The world’s population may be ever-expanding, but thanks to
palm-sized cell phones, portable computers, digital cable
television, on-the-spot Internet access, e-commerce, on-line
auctions for airline tickets and an assortment of other the
technological and cultural developments, the business world seems
to be getting increasingly smaller. That’s why understanding
today’s global marketplace is so important—even if your business
is firmly rooted in Smalltown, U.S.A., and you have no plans for
expansion, worldwide marketplace trends can and do affect you.
Competitive forces, industry trends and legislative developments
eventually touch businesses in every part of the world.

In the early 1990s, a small collection of ACA International
members formed what is now known as the International Unit.
What began as a modest group of debt collectors from a few large
countries today is a strong unit comprised of over 270 credit and
collection industry members from close to 70 countries.

The International Unit is divided into four geographic regions:
Asia; Europe and Africa; North and South America; and Australia
and Oceania. Each has an elected director who monitors activity
within his or her region and reports any and all new developments
to the International Unit’s board of directors, general membership
and, of course, ACA International. What follows is an overview of
credit and collection issues in each of these international regions.

The Asia Region (representing Asia, the Pacific Islands and the
Middle East)

Asia’s financial crisis of 1997-98 left the region’s banks and
national economies threatened with a large amount of bad debt.
According to Forbes magazine, private estimates suggest that
nonperforming loans currently total a whopping $2 trillion, which
is equivalent to almost 30 percent of the region’s gross domestic
product (GDP).

Right now, though, the biggest credit and collection industry issues
in Asia are the proposed licensing regulations in Hong Kong,
according to Regional Director Benedict Wong.

In July 2002, the Law Reform Commission in Hong Kong released
a report called, “The Regulation of Debt Collection Practices,” the
aim of which was to review the adequacy of the law that governs
the way in which creditors, debt collection agencies and collectors
collect debts outside the court system. The report recommended
several changes in the law, calling for:

· Debtor harassment to be made a criminal offence, including
practices in which the collector falsely threatens criminal
proceedings or falsely claims to be authorized to enforce payment.
This seems to be much needed, as the Associated Press recently
reported that in 2001, Hong Kong police received approximately
2,000 reports of debt collectors using unethical and even illegal
collection practices.
· The creation of a new licensing authority for debt collection
agencies, which would in turn formulate a code of practices for
credit providers, debt collectors and consumers. Licensing would
cover both consumer debts and commercial debts, and both
individual and corporate debt collectors. Certain entities and
people would be exempt from licensing requirements, however,
such as authorized institutions and creditors collecting their own
debts.
· Consumer credit data to be kept under review in order to
better determine how to alleviate bad debts and abusive debt
collection practices.

The Hong Kong Credit and Collection Management Association
(HKCCMA), an association representing the interests of credit and
collection practitioners in Hong Kong, supports the licensing and
believes it will be beneficial to the industry in the long run.
However, HKCCMA does worry about the possible abuse by
debtors and the difficulties police may encounter enforcing some
of the more vague regulations.

Furthermore, slow payments, delinquencies and non-payment of
debts are rising in Hong Kong and the current economic climate is
probably the worst that the country has experienced in the past ten
years, Wong told Worldview newsletter.

In the first six months of 2002, personal bankruptcies soared 300
percent to a record 10,173. Additionally, the default rate on loans
and credit card spending has risen considerably over the past year.

In January 2002, Hong Kong government and bank officials
proposed a credit reference agency to improve the country’s
consumer-lending environment. Through the planned database,
each credit report issued would include a borrower’s repayment
record over the last 24 months. The repayment record would be
used to provide a credit score on the borrower.

According to the Privacy Commissioner for Personal Data
Raymond Tang, if a loan is terminated with full repayment with no
default record exceeding 90 days during the last five years, the
borrower would be given an “opt-out” choice to decide whether he
would allow the credit provider to continue sharing the repayment
record data of the closed account, ensuring that the borrower
retains privacy rights over the use of his credit data when he has
fulfilled his borrowing obligations without default.

However, the proposed database is currently on hold as many fear
it could trigger a fresh wave of loan defaults once it starts
operating. This follows the latest reports from Hong Kong banks,
which indicate that although lenders currently charge consumers
interest rates of more than 30 percent, many are on the brink of
losing money on credit card portfolios. Wong noted that the
current credit card charge-off rate is around 8 percent, with one
credit card issuer reaching as high as 14 percent.

“Also holding up plans for the new database is the fear that it may
bring to light large numbers of people who are heavily overborrowed
—and that when lenders get access to that information,
they may take flight and begin calling in their loans,” Wong told
ACA’s Worldview.

To the west in India, call centers are growing in popularity. In fact,
outsourcing calls to India has become a common practice amongst
many U.S. agencies. Currently, India boasts almost 110,000 call
center jobs, according to a study by industry group National
Association of Software and Service Companies and consultants
McKinsey & Co., and it brings in $1.5 billion in annual revenue.
By 2008, the industry is expected to have grown tenfold, giving
India hold on 4 percent of the global outsourcing market.

The Europe and Africa region (representing Europe, the United
Kingdom and Africa)

According to Regional Director Etienne van der Vaeren, debt
collection activity within European countries has gained
tremendous visibility and recognition in the last five years.
A good part of that visibility is due to the efforts of the Federation
of European National Collection Agencies (FENCA), a non-profit
umbrella organization of several national debt collection
associations.

Founded in 1993, FENCA currently consists of 11 countries:
Austria, Belgium, France, Germany, Italy, Netherlands, Norway,
Spain, Sweden, Switzerland and the United Kingdom. Each
national association needs to meet certain requirements in its code
of ethics regarding debtors and creditors. FENCA encourages
efforts by national debt collector associations and continues to gain
new members, helping to ensure a level of professionalism within
the industry.

Collections outsourcing in Europe is growing at a rate close to 25
percent, van der Vaeren said, way above the progression of the
overall economy. He also noted that two specific items have
defined Europe’s current credit and collection industry.
First, the recent Euro conversion was one of the largest monetary
changeovers the world had ever seen. Though the conversion
process began years ago, and the Euro has been a valid currency
since Jan. 1, 2002, Euro bank notes and coins didn’t officially
begin circulating in all the participating countries until Jan. 1,
2002. From that day on, all transactions in those countries needed
to be valued in Euro, and the “old” notes and coins of the countries
were gradually withdrawn from circulation.

Twelve of the European Union’s 15 members states—Austria,
Belgium, Finland, France, Germany, Greece, Iceland, Italy,
Luxembourg, Netherlands, Portugal and Spain—have all
completely adjusted to using the Euro in business transactions and
administrative processes. (The remaining non-Euro EU countries
are Denmark, Great Britain and Sweden.)

The new currency is beneficial because it removes exchange rate
risks from the internal market and reduces it for non-Euro
transactions as the Euro is more stable than any of the previous
currencies it replaced, cuts the costs of transactions and encourages
firms to trade across national borders.

The second important change in business this year was the
implementation of the European Directive combating late payment
in business transactions.

Proposed in 1998, the EU Directive 2000/35/EC was first
published in the EU Official Journal on Aug. 8, 2000, and had to
be implemented before Aug. 8, 2002, by all 15 EU member states.
All have implemented it by now except Italy, Greece,
Luxembourg, the Netherlands, Portugal and Spain.

Before the Directive, payment deadlines varied between EU
member states, ranging from approximately 32 days in
Scandinavian countries to 78 days in southern Europe. According
to the official EU Web site (http://www.europa.eu.int), the impetus
behind the Directive was the fact that one out of four insolvencies
in Europe is due to late payment. This leads to the loss of 450,000
jobs each year, adding to the high level of unemployment. The
Directive aims to combat this, especially in regards to small- and
medium-sized businesses.

The most important features of the new Directive are that it:

· Makes it compulsory for all companies to pay accounts
within 30 days following the date of receipt of an invoice for goods
or services (unless the payment period is fixed in a contract). This
applies to all commercial transactions in the private or public
sector.
· Affirms that all EU member states must implement a court
procedure system so as to ensure that a creditor can obtain an
enforceable title within 90 days.
· Declares that the interest rate on late payments (from the day
after due date) shall be fixed at seven points above the European
Central Bank base rate. It will be paid automatically and without
summons letter required and allows the creditor to recoup
reasonable collection costs from the debtor.

According to Van Der Vaeren: “The fact that it applies to public
authorities, the set 30-day term, the interest rate and the costs to be
borne by debtors are all very new to many members states. The 30-
day payment term is aimed at protecting small-and medium-sized
companies from some “big buyer’s” dictatorship on payment
terms. The limitation on costs borne by debtors (the “reasonable”
aspect) is the most difficult aspect to tackle. Indeed, while debt
collectors usually work on a commission basis, this commission
reflects an average cost on large numbers of claims. The Directive
aims at indemnifying creditors on a claim-by-claim basis where
recovery costs can vary a lot, notwithstanding the amount
claimed.”

Additionally, 10 new countries are scheduled to join the EU before
June 2004. They are as follows: Cyprus, the Czech republic,
Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Solvak
Republic and Slovenia. This is good news for creditors, as it means
that each of these countries will have to incorporate the Directive
into its national laws.

In Africa, the credit and collection industry remains relatively
stagnant. It is somewhat of a difficult continent for creditors, van
der Vaeren said. Suppliers to most of Africa do not easily grant
payment terms, hence there is little to be collected. Unpaid debts in
Southern Africa in general remain a problem for all credit grantors
owing largely to the fact that debtors continue to overestimate their
abilities to meet commitments from their future incomes.

In South Africa, however, payment schedules are well organized.
The South African collection industry is going through major
changes with the introduction of legislation to govern the industry
and its players. This process commenced several years ago with
the enactment of the Debt Collectors Act No. 114 of 1998, which
established a council for debt collectors, required that all
parties—excluding attorneys—collecting debt must register with
the council and set additional industry regulations.

North and South America region (representing the Canada, Puerto
Rico, the Virgin Islands, Central and South American, Mexico and
the West Indies).

Latin American countries are bound together by geography, culture
and a rising economic integration that began, in part, with the
Southern Cone Common Market (known as Mercosur, from the
Spanish translation).

Mercosur is a regional economic alliance amongst Latin American
countries, somewhat similar to the European Union. Created by
Argentina, Brazil, Paraguay and Uruguay in 1991 (with Bolivia
and Chile as associate members), Mercosur was set up with the
goal of creating a common market between the participating
countries on the basis of various forms of economic cooperation.
This integration has helped create similarities in the industry.

There are practically no regulations in the credit and collection
industry in the Latin American region that go beyond those of the
basic individual rights of its inhabitants, according to Regional
Director Pablo Salamone. Most Latin American debt collection
agencies aren’t required to obtain any special licensure, and local
credit and collection industry associations have not yet fully
developed.

While Latin America has welcomed credit services, consumerism,
technology and a myriad of professional resources, its principal
limitations are cultural. It is very difficult to convince consumers
and industry members why professional collection associations are
important and in what ways they would help to adequately develop
and regulate the industry.

On the one hand, the lack of regulations offers a simpler panorama,
in terms of the collection process. However, this is often at the
expense of professionalism and ethics. The complicated economic
situation that Latin American countries face makes the collection
process a game of chance in which winning strategies for different
portfolios, in different regions, and for different products are used.
There aren’t very many large international collections agencies in
Argentina or in Columbia at present, but Mexico and Brazil have
quite a few. Latin America is a region of under-developed
countries, some of them growing year by year at a very different
GDP rates. The fluctuations caused by an irregular growth offer
various opportunities.

Take the case of Argentina, for example, where in December 2001
there was a monetary devaluation of approximately 260 percent,
ending the 1-to-1 relationship between the Argentine peso and the
U.S. dollar that had been established about ten years earlier. The
country defaulted on $95 billion in debt, though so far this year,
inflation has only gone up 40-50 percent—very little in relation to
the devaluation that already occurred. Apart from this, many local
companies need cash and sales and property values are at historic
lows.

Nevertheless, the Argentine market is now full of very promising
opportunities in the area of collections for principal agencies in the
market. Its current growth rate is 9 percent annually, even though
there isn’t any extra pressure to bring in substitute products.
In addition to the Argentine market, the total cost of setting up a
collections agency in many Latin American cities is usually quite
low, which is encouraging news for industry members.

Up north in Canada, things in the credit and collection industry
have been somewhat quiet. Canada did not feel the economic
downturn that some other countries did, former North and South
America Region Director Matt McGrath told Worldview.
Regulations for collectors in Canada have existed since 1932.
While there is no federal law of Canadian collections, there are
instead 10 provincial laws and two territorial laws. No major
legislative initiatives have been put forth to interfere with the
industry lately.

However, last year new privacy regulations were implemented in
Canada. The Personal Information Protection and Electronic
Documents Act, which is being implemented in three stages,
applies to personal information of clients and employees in the
federally regulated private sector—such as airlines, banking,
broadcasting, interprovincial transportation and
telecommunications—as well as all organizations that disclose
personal information for consideration outside a province or the
country.

The second stage of implementation took effect on Jan. 1, 2002,
when it expanded to include personal health information as well.
The third and final stage will begin on Jan. 1, 2004, when the law
will swell to include every organization that collects, uses or
discloses personal information in the course of a commercial
activity within a province, whether or not the organization is a
federally regulated business.

The Australia and Oceania region (representing Australia, New
Zealand, Papua New Guinea, Fiji, Micronesia, Melanesia,
Polynesia and the islands of the South Pacific Ocean)

A boom in Australia’s credit industry brought a 200 percent rise in
collection cases over the past year. In fact, statistics from the
Reserve Bank of Australia indicated that as of August 2002,
personal loan debt was at $10.5 billion—up more than $100
million from the previous month—and credit card debt totaled
more than $21 billion.

Unlike the U.S. and several other markets, there has been a push in
Australia by the bigger collection companies to offer a full range
of services, including various process services, field calls,
repossessions, skiptracing and other related services required by
their clients.

Unfortunately, skiptracing has become increasingly difficult in
Australia as many sources of what was once considered public
information have been shut down. Electoral rolls (names and
addresses of voters), certain court records, driver’s license and
motor vehicle registration searches are just three sources now
closed to skiptracers and investigators. The Privacy Act and the
Data Protection Act are also placing greater compliancy
requirements on skiptracers—which small businesses find difficult
to comply with due to the somewhat prohibitive costs associated
with compliance.

Mergers and acquisitions are on the rise and continue to play a
substantial role in the development of the country’s credit and
collection industry.

“Mergers and acquisitions have just about cleaned out the wellestablished
middle-sized companies, although new ones are being
opened to replace those that have been sold,” said Regional
Director Neil Wood. “History shows this will continue as there are
always niche markets for the smaller company to service.”
However, small businesses also have to contend with the spiraling
costs of public liability and professional indemnity insurance. In
fact, recent massive premium increases have made it
extraordinarily difficult if not impossible for small businesses in
Australia and New Zealand to carry the insurance at all, and yet
large clients expect and require these policies to be held by their
service providers.

The economies of the region and its trading partners remain
uncertain. The second largest economy in the world, Japan, has
seen its property values drop sharply, taking its economy with it as
most banks and finance organizations are closely linked to the
property market, Wood said. As a result, many Japanese
companies have been withdrawing their investments in the region
in order to meet their obligations back in Japan. Australia is also
now in the grip of the worst drought in more than 40 years, having
seen more than $5 billion wiped off its exports to the Asian region.
This has had a slowing effect on the economy in the last few
months with growth of 3 percent against the government’s
projected rate of 4 percent.

Regardless, debt acquisition from major finance institutions
continues to increase with more than $3 billion in Australian
dollars sales to the market in the past two years. This trend, Wood
said, is likely to continue, with competition becoming keener to the
benefit of creditors.

Anne Rosso is associate editor of Collector. Pablo Andrés
Salamone, MCE, also contributed to this article. Salamone is
president & CEO of GRUPO S&A and CMS – Credit Management
Solutions and can be reached at salamone@grupo-sya.com.

The leading source for credit and collection information for the past 62 years, ACA International has approximately 5,300 members, including third-party collection agencies, creditors, attorneys and vendor affiliates. For more information, please contact ACA's Membership Department at membership@acainternational.org.