining about done deeds after the event. So, as far as I am concerned, demanding contractual and legitimate costs and interests is anything but selfish. For me, by opting for the amicable solution via collection, after the internal tracking, the creditor is every bit as fair and reasonable. Once a case finds its way to the court quite considerable legal costs follow.

But perhaps not everyone agrees with me? Or maybe some think that costs and interests should be demanded, but that they are inordinately high? Or legal is not the same as reasonable? Or that the client relation might get harmed? I personally believe that costs and interests may best be described as a sort of ‘deterrent’, a guarantee/protection, against non-payment. If these costs and interests were kept only to a minimum, they would never be able to have any such effect. Many effective costs are associated with no more nor less than the time and money involved in the monitoring and collection of unpaid invoices. And finally, it is a fact that a client relation always involves at least two parties. If the client doesn’t pay, that too harms the client relation, and the client may count himself fortunate that, at the end of the day, a creditor can still seek recourse to a debt collection agency and content himself with just the costs and interests.

Either way, I am keen to hear what you have to say!

Sources:

• Bergmann, Heiko (2017): Gläubigerschaden aus Zahlungsverzug. Studie im Auftrag des Schweizerischen Gewerbeverbands sgv. Forschungsbericht KMU‐HSG, Universität St. Gallen.
• Rutten Kim, TCM Belgium, (16/12/2019): [Opiniestuk] Iedereen gelijk voor de wet in het nieuwe wetsvoorstel? (https://www.tcm.be/nl/incasso-wetsvoorstel-iedereen-gelijk-wet/)

COSTS AND INTERESTS IN CASE OF DEFAULT: IS LEGAL ALSO JUST?

For at least one of our ‘battle-hardened’ credit controllers costs and interests hold no more mystery, no more terror. After all, she had to pay enough back in her student days and, in later life, collecting them as credit controller. The main hurdle in paying this kind of debt is not so much the question of it being legal or not but, rather, whether or not legal is quite the same as just. In what follows Kim Rutten presents her ideas about these controversial debts.

Catholic University of Leuven. Flashback to about 14 years ago

I am stony broke, but life is good. I do the rounds: lectures, parties, philosophical discussions until the wee hours of the night, cheap dinners in the Alma. There is also a tidy stack of my favourite movies and books in the box. The only part of my ‘pen’ that seems not to have been hit by the general chaos. Whenever I want to escape from the hectic student social life, I just bury myself in a few pages of a book or spend my time watching some movie scenes.

My collection is very popular among students, and I regularly lent things out. Happily trusting I will get them back one day. Sometimes I treat myself to a trip to the video shop. Then I end up lugging home way too many hired films. I always try to return the films on time (which often implies watching them in double-quick-pronto time), because I need the fines like I need a hole in the head. But I barely succeed and usually end up paying the fines, blushing with embarrassment to the video shop sales assistant, who already recognises my face. Perhaps I should have sat down and drafted some general conditions for my own precious items …

TCM Belgium, Heverlee. The start of my career as credit controller in 2012

I quickly get to learn how real life works and increasingly start to realise what a privileged life I have been able to enjoy so far. I do not really have any money problems. Even in my student days I never once had to wake up fretting and sweating about how I was going to pay my costs. The financial support of my parents, my student’s job and, now and again, a helping hand from a friend have all helped me to keep an even keel over the years. I must however admit that I am a very ‘good’ debtor, my friends are always paid exactly on time. They have not drafted any general conditions of their own either.

The B2C cases within TCM bring me close alongside the personal lives of many different individuals in various situations. A real eye-opener that life can be damned unfair. I also often find myself justifying my choice of job to my old student friends. For one thing because, as far as they’re concerned, the debt collector is always the bad guy and, for another, because it’s sort of ironic that I, me of all people, with my track record of fines and repayments, should have ended up in this particular job.

But then, the more I think about what we are really doing in TCM Belgium, the more I am convinced of the social relevance of the debt collection sector. I believe that our work can have a positive and solid impact on individuals and enterprises. We ensure that the courts of law are not swamped, and that the associated legal costs can be avoided. Only too often we are the punching ball, but also a listening ear for many a debtor or a creditor. We can generally understand each individual story (who wants financial problems anyway?), and we also try to offer an individual solution for each file that comes our way. One that works in the interests of both debtor and creditor. At the end of the day, the amicable settlement is simply a healthy dose of teamwork between all interested parties.

Let’s talk about the elephant in the room after more than 8 years as (senior) credit controller, let’s talk about costs and interests!

Now, in 2020, I mostly work on B2B cases. But that is not so hugely different from B2C files. The way I see it, the biggest challenge of the job is still the same: each credit controller must make sure so as to protect himself/herself against prejudice and preconception. And, look out! It is not at all easy. We get to see a huge amount of files, and we often note similar situations and outcomes. But each case is unique, because figures represent people. And no two persons are one and the same. So that’s why there’s always the pressing need for the individual tracking of debt collection files, supported by IT optimisations (and not the other way around). And yet I would still like to talk about some kind of road map in my personal experiences as a credit controller.

Maybe I mean red rag, to a bull, when it comes to costs and interests, … We all see the red mist when we hear these words. Or we just pass them over in deadly silence, as if they do not exist, so we do not have to pay them. Like we either all tank up on bull’s testosterone or stick our heads in the sand like an ostrich and hope they all go away. Only few of us seem to genuinely forget to pay or will else accept it as normal that fines just have to be paid.

Now, and this surprised me the most! It is companies more often than individual persons that run hog-wild around costs and interests. As if, precisely because of their extremely sensitive situation, private individuals better understand that costs and interests according to general conditions are altogether different from legal costs. And they therefore pay using personal money, possibly via a repayment plan whereby the creditor will often agree to freeze the interest upon commencement of the plan.

Dotting the i’s and crossing the t’s in (costs) and interests.

Something must now be said about costs and interests, and there seems to be a particular need to offer some word of explanation. Below I set out a number of considerations/laws/facts about these notorious costs and interests:

• Perhaps companies prefer to pay fees to lawyers to contest costs and interests (which are usually the equivalent of that fee) instead of simply paying the costs and interests? In any case, the law does not allow lawyers (and bailiffs) – unlike debt collection agencies – to work ‘free of charge’. Is it then a question of principle? In that case I would be interested to know the underlying principle… Lawyers’ letters regularly flop through the flap trying to settle a few hundred euros worth of costs and interests for debts often paid months or even years late or overdue. So the answer and outcome are always the same: costs and interests in B2B matters must be paid either based on the creditor’s general conditions or based on the Belgian law of August 2002 combating late payment in commercial transactions.
• Logically, therefore, both must be known. Those sorts of general conditions are usually only ten items instead of ten pages long. For ease of reference we give a brief overview of the B2B law: in the absence of general conditions, by law, 8% interest may be charged per year in case of default on payment, with a minimum lump sum compensation of 40 EUR plus a general cost, accepted by the court, of 10% of the principal. A bill has recently been tabled for the amendment of the consumer law (B2C), recommending that the costs of debt collection should be capped at a maximum of 10% of the principal. In the absence of general conditions the standard legal interest rate of 1.75% is currently applicable as minimum, and no ceiling has as yet been imposed. If necessary the court shall decide what is fair and reasonable.
• As you may gather from the foregoing, the costs and interests that we claim are legitimate and/or contractually supported. For those reasons as debt, they are not ‘less important’ than the debt in principal; they issue from the principle (if we are still inclined to pursue the matter in terms of principle) that it will cost the creditor time and money to receive the payment for the outstanding debt. They will generally already have undertaken numerous attempts to collect payment before referring the case to us (or to a lawyer or bailiff). It is therefore only logical that such cost should be borne by the defaulting party.
• But watch out! That does not mean that the debtor in question has to pay the collection costs. In Belgium this is forbidden by law (in for example the Netherlands it is, however, permitted to add the collection costs on to the costs and interests). What you pay in costs and interests is not charged by the debt collection company but under the general conditions of the creditor or the B2B/B2C law. The costs and interests include all possible costs that may be claimed; the demanded sum is, in many cases, not even sufficient to cover all the real collection costs. One of the few studies conducted on the subject (by the University of St. Gallen (CH)) revealed that the sending of as few as 2 letters of reminder represents an effective cost of 243 EUR(!).
• You should also reckon with the cascade effect that you set up when you do not pay the debt in its entirety and fail to pay it on time. Do not imagine that you are a sole and solitary case and that creditors can probably cope with this cash flow drain. If you do not pay costs and interests you are assuming that the creditor in question has the space to write out loans free of charge for months, even years, without collecting the costs – not only for the time but also for the money involved in the attempts to collect your payment.

Legal but not reasonable?

Me, I am only human too (surprise!) so my view is, of course, coloured by my own experiences, principles and position. When I was a student I thought it quite normal to have to pay fines for late return of DVDs. The visual gems that I came across here and there were more than worth it alone. My privileged position (thanks to my social trawling net) may most probably have given me the room to atone financially for my sins of omission, but it has also given me (through my job) a clear perspective and the ability to analyse all sides of each story. That from the debtor’s and the creditor’s.

Besides which, I hold to the principle that promises made must be kept. I do not need any law to tell me that. There is no point complaining about done deeds after the event. So, as far as I am concerned, demanding contractual and legitimate costs and interests is anything but selfish. For me, by opting for the amicable solution via collection, after the internal tracking, the creditor is every bit as fair and reasonable. Once a case finds its way to the court quite considerable legal costs follow.

But perhaps not everyone agrees with me? Or maybe some think that costs and interests should be demanded, but that they are inordinately high? Or legal is not the same as reasonable? Or that the client relation might get harmed? I personally believe that costs and interests may best be described as a sort of ‘deterrent’, a guarantee/protection, against non-payment. If these costs and interests were kept only to a minimum, they would never be able to have any such effect. Many effective costs are associated with no more nor less than the time and money involved in the monitoring and collection of unpaid invoices. And finally, it is a fact that a client relation always involves at least two parties. If the client doesn’t pay, that too harms the client relation, and the client may count himself fortunate that, at the end of the day, a creditor can still seek recourse to a debt collection agency and content himself with just the costs and interests.

Either way, I am keen to hear what you have to say!

Sources:

• Bergmann, Heiko (2017): Gläubigerschaden aus Zahlungsverzug. Studie im Auftrag des Schweizerischen Gewerbeverbands sgv. Forschungsbericht KMU‐HSG, Universität St. Gallen.
• Rutten Kim, TCM Belgium, (16/12/2019): [Opiniestuk] Iedereen gelijk voor de wet in het nieuwe wetsvoorstel? (https://www.tcm.be/nl/incasso-wetsvoorstel-iedereen-gelijk-wet/)