Is your accounts receivable management still up to date? New requirements for collecting consumer debts

On May 24, 2023, the new Book XIX of the Economic Law Code (hereinafter: WER) was introduced. Book XIX of the WER governs the amicable collection of debts in cases of consumer delinquency and imposes several additional obligations on the creditor. The rules apply to new agreements and new debts effective September 1, 2023, and to all debt collection efforts effective December 1, 2023 . We’ve summarized these changes for you below. 1. The first payment reminder is free of charge. From now on, your company must send a free first reminder regarding the unpaid debt without yet claiming late payment interest and/or compensation. The first reminder must always state whether additional charges may be applied in the event of late payment. Only after a grace period of fourteen (14) calendar days has elapsed following the sending of this free first reminder may your company charge late payment interest and/or compensation . In this first free payment reminder, you must therefore limit yourself to collecting the outstanding principal amount. 2. A number of statutory caps are being introduced: 2.1. For example, damages must be expressly stipulated prior to the commencement of the agreement between your company and the consumer and are capped as follows:

• In the event of debt collection for an amount up to 150 euros, the compensation may not exceed 20 euros;
• In the case of collection of an outstanding balance between 150.01 euros and 500.00 euros, compensation may not exceed 30.00 euros plus 10% of the amount owed within the range of 150.01 euros to 500.00 euros;
• in the case of debt collection exceeding 500.01 euros, the compensation may amount to 65.00 euros plus 5% of the amount owed in the bracket above 500.00 euros, up to a maximum of 2,000.00 euros.

Damages clauses that exceed these limits cannot be enforced against the consumer. This cap on damages applies to any damages clause, regardless of whether there is only one clause or a combination of clauses providing for penalties in the event of a payment default. Contractual provisions containing damages that do not comply with the foregoing are prohibited and are deemed null and void. 2.2. Contractually stipulated late-payment interest may not exceed the interest rate set forth in the Act of August 2, 2002, on combating late payments in commercial transactions. For the second half of 2023, this rate is 12%. 2.3. The cost of an additional reminder may not exceed 7.50 euros, plus the postage costs in effect at the time of mailing. 3. The law also provides a further framework for the activity of amicable debt collection. Thus, entities entrusted with the collection of unpaid debts (such as bailiffs, attorneys, and collection agencies) are required to verify the “legality” of the claimed damages before initiating any action or procedure related to out-of-court debt collection. For example, a consumer cannot be declared in default if a bailiff determines that the payments claimed do not comply with the statutory limits cited above. In addition, anyone attempting to collect the debt from the consumer—specifically a bailiff, an attorney, or a collection agency—is required to actively inform the consumer: - of their right to obtain all documents substantiating the debt; - to request payment arrangements; - regarding the procedure to be followed in the event of a dispute over the debt. If the consumer disputes the debt, this suspends the amicable collection procedure, and the debt collector is given a period of thirty (30) calendar days to decide whether or not to file a lawsuit. If the debt collector takes longer than thirty (30) calendar days to make this decision, the accrual of late-payment interest ceases during this period and cannot be charged until the decision to file a lawsuit has been made. When a payment plan is agreed upon, the consumer must receive a statement of her payments and the outstanding balance at least once a year. When the debt is fully paid off, the consumer must be notified of this. In short, any agreement made regarding the payment of a debt must be confirmed to the consumer. Furthermore, the debt collector may not charge the consumer a separate fee for its services. After reading the above, do you realize that your draft demand letters, notices of default, and/or general terms and conditions require an update? If so, please do not hesitate to contact our specialists.