Demanding debts Beware of collection tricks
Debt collectors play a vital role in the economy, but there are concerns over some demands borrowers face, writes
The Commerce Commission believes some delinquent debts are being artificially inflated with illegal interest and fees because creditors and debt collectors take a chance debtors won’t turn up to defend themselves in court.
Overdue debts can be collected by lenders, debt collectors working for them, or even by debt buyers who pay a few cents in the dollar to buy them from lenders, or the likes of utility companies.
But the Commerce Commission has received around 180 complaints about dodgy debt collection tactics in the last three and a half years.
‘‘We believe some lenders may be including interest and fees in their applications for summary judgment that they are not allowed to charge,’’ the Commission says.
It’s referring to interest and fees levied after the date of repossession and sale of security items like cars, which are prohibited by the Credit Contracts and Consumer Finance Act.
The commission says: ‘‘The Court system is set up to be adversarial and it may be that some lenders take advantage of the fact their application for judgment is unchallenged.’’
It’s a concern shared by lawyers at the free community law centres (CLCs) which see widespread public ignorance of the law.
But it’s not the CLCs’ only concern leading them to warn people to be on the alert if a debt collector comes knocking.
It may be that some lenders take advantage of the fact their application for judgment is unchallenged. Commerce Commission
RULE ONE: ‘‘Don’t sign anything’’
When a debt collector turns up at the door, that’s rule number one, according to the CLCs.
Their ‘‘don’t sign’’ advice isn’t to obstruct the collection of a debt that’s been legally incurred. It’s protection against the risk that it hasn’t.
A debt collector or lender may even be trying to resurrect a debt that’s past the legal date it can be collected by.
Tricks the CLC has seen include getting people to sign agreements giving the debt collector a power of attorney, allowing it to control borrowers’ finances including accessing their bank accounts.
They may also be tricked into signing an ‘‘acknowledgment’’ of debt resurrecting an old, otherwise uncollectable debt.
The CLC has even seen cases of lenders making small payments on the debt to make it look as though debts haven’t past their collect-by date, which is six years after the last payment is made. The CLCs and budget advisers are both agencies that provide free help in poorer communities where personal debt blights lives. Their work with debtors includes working out what they actually owe.
There is a history of demands on debtors for money they are not legally obliged to pay.
In 2014, the Commerce Commission found Baycorp, which buys overdue debt as well as collecting it for creditors, had charged 2449 with ‘‘debt collection fees’’ after the security for the loans had been repossessed. Baycorp refunded $3.5m to debtors.
Geneva Finance had made refunds in 2007 after the commission found it had been doing the same thing.
In 2010, Budget Loans pleaded guilty to 34 charges of breaching the Fair Trading Act relating to debt collection. Last week, Budget Loans was found guilty on 106 charges for misleading debtors, including saying it could charge interest it had no right to.
The Commerce Commission action in all cases was sparked by tip-offs from CLCs and budget advisers, not members of the public.
RULE THREE: Get the paperwork
The CLCs say people should demand the paperwork the debt collector has to prove they owe it, especially if the debt has been sold on.
Surprisingly, sometimes debt is sold to debt buyers without all the paperwork, the CLCs say.
The original paperwork is needed to work out what a debt collector can charge when chasing the debt, as lending laws mean such charges must be disclosed to the borrower when they incur the debt.
The terms of the sale of a debt can also limit what fees and interest can be added to the sum owed, a recent court case showed.
Debt Buyers, a company that buys unpaid debts, demanded $791,800 (including over half a million dollars of interest) from a couple for an unpaid mortgage debt it had bought.
The High Court in Wellington found it only had a right to demand $286,794.08 from the debtors.
RULE FOUR: Be wary
The Commerce Commission is concerned some debtors are lied to by debt collectors.
Misrepresentations given to debtors sometimes include that non-payment will inevitably lead to legal action, and telling debtors that court action has already commenced when it has not.
The CLCs say some debt collectors turn up on people’s doorsteps claiming to be from the courts, or dressed as though they were law enforcement officials, even having radios clipped to their belts.
Australian debt collectors’ conduct has resulted in high-profile regulation. The regulator ASIC issued 68 pages of ‘‘guidance’’ to make sure debt collectors were crystal clear about their responsibilities.
Australia also has a debt collector industry body with a code of conduct. New Zealand has no code or industry body for debt collectors.
RULE FIVE: Establish what you owe and pay
Disputes can be settled through the lawyer-free Disputes Tribunal.
Taking a case to a higher court is expensive, and the CLC’s budget is small, and legal aid hard to get for civil cases.
Some fights over points of law are too big to take alone though.
The Commerce Commission is involved in one attempting to settle one question around APAAP, or ‘‘all present and after acquired property’’, clauses.
These are security clauses in some older consumer loan contracts in which lenders claim security against everything a debtor owns, and everything they will ever own.
The legal question is whether that means no repossession will ever be the last, meaning the creditor can continue to charge interest and fees even after taking possession of some items.
RULE SIX: Make a stink, if you’re mistreated
Ask immediately about the complaints process a debt collector has. Lenders and debt buyers have to be members of an independent complaints handling body.
The Commerce Commission believes there would be ‘‘significant benefit’’ in debt collectors being forced to join one too.
That they are not, may be a loophole in regulation, say experts.