Released every month our debt collection blog contains news, stories and tips to keep you informed.
The Australian Banking Association ("ABA") has recently announced the retail banks wishing to become members will now be required to sign up for the new Banking Code of Practice ("The Code").
The Code, which is currently awaiting approval by ASIC will be binding, enforceable by law and will be monitored by an independent body. The Code, which was originally introduced in 1993, requires retail banks to provide plain English contracts, stop unsolicited offers to raise credit limits, give customers the ability to end credit cards online and inform customers about service fees before they are incurred.
Regulating the Code will be the responsibility of the Banking Code of Compliance Committee ("BCCC") which will have the power to investigate breaches and apply sanctions. The move comes as the financial services industry tries to regain customer trust with the Financial Services Institute of Australasia ("FINSIA") calling for an industry-wide code to restore professionalism among its members as a way of winning back customer trust.
The ABA is looking to implement The Code within 12 months of approval being received from ASIC.
Source: Financial Standard - March 2018
A total of 278,683 Radio Rental leases that led to poor outcomes for consumers has resulted in ASIC pressuring parent company, Thorn Australia, to issue $19.9 million in refunds.
The action comes after ASIC filed proceedings in the Federal Court where ASIC proposed a $2 million penalty in addition to the $11.8 million the company has already refunded to affected consumers for not upholding responsible lending practices. A further $6.1 million will also need to be paid to cover refunds and defaults for 60,000 leases and potentially a further $200,000 more in costs to ASIC.
This is seperate to thet $50 million class action that was filed by law firm Maurice Blackburn in March 2017.
2 of the examples provided to the Federal Court of irresponsible lending include:
2 of the larger players in the 100% interest-free lines of credit, AfterPay and zipPay, have attracted the attention of Westpac with the bank warning their mortgage brokers that these payment schemes must be assessed as a liability when assessing a person's financial affairs.
AfterPay has more than 1.3 million customers in Australia and it's anticipated that annual sales will exceed $1.7 billion however a spokesperson for RateCity, Sally Tindall, said in a statement, “It’s easy credit for people who might not otherwise get a credit card and if you rack up a significant amount on these payments schemes it will have long-term repercussions if you can’t pay down the debt. The good thing is there are limits on AfterPay up to $1500 per transaction so there are sensible perimeters to help people pay it back, but if they put these payments on a credit card they can be hit by nasty interest rates.”
AfterPay Chief Executive, Nick Molner, said that a majority of their customers meet their repayments and pay-off their purchases without incurring any fees. He went on to say that 85% of AfterPay payments are made using a debit card and not a credit card.
Both AfterPay and zipPay offer customers the opportunity to order online or make a purchase in -store without providing any information regarding their financial position with charges only being incurred if the amount owing is not paid by the due date.
Every month the Reserve Bank of Australia ("RBA") releases a range of statistics for transactions incurred 2 months prior across a range of products.
These payment statistics offer an insight across several products including Credit and Charge Cards, ATM Cash Withdrawals, Debit Card Statistics, Cheque and Direct Entry Payments, etc
This month we've focused our attention on Credit and Charge Card statistics for the month of April 2017. The key points coming out of these statistics were as follows:
The number of credit and charge card accounts held by Australians
The number of credit and charge card purchase transactions
The value of credit and charge card purchase transactions
The total value of credit and charge card repayments
The total value of credit and charge card balances accruing interest
The value of credit and charge card total balances
The value of credit and charge card credit limits
The graph below shows a direct comparison to the same period last year:
While there were increases across all credit and charge card statistics overall all increases were less than 1%
The RBA indicated that approximately 2 million Australians fail to pay off their credit card balance in full each month. With the average credit card limit of $4,500 it would take 31 years in which to finalise the balance making minimum repayments only.
Household debt in Australia has steadily risen in the last 30 years as more Australians aim to own their own homes and continue to rely on credit such as personal loans and credit cards.
According to data released by the Organisation for Economic Co-Operation and Development ("OECD") household debt to income in Australia has more than doubled between 1995 and 2015 going from 104% to 212%. Based on the average Australian wage of $78,832 this means that Australians are now spending $167,000 per year.
Internationally, since the 2008 global financial crisis, many developed countries actually saw deceases in household debt however Australian debt levels continued to increase with Australia placing 4th overall in household debt behind Denmark, the Netherlands and Norway.
With total personal debt now approximately $2 trillion this debt can be broken down into several categories:
The Australian Bureau of Statistics shows that mortgages make up 56.3% of personal debt in Australia.
This is debt associated with investments such as rental properties or shares and makes up 36.5% of household debt.
Personal loans currently make up 3.1% of Australian household debt and generally relate to motor vehicle purchases, debt consolidation, household goods purchases and holidays.
Student debt, particularly from HELP Loans make up 2.1% of Australian household debt. The National Centre for Social and Economic Modelling ("NATSEM") did note however that this figure reflects the time it takes in which for student debt to be paid.
Credit Card Debt
While historically reports have indicated that credit card debt is out of control in Australia, credit card debt currently represents only 1.9% of total household debt.
While the data released by OECD paints a dire national and global picture it should be noted that these figures don't necessarily impact us on an individual level as some households will generally have higher levels of debt and debt stress whereas others will have less.
It should also be noted that while our own personal debt may be among the highest when compared to GDP the majority of this debt, 92.8%, is from home loans and investments meaning that this debt is effectively a way in which to potentially build future wealth.
With the end of financial year soon upon us many businesses will be looking at ways in which to reduce their taxable income.
One way in which you can legitimately do this is to write-off your bad debts prior to 30 June. This will effectively mean you do not pay tax on any income associated with the bad debt as these monies have never been received.
The Income Tax Assessment Act 1997 (Cth)
(1) You can deduct a debt (or part of a debt) that you write off as bad in the income year if:
(a) It was included in your assessable income for the income year or for an earlier income year; or
(b) It is in respect of money that you lent in the ordinary course of your business of lending money.
Note: If a bad debt is in respect of a payment that is required to be made under a qualifying security (within the meaning of Division 16E of Part III of the Income Tax Assessment Act 1936 ): see subsection 63(1A) of that Act.
Writing off a debt you have bought
(2) You can deduct a debt that you write off as bad in the income year if you bought the debt in the ordinary course of your business of lending money. However, you cannot deduct more than the expenditure you incurred in buying the debt.
Writing off part of a debt you have bought
(3) You can deduct a part of a debt if:
(a) You write off that part as bad in the income year; and
(b) You bought the debt in the ordinary course of your business of lending money.
(4) However, the maximum that you can deduct under subsection (3) for one or more income years is the amount (if any) by which:
- The expenditure you incurred in buying the debt;
- So much of the debt as has not yet been written off as bad.
Please Note: This article does not constitute legal or financial advice. You should seek your own independent advice from a qualified person.
Important Note: Bad debts will only need to be written-off if you report debts on an accrual basis. If you recognise income in your accounting system only when it's banked into your business account you will not have any adjustments to make as the income has not been recorded.
Approximately 50% of Australian SME's (small and medium enterprises) are owed more than $10,000 in unpaid invoices for goods and services provided with over 63% of those surveyed indicating that they wait more than 90 days before referring debts to a debt collection agency.
Stacey Price, founder of Healthy Business Finances, said, "I think people feel guilty chasing money, even if they've done the work. I think the big thing is that people just assume that people will pay, then they don't chase it until's 30 days beyond the deadline. You're already looking at 60 days before they make contact".
Noted in a prior blog article, the Australian Small Business and Family Enterprise ("ABSFEO") launched their own inquiry with preliminary results indicating that 40% of Australian businesses spend between 2 to 5 hours a week chasing money which is owed to them. They estimate that 2 out of 3 businesses are owned at least $10,000 while 1 in 10 have reported debts owing between $100,000 and $500,000.
Ombudsman Kate Carnell from ABSFEO anticipates that the final report, The Payment Times and Practices Inquiry, will be handed down in the coming weeks and we will be sure to provide an update.
After an investigations by the Australian Securities and Investments Commission ("ASIC"), BMW Australia Finance has been ordered to refund millions of dollars worth of loans after having been found it breached responsible lending provisions.
The program, open to customer under BMW Financial Services, Mini Financial Services and Alphera Financial Services brands, have been ordered by ASIC to provide $72 million in redress for consumers made up of:
As part of the deal BMW Australia Finance has agreed to pay $5 million in community benefits to contribute toward consumer advocacy and financial literary initiatives.
Recent data from a UK based finance company, MarketInvoice, shows that Australian businesses, especially larger corporations and Government departments, are the worst in the world when it comes to paying invoices in a timely manner.
The report, which you can read here, shows that, on average in Australia, it takes 26.4 days for an invoice to be paid. In direct comparison the Japanese are renowned for paying on time and, on average, pay an invoice 6.5 days prior to the due date.
The Australian Small Business and Family Enterprise Ombudsman, Kate Carnell, said in an interview with ABC 702 Breakfast, "[T]hose are the companies that they’ve got a capacity to pay quicker. And yes, they’re doing it because they can, they’re using small business people fundamentally as banks I suppose – very cheap banks – and we just think that’s not acceptable; it's impacting upon on our economy, so we’ve launched today an inquiry into this."
By sector, banks were the the best payers, typically settling their accounts 1 day past the due date with supermarkets and eCommerce merchants paying 7 days after the due date. High-street retailers typically settled their accounts 2 weeks past the due date.
The inquiry, The Payment Times and Practices Inquiry, launched by Australian Small Business and Family Enterprise Ombudsman, aims to possibly introduce regulations that will punish larger organisations that are late paying small business.
You can provide feedback to the Australian Small Business and Family Enterprise Ombudsman via their website.
We will continue to monitor the progress of the inquiry and provide updates as they become available.
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