ASIC Crackdown on Debt Management Firms

Tuesday, May 30, 2017 - Posted by Michael McCulloch

Recently the Australian Securities and Investments Commission ("ASIC") have been investigating the claims by several debt management firms regarding misleading advertising.

The companies investigated to date include:

Capital Debt Solutions
False claims on their website where they claimed it was "trusted and recommended by more than 6,000 Australians." Capital Debt Solutions could not substantiate this claim. Fined $10,800

Debt Assist Australia
Asked by ASIC and subsequently complied with a request to remove a claim on their website that their Debt Agreement proposals were "Government Approved"

Bankruptcy Experts
Asked by ASIC and subsequently complied with a request to remove testimonials on their website there they were unable to substantiate.

ASIC did note that while Debt Agreements are regulated that this does not mean that they are Government approved. ASIC Deputy Chair, Peter Kell, said, "Recommendations and statements, like 'Government Approved' can have a strong influence when vulnerable consumers in financial hardship are seeking help with their debts."

It should be noted that while Capital Debt Solutions complied with the infringement notice that this is not an admission of liability and further investigation by ASIC revealed that they were not in breach of s12DB(1)(e) of the Australian Securities and Investments Commission Act 2001.

AFSA FY 2015 Bankruptcy Statistics

Friday, July 17, 2015 - Posted by Philip Harvey

AFSA has released its provisional Bankruptcy Statistics for FY 2015, showing an overall decline in Bankruptcy.

There was a significant drop in the number of full Bankruptcies, over 7% Australia wide. This is likely because of an economic cycle of continuous record low interest rates with no major spikes in unemployment.

Part IX Debt agreements lifted slightly, an extra 200 cases (approx 2%).

 Bankruptcies Parts IV and XI 

	2014–15	2013–14	% Change
NSW	5,338	6,098	-12.5%
ACT	182	184	-1.1%
Vic	3,552	3,854	-7.8%
Qld	4,986	5,356	-6.9%
SA	1,171	1,188	-1.4%
NT	105	88	19.3%
WA	1,371	1,324	3.5%
Tas	458	509	-10.0%
Total	17,163	18,601	-7.7%

Debt Agreements (Part IX)

	2014–15	2013–14	% Change
NSW	3,437	3,556	-3.3%
ACT	204	188	8.5%
Vic	2,155	2,060	4.6%
Qld	3,118	3,067	1.7%
SA	532	499	6.6%
NT	116	88	31.8%
WA	1,068	964	10.8%
Tas	281	283	-0.7%
Total	10,911	10,705	1.9%

Personal Insolvency Agreements (Part X)

	2014–15	2013–14	% Change
NSW	55	54	1.9%
ACT	2	1	100.0%
Vic	56	65	-13.8%
Qld	53	48	10.4%
SA	19	9	111.1%
NT	1	0
WA	26	31	-16.1%
Tas	2	0
Total	214	208	2.9%

Totals

 

	2014–15	2013–14	% Change
NSW	8,830	9,708	-9.0%
ACT	388	373	4.0%
Vic	5,763	5,979	-3.6%
Qld	8,157	8,471	-3.7%
SA	1,722	1,696	1.5%
NT	222	176	26.1%
WA	2,465	2,319	6.3%
Tas	741	792	-6.4%
Total	28,288	29,514	-4.2%

COSL consultation updated: Unnacceptable conduct by representatives

Wednesday, August 20, 2014 - Posted by Philip Harvey

In a previous post, the Credit Ombudsmen Service ("COSL") was proposing to exclude credit repair style companies from accessing COSL's free services, as authorised representatives on behalf of debtors.

COSL have released a revised consultation that instead targets the conduct of a representative instead of focusing on the fact the representative charges a fee. There was also an issue that complaints concerning privacy should be dealt with by EDR before being referred to the Office of the Australian Information Commissioner.

COSL have set out a number of circumstances in a guideline where they will deal directly with the consumer instead of the representative where after due warning, the representative does any 2 actions against the guideline.

The guidelines largely follow the ACCC and ASIC Guide to debt collection and include; not disclosing the availability of the free service and EDR provide, obstructing the EDR process, making unreasonable decisions, not informing the consumer of all their options, asking EDR to investigate matters the representative should already know, misleading and deceiving, acting contrary to the consumers best interest.

Feedback we are receiving from our clients with respect to paid representatives who charge a fee, is that these companies are advising debtors to make an EDR complaint that has no basis, and then use this window of opportunity where no action can be taken against them to wither enter into a Part IX debt agreement or proceed to full bankruptcy. This then generates an unnecessary charge from the EDR scheme to the creditor.

Updated debt collection guidelines issued by ACCC and ASIC July 2014

Wednesday, July 09, 2014 - Posted by Philip Harvey

The Australian Competition & Consumer Commission ("ACCC") and the Australian Securities and Investments Commission ("ASIC") released an updated guide to debt collection on 8 July 2014.

It is important to note that this guide to debt collection applies to debt collection agencies, in-house collection departments, Government agencies, Solicitors and others. It is not uncommon for internal collection departments or Solicitors to tell us that this debt collection guide does not apply to them. We refer them to page 1 of the Debt Collection Guideline.

In a previous draft of the guide, debt collection contact hours for telephone contact had been significantly reduced. The new guide to debt collection contact hours are not the same as the draft after many industry concerns were flagged with the regulators. 

Debt Collection Contact Hours

• Phone: Monday to Friday 7.30am to 9pm. Weekends 9am to 9pm with no contact recommended on public holidays
• Face to face: Monday to Friday 9am to 9pm. Weekends 9am to 9pm with no contact recommended on public holidays
• All workplace contact to be the debtors normal working hours if known, or 9am to 5pm weekdays.

The updated guide goes through court prosecutions that occurred since the last publication that give good examples of breaches of the Competition and Consumer Act and collection practices that should not be followed.

The emergence of social media is and emerging technologies is also dealt with. We note that it can be difficult to "future proof" such a Guideline at the rate of technological changes we have been seeing, It is important to stick to the core principles underpinning the Guide to Collection when dealing with these new spaces.

For your reference  a copy of the guide available for download here.

 

PPSR and Debt Collection Warnings

Thursday, June 05, 2014 - Posted by Philip Harvey

The importance of internal processes and procedures that are correct when a debt is written off before being outsourced for collection cannot be emphasised enough.

 

In 3 similar examples of consumer credit files, involving 3 different lenders, the security interest was made void on the PPSR (Personal Property Security Register) through their actions. In one of the examples, upon being referred a written off debt for collection we were no longer able to collect the debt at all because of our clients actions.

 

In the most extreme example of what can go wrong in the collection of a debt, upon receipt of a new debt to collect it was noted that debt was secured by a motor vehicle The PPSR reflected our clients interest correctly. We repossessed the security 6 days later. Having waited for the Notice After Taking Possession of Mortgaged Goods to expire, we sought to sell the vehicle through an auction house. The auction house notified us that our client's interest was not listed on the PPSR.

 

We were concerned this was some form of error and immediately checked the PPSR and with our client what had happened. The collections manager informed us that they had done nothing to remove the PPSR listing. However, digging a bit further it was discovered that when a file is written off to a zero balance a report is generated for the loans team for zero balance loan accounts. This report then goes to an operator who is responsible for updating and removing listings on the PPSR. The listing is then subsequently removed, as it was in this case. Once a PPSR listing is removed the security is lost.

 

It got worse. The debtor was under a Part IX Debt Agreement. Our client was not part of the Part IX because of the security interest. In addition to removing the PPSR listing, a paid in full letter was issued to the debtor. The debtor subsequently forwarded this to the Trustee.

 

Putting this example into monetary values;

• The vehicle was valued at $6,000. Our client was not entitled to any of the proceeds (the car was actually reclaimed by the debtor in this example). 
• The Part IX debt agreement was for 60% of the value of the debts, our clients 60% equated to over $6,000.
• Total loss to our client was over $12,000 plus the costs of the repossession.

 

Generally, the three examples of our clients removing their PPSR interest have some form of the following processes in place;

• A bad debt is written off to a zero balance by the collections team.
• The collections team puts a flashing file note showing the debt has been written off and outsourced for collection.
• A report is subsequently generated of loans with a zero balance by a different team.
• This report goes to a designated person whos role it is to update the PPSR register.
• Any security interests are removed
• A paid in full letter is issued

 

We are aware that some of our clients have additional steps in place to prevent this from occurring which include;

• Changing the address on the debtors file (and making a file note as to why) to a designated internal address
• The automated report from our understanding is altered, with exclusion criteria around the above designated internal address, such that any zero balance account with this address is not captured in the reporting.
• Should this not work, and someone still tries to send a paid in full letter, the letter itself gets posted back to the lender, thus the debtor does not received a paid in full letter.

Choice Australia on Credit Repair Australia

Wednesday, October 09, 2013 - Posted by Philip Harvey

Choice Australia reviewed Credit Repair Australia's claims that it can solve your financial problems and restore your credit report. 

Choice found;

• the supposed credit repairs came at a high price, starting at $990 non-refundable administration fee. Choice noted that this creates more debt on people who are already financially struggling.
• there are plenty of free options for people to use in this situation (such as financial counsellors).
• Credit Repair Australia has been known to overstate its ability to improve a credit report, noting in most cases default listings cannot be removed from a credit report unless proven to be wrong.
• they had dealt with over 150,000 people in Australia in the past 10 years.
• the shonkiest things about Credit Repair Australia was its very name.

We also encounter many part IX providers who charge a $2,000 fee upfront for setting up the Part IX agreement (something that should be free). The Part IX provider collects its money by instructing the debtor to redirect all payments to itself, and then negotiates on the debtors behalf. We have seen numerous instances where the Part IX debt agreement has not been accepted by the Creditors, leaving the debtors with an additional debt.

2009-2010 Bankruptcy Statistics

Sunday, August 01, 2010 - Posted by Philip Harvey

ITSA have released the latest bankruptcy statistics on Part IX & Part X Debt Agreements.

They show the following;

	2008 / 2009	2009 / 2010	% Change
Total Personal Insolvency Activity	36,487	36,506	increase of 0.05%
Bankruptcies	27,483	27,507	increase of 0.09%
Part IX Debt Agreements	8,567	8,428	decrease of 1.62%
Part X Arrangements	437	571	increase of 30.66%

Bankruptcy Threshold to be Increased

Thursday, July 01, 2010 - Posted by Philip Harvey

The Bankruptcy Amendment Bill has increased the threshold of Bankruptcy to $5,000, up from $2,000. We note that is this different to the original $10,000 threshold that was proposed & welcomed.

All of the proposals in increases in the income, asset and debt thresholds for voluntary debt agreements have been deferred which is disappointing given the number of Part IX Debt Agreements our clients are experiencing on small debts (with Part IX Debt Agreement providers like Fox Symes heavily advertising this service).

Other changes include:

• Increasing the stay period before a creditor can commence action to recover debts from seven to 21 days
• Strengthening the penalties for those involving fraud