The new “Debt Collection Guidelines: For Collectors and Creditors” were released jointly by ASIC and the ACCC on 8 July 2014 (Guidelines). The Guidelines are applicable to those involved in the collection of debt. Companies need to ensure that appropriate policies and procedures are in place to ensure compliance with the Guidelines by their in-house collection departments and any external debt collection agency they appoint. The terms of engagement of any external debt collection agency need to be drafted having regard to the Guidelines and should include an indemnification regime which will compensate your company in the event it is liable for the conduct of its agent. Failure to comply with these Guidelines may result in considerable penalties for companies, including fines of up to $1,700,000 per offence.
Scope of the Guidelines
The Guidelines are generally concerned with regulating the collection of debts from individual consumers. However, many of the laws and principles discussed in the Guidelines are equally applicable to the collection of debts from corporations.
The Guidelines cover:
- acceptable conduct when making contact with a debtor;
- the requirement that all contact with a debtor should be made for a ‘reasonable purpose’ and only to the extent necessary;
- what constitutes “contact” with a debtor and the framework within which contact should be made;
- the privacy obligations to the debtor and third parties;
- dealing with an authorised representative of a debtor;
- record keeping in relation to debt collection activities;
- obligations in relation to providing information and documents to debtors;
- the steps that should be taken if a person denies liability for a debt;
- the steps that should be taken if a person advises that they cannot afford to repay a debt;
- permitted contact with a debtor following bankruptcy; and
- permitted representations about the consequences of non-payment, the legal status of the debt and legal action and procedures.
Liability for collection agents
When engaging collection agencies to recover the debts of your company, you should be cognisant of the fact that your company will generally be liable for the conduct of the collection agency when that conduct comes within the collection agent’s express, implied or ostensible authority. This may be the case even in circumstances where the collection agency has acted contrary to its terms of engagement.
Therefore, it is critical that both your in-house collection department and any external collection agency appointed by your company is complying with the Guidelines and the law. When negotiating the terms of engagement of any collection agency, it is important to ensure that those terms incorporate appropriate provisions to:
- ensure the collection agency’s compliance with the law and the Guidelines;
- allow for the provision of information by the collection agency to your company to ensure that the company is armed with the information necessary to enable it to comply with its obligations under the law and the Guidelines; and
- provide for an indemnification regime to ensure that your company will receive adequate compensation in the event that it is liable for the conduct of the collection agency.
ASIC or the ACCC may issue an infringement notice where there are reasonable grounds to believe that there has been a contravention of the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) or the Australian Consumer Law (ACL), which is a schedule to the Competition and Consumer Act 2010 (Cth), such as the provisions dealing with false or misleading representations, harassment or coercion or unconscionable conduct. Under the ACL and the ASIC Act, the infringement notice penalties for the more common contraventions are up to $10,200 for a corporation and $2,040 for an individual per offence.
A company or debt collector who is found to have breached the harassment and coercion provisions or false or misleading representations or unconscionable conduct provisions is liable for penalties of up to:
- $220,000 under the ACL or $340,000 under the ASIC Act (in the case of individuals); or
- $1,100,000 under the ACL or $1,700,000 under the ASIC Act (in the case of corporations).
Debt Collection Policies
If your company engages in significant debt collection activities in-house, we recommend the adoption of a “Debt Collection Policy” which sets out appropriate conduct for employees of the company and provides examples of what to do, and what not to do, when seeking to collect debt from the company’s debtors.
The Courts have looked favourably on companies that have made a genuine commitment to establishing a culture of compliance within their organisation[i] . Therefore, it is in your company’s interests to proactively take steps to ensure its compliance with the law and the Guidelines in this area. However, merely adopting a well-drafted policy for compliance will not be sufficient. The Court will look at what other actions the company has taken to ensure the policy is adhered to by staff, including training, monitoring and other corrective action for non-compliance.[ii]