What businesses need to know about illegal debt collection practices
Although debt recovery is a lawful right of creditors, this right is not absolute and must be exercised within the limits permitted by law. The use of excessive pressure or measures that infringe upon the lawful rights and interests of others may cause debt recovery activities to shift from lawful to unlawful. Therefore, properly identifying prohibited acts and understanding the legal boundaries in debt recovery activities are matters that every business and individual should pay particular attention to.
1. What are illegal debt collection practices?
In business activities, the occurrence of receivables and delayed payments is unavoidable. When cash flow is occupied, creditors naturally wish to recover outstanding amounts as quickly as possible in order to minimize losses and ensure business operations. However, in practice, many individuals and enterprises, due to impatience or lack of legal understanding, have adopted excessively coercive measures, causing lawful debt recovery activities to turn into illegal debt collection practices.
Illegal debt collection practices are understood as acts of demanding payment, exerting pressure or using threatening measures that infringe upon the life, health, honor, dignity, property, privacy or other lawful rights and interests of the person having payment obligations.
Effective debt recovery does not mean applying pressure at all costs. Even if the debt genuinely exists, the creditor’s use of illegal debt collection practices in the debt recovery process may expose the creditor to significant legal risks. In reality, many creditors not only fail to recover the money but also face administrative sanctions or criminal liability due to choosing improper methods.
2. Common illegal debt collection practices
Although there is always a need to recover debts in business activities, the law does not permit creditors to use coercive measures or measures that infringe upon the lawful rights and interests of any other person.
In practice, common illegal debt collection practices include repeatedly making phone calls or sending messages at a high frequency to harass, threaten or exert psychological pressure on debtors and their relatives. In some cases, social media is used to publish personal information, images or insulting content to create public pressure. More seriously, certain individuals or organizations use methods such as gathering crowds at the debtor’s residence or workplace, making threats, using coercion, seizing property or committing acts of violence. These methods not only violate administrative and civil laws but also carry the risk of criminal prosecution.
3. Prohibited acts in debt recovery activities
Vietnamese law does not prohibit creditors from recovering debts or enforcing their rights to demand payment through lawful means. What is prohibited under Point h, Clause 1, Article 6 of the Law on Investment 2025 is the business of providing coercive debt collection services, which was abolished as a separate business line due to concerns over widespread abuses and unlawful practices. At the same time, current laws do not provide a separate and exhaustive list of prohibited acts in debt recovery activities. However, this does not mean that creditors are free to use any methods they choose to demand payment.
It should be noted that the concepts of “debt recovery” and “coercive debt collection services” should not be understood as having the same meaning. Debt recovery is the lawful exercise by a creditor of its right to demand payment through legally recognized measures, such as negotiation, written payment demands, representation by lawyers, arbitration, court proceedings, and enforcement procedures. By contrast, “coercive debt collection services” refers to a former conditional business sector under Vietnamese law, whereby third parties were engaged to collect debts on behalf of creditors. Due to widespread abuses and the increasing involvement of coercive, intimidating and unlawful methods, the business of coercive debt collection services was ultimately prohibited. Therefore, the prohibition under Vietnamese law is aimed at the business of coercive debt collection services as a business line and at unlawful debt collection practices, rather than at the legitimate right of creditors to recover debts through lawful means.
During the debt recovery process, creditors are not permitted to arbitrarily seize the debtor’s property, unlawfully enter residences or workplaces, obstruct the normal activities of individuals or organizations having payment obligations or use force, threaten the use of force or commit acts infringing upon the health, life, honor or dignity of debtors or their relatives. Although these acts are not consolidated in a specific legal instrument governing debt recovery, they are all prohibited acts because they infringe upon personal rights and property rights protected by law and may be subject to administrative sanctions or criminal prosecution depending on the nature and severity of the violation. Therefore, in practice, enterprises should not engage in such acts to compel debtors to make payment.
In addition, certain measures are not prohibited by law but still involve considerable legal risks if implemented improperly. For example, making phone calls or sending messages to request payment is a creditor’s right, but if carried out with excessive frequency, in a harassing or threatening manner or in a way that seriously affects the debtor’s life and normal activities, such conduct may still be subject to legal sanctions.
Accordingly, the boundary between lawful debt recovery and illegal debt collection practices does not lie in whether the debt actually exists, but rather in the method chosen by the creditor to exercise the right to demand payment. This is also why businesses need to establish a systematic debt recovery strategy and prioritize measures that comply with legal regulations in order to protect their interests while avoiding unnecessary legal risks.
4. How are illegal debt collection practices handled?
Depending on the nature, severity and consequences of the violation, illegal debt collection practices may be subject to administrative penalties or criminal prosecution.
For acts infringing upon honor and dignity, disclosing personal information or causing public disorder, violators may be subject to administrative sanctions in accordance with the law. In more serious cases, acts such as extortion, threats, humiliation of others, disturbing public order, unlawful intrusion into residences or intentional infliction of bodily harm may result in criminal liability with severe penalties.
In addition to liability toward the State, violators may also be required to compensate affected parties for damages in accordance with civil law.
5. Distinguishing lawful debt recovery from illegal debt collection practices
The key difference between lawful debt recovery and illegal debt collection practices does not lie in whether the debt actually exists, but in the manner in which the creditor requires the debtor to perform payment obligations.
Within the legal framework, creditors are entitled to use various measures to protect their rights, such as negotiation, reconciliation of outstanding balances, sending payment demand letters, working through lawyers or requesting dispute resolution through arbitration or courts. These are all methods recognized by law to compel debtors to perform their obligations in a lawful and orderly manner.
By contrast, illegal debt collection practices involve the use of measures that infringe upon the property, honor, dignity, privacy, freedom or other lawful rights and interests of debtors or related persons in order to pressure them into making payment. In such cases, the unlawful conduct arises not from the request for payment itself, but from the manner in which such request is carried out.
Simply put, lawful debt recovery means that creditors exercise their right to demand payment through methods permitted by law, whereas illegal debt collection practices involve the use of actions that exceed legal limits and infringe upon the lawful rights and interests of others in order to achieve the objective of recovering money.
6. What should businesses do to recover debts in compliance with the law?
To ensure effectiveness and avoid legal risks, businesses should prioritize professional debt recovery measures with a clear roadmap.
First, businesses should thoroughly review all documents relating to the debt, including contracts, invoices, delivery records, acceptance minutes, debt reconciliation records and correspondence between the parties. Thereafter, businesses should conduct negotiations, send written payment demands and fully document the working process.
For complex or long-overdue debts, the involvement of lawyers from the outset will help businesses formulate an appropriate strategy, create lawful legal pressure and prepare a solid legal basis should the matter need to proceed to the dispute stage.
7. What should be done when being subjected to illegal debt collection practices?
When facing unlawful debt collection methods, individuals or businesses should not respond with similar conduct but should calmly collect and preserve relevant documents and evidence. Materials such as messages, recordings, photographs, videos, call histories and other relevant documents should be retained to protect their rights. If the debt collection conduct involves threats, insults or infringements upon property or health, the affected party may report the matter to the police or request competent authorities to handle it in accordance with the law.
8. Common mistakes that may cause debt recovery activities to be considered illegal debt collection practices
Some common mistakes that businesses and individuals should avoid include:
- Lack of strategy and failure to prepare sufficient documents and evidence before dealing with debtors, causing the debt recovery process to become argumentative, emotional and prone to uncontrolled conduct.
- Hiring or authorizing other persons to recover debts through methods inconsistent with legal regulations or assigning the work to individuals or organizations lacking expertise, thereby giving rise to conduct exceeding permissible limits and increasing risks for the creditors themselves.
- Allowing emotions to dominate the debt recovery process, leading to threats, insults, harassment or excessive pressure beyond what the law permits.
- Unilaterally applying coercive measures that may only be implemented by competent state authorities, such as retaining property, locking premises, cutting off electricity or water supplies or obstructing the debtor’s normal operations.
9. Frequently Asked Questions
- Does repeatedly calling to demand payment violate the law?
Contacting a debtor to request payment is a creditor’s right. However, if phone calls are made with excessive frequency, in a harassing or threatening manner or in a way that adversely affects another person’s normal life, such conduct may be subject to legal sanctions.
- Is posting information about debtors online subject to penalties?
Publicly disclosing personal information, images or insulting content to pressure debtors may result in administrative, civil or even criminal liability depending on the seriousness of the violation.
- Is the business of providing coercive debt collection services currently lawful in Vietnam?
Under current regulations, coercive debt collection services are prohibited business lines. However, businesses may still use legal services provided by lawyers or law firms to carry out debt recovery through negotiations, representation, dispute resolution and enforcement proceedings in accordance with the law.
- Can threatening debtors result in criminal liability?
Depending on the nature and severity of the conduct, threats, coercion or the use of violence during debt collection activities may give rise to criminal liability for various offenses under the Criminal Code.
Debt recovery is a lawful right of creditors, but such right must be exercised within the framework of the law. Impatience or the choice of improper methods not only reduces the likelihood of recovering money but may also expose creditors themselves to serious legal risks. In this context, businesses should prioritize lawful, systematic and strategically planned solutions. The involvement of lawyers or legal advisors from the outset not only helps protect their rights and interests but also contributes to maximizing the effectiveness of debt recovery in practice.
