Australian debt-buyers zero in on Kiwi strugglers

Australian debt buyers, dubbed ‘vulture funds’, see money to be made from struggling Kiwis. Rob Stock reports.

Giant Australian companies are vying to buy overdue consumer loans in New Zealand, in a bid to grow the fledgling debt resale market.

In Australia it’s common for banks, power companies and telcos to sell overdue customer debt, which has created an industry worth hundreds of millions of dollars a year.

The buyers pay just a few cents in the dollar for each debt, and then pursue the debtors, including vulnerable low-paid familes, by phone, email and social media for full repayment.

Debt buyers have been dubbed ‘‘vulture funds’’ overseas, though as yet, most New Zealand companies refuse to sell their errant customers’ loans.

Only three big Kiwi corporates sell debt on any scale: one bank selling unpaid credit card debt, understood to be Westpac, and the two big telco rivals, Spark and Vodafone.

Most instead pursue customers themselves, hiring debt collection agencies if the money remains unpaid after three to four months.

But Alex Vale from Australian debt broker Kessler, which helps Westpac package up some of its delinquent loans for sale, said three big Australian debt buyers had invested in New Zealand operations, seeing an opportunity.

‘‘I’m sure they are looking at New Zealand for a reason,’’ he said.

US-owned Baycorp already has a big presence here, but Australian companies Panthera Finance, and the two ASX sharemarket-listed debt buyers – Credit Corp and Pioneer Credit – are all actively working to get big Kiwi companies to embrace the debt sales model.

Dave Wilson from EC Credit Control, New Zealand’s largest debt collection agency, thinks the Australian push to create a debt sales market of scale in New Zealand is doomed to fail.

‘‘A number of companies like Kessler and TDX have decided to push the debt sale side of things in New Zealand, and it hasn’t had an impact,’’ he said.

Commerce Minister Kris Faafoi has initiated a review of lending laws, including debt collection practices.

Wilson had met officials, who were very interested in the debt collection and repossession industry, and he believed the threat of law reforms would have a chilling effect on debt sales.

‘‘I would be very nervous about an agency that bought debt and adds 40 to 50 per cent to the debt that’s been sold,’’ Wilson said.

He believed that such high additional fees could be deemed ‘‘excessive’’.

By contrast, debt collectors such as EC Credit Control, which is owned by NZX-sharemarket listed company Turners, were paid a success fee of around 15 to 20 per cent by the company that hired them.

The country got a peek into the world of debt sales as a result of a court case taken against Allan Hawkins’ Budget Loans by the Commerce Commission.

Auckland-based Budget Loans bought the loan books of two failed finance companies – Western Bay Finance and National Finance 2000 in 2006 and 2008, but late last month was fined $720,000 for ‘‘cynical and deliberate’’ repossession tactics.

‘‘In some cases Budget Loans stripped houses almost bare,’’ according to the Commerce Commission.

Vale said big companies in Australia, such as power companies, banks and telcos, sold only to reputable debt buyers to protect their reputations.

‘‘The big, publicly-listed players have such big market shares because they meet all the criteria,’’ Vale said.

Kessler surveyed companies that did not sell debts, and found the single largest concern was damage to their reputation.

Vodafone, Spark and Westpac all confirmed they secured reputation-protecting agreements.

A Westpac spokeswoman said: ‘‘Reputation is one of the considerations we take into account when considering selling a debt to a debt recovery company, as they are expected to treat our customers as we would; however, if at any point a customer raises any concerns with us, we instruct all contact with the customer to be ceased by the debt recovery company while we investigate the matter.’’

Vodafone said: ‘‘When we do on-sell debt, we always obtain warranties that those agencies will comply with the law and our customer terms and conditions, and that they will at all times act in an honest and fair manner.’’

In Ireland, debt buyers have been dubbed ‘‘vulture funds’’ by parliamentarian Michael McGrath from the Fianna Fail party, the second-largest in the Irish parliament.

In a bitter debate in February, McGrath said the banks did not want ‘‘to go through their loan books, engage, restructure and take whatever steps they need to take’’.

He did not believe there was any compelling reason for Irish banks to sell large books of overdue mortgages.

The debate was sparked after the Irish Permanent TSB bank began to market a portfolio of around 20,000 home loans worth nearly €3 billion (NZ$5.03b) to a range of international investors, including ‘‘vulture funds’’.

‘‘That is 20,000 families facing a very uncertain future,’’ Irish MP Dara Calleary added.

Calleary dubbed the buyers of debt as being ‘‘aggressive’’ in dealing with borrowers, and ‘‘impossible to engage with’’, noting they did not have branches, and operated through call centres.

The debt sales industry exists because every loan contract contains a clause to the effect that the lender can sell your loan.

An example, from Westpac’s terms and conditions: ‘‘To the extent permitted by law, Westpac may at any time, and without notice to you, transfer or assign all or any of Westpac’s rights and obligations in respect of your accounts or Westpac’s banking relationship.’’

Vale estimated that around $25 million changed hands in debt sales in New Zealand each year.

Baycorp, the biggest buyer in New Zealand, owned just shy of $40m in purchased debt at the end of last year, and spent $10.7m buying debt in 2017.

In Australia, the market is enormous.

Credit Corp, which markets itself on its ‘‘low complaint rate’’, claims a 25 per cent market share of the Australian/New Zealand debt buying market, and the ‘‘largest database of credit impaired customers’’ in Australasia.

It spent A$250m to acquire debts in 2017 alone, including A$202m in the Australian and New Zealand markets.

Pioneer Credit has expanded its ‘‘credit acquisition programme into New Zealand’’, its latest annual report reveals.

Pioneer, which had a war-chest of A$110m ($120m) to purchase debts, said it had 160,000 customers across Australia and New Zealand.

The relationship between debtbuyer and a delinquent borrower is often a long one, sometimes as long as 10 years.

But new debt collection laws were not needed, according to Lyn McMorran from the Financial Services Federation, of which Baycorp is a member.

What was needed was a more active Commerce Commission identifying breaches of existing laws.

Unfortunately, borrowers being treated badly by debt collectors do not often speak up.

The Commerce Commission said: ‘‘Budget advisers tell the commission that people don’t like to complain to us for all kinds of reasons.’’

But it believed it had built a much more effective system for spotting misbehaviour.

‘‘We have put considerable effort into building strong relationships with community agencies who can provide a conduit for information about the experiences of borrowers.’’

‘‘Reputation is one of the considerations we take into account when considering selling a debt to a debt recovery company, as they are expected to treat our customers as we would.’’ Westpac