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The history of debt collection

Posted in July 2015

The history of debt collection | Advocate

 

The necessity to collect debt existed long before currency, even before money was invented, the bartering of goods or services in return for other goods or services often led to the creation of debt as one of the parties failed to deliver their goods or services as agreed.

Ancient debt slavery

The earliest recording of how debt was dealt with goes back to 3000BC and the ancient civilization of Sumer who populated an area that is now modern-day south east Iraq. Chronicles explain how a debtor who was unable to pay a debt along with their family and servants became debt slaves. They were forced to work for the creditor until such time that their physical labour had repaid the debt. In some cases it could take years to repay the debt, which could even be passed on to the following generation of the debtor family. Debt slaves became common throughout many ancient civilisations; however, some of the more liberal early societies introduced forms of debt forgiveness or allowed debts to be discharged after a specific period of time. Amongst Abrahamic religions lending was discouraged and creditors were prohibited from seeking to collect debts.

How the Romans did it

Debt slavery continued for many hundreds of years and was known as debt bondage by the Greek and Roman empires. The practice was widespread and considered quite normal by the classical great empires being administered in several forms depending on the circumstances of the debt and the debtor. The poor and those who had suffered financial problems could even voluntarily choose to enter bondage as a debtor to avoid some of the more violent alternatives that could be imposed on them.  Debt bondage, in the Greco-Roman era was a specific category of legal punishment, which while still harsh, could also literally be a life saver. Many considered the most severe form of debt bondage to be, indentured labour, this involved a legally signed contract between the creditor and the debtor, and while the debtor was not considered a slave, the consequences of the contract could result in a lifetime of hardship. While the debtor was free to carry out their trade and go about, well almost, their everyday business, the contract would contain many clauses steeped in the creditor’s favour. These clauses would often include two for one, or anything up to nine for one compensation, forcing the debtor to repay the debt many times over. The creditor could also insist on receiving up to 90% of the debtors earnings, forcing them in to continual poverty.

The Bailiff’s have arrived

Moving on to Europe and the late Middle Ages, laws were introduced by many countries to deal with debt collection, all mainly based on a system first used in Germany. If a debtor was incapable to settle an owed debt, the creditor could summon the culprit to Court and seek a Judgment against them. A bailiff would then be instructed to by the Court to attend the debtor’s premises and remove goods to the value of the debt before delivering said goods to the creditor. While this may sound similar to today’s Court procedures for dealing with money claims, in reality, during the Middle Ages it was very different, bailiffs would often remove (or pillage) far more than necessary to repay the debt, sometimes even forcing debtor’s to handover the deeds to their property, while little of the bounty seized was ever delivered to the creditor.

Time to lock them up

Getting closer to home and debt recovery in more modern times, let’s look at how the Victorians dealt with debt collection. You could have quite easily found yourself in a Victorian prison for failing to pay even a fairly small amount of money of owed. However, you would have been largely segregated from the prison population as a whole and eventually in the late Victorian era would have found yourself in a “debt prison” built specifically to house debtors. The Victorians believed that debtors should be confined until such time that their debt was discharged; they did not believe they should be punished because they still had the chance to repay the debt and clear both their character and their indebtedness. The comfort while in prison afforded to debtors was also influenced by their status or at least their status before being incarcerated, and quite often by the generosity of friends and acquaintances that had the opportunity to sponsor the debtors stay in prison. Debt prisons also allowed inmates the opportunity to work in return for payment towards their debt, however, it was virtually impossible to completely clear a debt in this way as the scale of payment was so low.

And what about today

While elements of the first Court system introduced to deal with debt collection in the Middle Ages survive today, the process and the legal options available to creditors are now more complex. Most money claims are still settled through the Court, judgment and enforcement route with bailiffs often involved in the final stages. The Court system in the UK has developed various tracks to deal with different types of money claims. The size of the debt and the complexity of the case decide whether the claim is allocated to the Small Claims, Multi or Fast tracks.

One of the most important changes in recent years to the process of recovery commercial debts in the UK came in 1998 with the introduction of new late payment laws. The new legislation for the first time allowed creditors to charge interest on outstanding debts. Several amendments to the legislation up to the latest in 2014 have further increased the provisions available to creditors including the right to claim compensation for late payment, and most recently the provision to claim recovery costs from the creditor including the use of a third party debt collection agency.

Da Feefo

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