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If you don't pay your debts, the lender- whether it's a bank, credit card issuer, or money lender- has the right to exercise any legal recovery methods contained in the contract you signed for the loan.

Lenders' rights to pursue debt and recover debt collection expenses

A lender may engage a debt-collection agency (DCA) to recover the debt. Under the Code of Banking Practice, a lender must give you advance written notice that a DCA will be hired to collect what you owe. The notice must include detailed information regarding the overdue amount repayable, the length of time you've been in default, the costs the lender will add to the debt for recovery and the contact information of the lender's debt recovery department. You must also be told what to do if a DCA attempts illegal recovery tactics.

Right of set-off

An important aspect of the lender's right to recover a debt is known as the right of set-off. Here's how it works: If you default on a loan, the bank is entitled to take (set-off) the amount due from your bank account to cover the loan. Once the bank exercises this right, any cheques you write will not be honoured.

However, there are limits to a bank's right to set-off. With joint accounts, the loan contract must specifically state if the money in a joint account can be set-off. Some special deposits, such as trust accounts, can't be set-off.

How to deal with debt collectors

Know your rights. DCAs operate under the Code of Banking Practice guidelines issued by the Hong Kong Monetary Authority. When employing DCAs, SFC-licensed corporations and money lenders have to comply with the debt collection guidelines issued by the SFC and the Code of Practice issued by the Licensed Money Lenders Association Limited, respectively.

Debt-collection companies must not attempt to recover debts from anyone other than the debtor or guarantor; nor can they apply tactics intended to humiliate or harass the debtor, family members or any other person to recover debts. DCAs are also forbidden from resorting to violence or any form of physical intimidation.

If you're contacted by a DCA, ask them to confirm the amount of the debt and whom you owe it to. If the details don't sound right, tell the collector that you need to verify the information and then contact your lender.

If you find the tactics used by the DCA not in line with requirements as specified in the Code of Banking Practice for example, you can make a complaint to the authorised institution. If you are not satisfied with the manner in which the authorised institution handles your complaint, you may seek help from the Complaints Processing Centre from the Hong Kong Monetary Authority. If you have a complaint about a Licensed Money Lender, you may contact the Licensed Money Lenders Association.