The ACCC has released the Australian Debt Collection Industry Report (May 2015) with research findings upon how well the debt collection industry is complying with the Debt Collection Guideline for Collectors and Creditors, a joint publication of the ACCC and ASIC.
In its media release (22 May 2015), the ACCC (the Australian Competition & Consumer Commission) says that there is room for improvement in the way debt collectors treat consumers and warns:
Debt collectors that do not comply with the debt collection guideline may cause harm to disadvantaged and vulnerable consumers and become a target of ACCC action.
ACCC says that this warning extends to the creditors. Both businesses collecting their own debts and businesses engaging debt collectors do not avoid responsibility. Businesses that engage debt collectors may be held responsible for their agent’s debt collection activities even where the agent acts in a way that is contrary to their debt collection agreement.
Key Findings in the Report
The debt collection industry is growing fast, with an average annual growth rate of 8.4% pa over the last 5 years. There are 570 debt collection businesses in Australia with 4.5m open files at any one time generating 65m contact attempts pa. The estimated annual revenue of the industry is $1.2bn.
These are the key findings:
- Technology and scale have improved compliance, but there are still challenges for both large and small businesses – particularly the timing, frequency and appropriateness of contacts.
- Issues with debt collection can vary by sector; different debt drives different behaviours and outcomes – there is a distinction between credit debt and business debt, which requires an industry understanding; debt quality and hardship issues should be managed before a debt is referred or sold.
- Rising costs and the nature of supply have created a particular set of challenges for the energy sector – the amounts billed are unpredictable, they are high because the bills are issued every 3 months not monthly, and hardship needs to be managed.
- Debt collection approaches that impose additional costs can result in detriment for consumers in financial distress – additional ‘administration’ fees are added either without a trading term supporting the fee or an exorbitant fee is charged each time a demand is made.
- Increased regulatory oversight has led to improvement in debt collection behaviour – the Australian Consumer Law, the Australian Credit Licensing law, External Dispute Resolution Schemes / Ombudsmen and the ACCC / ASIC Debt Collection Guideline for Collectors and Creditors (see July 2014 update) have all resulted in improved compliance.
- Despite variations in state and territory licensing regimes, the key obligations of debt collectors when dealing with consumers are made clear by the ACCC / ASIC Debt Collection Guideline – debt collection practices need to follow the Guideline.
- Non-compliant debt collection practices result in significant detriment to vulnerable and disadvantaged consumers. Regulators are willing to take appropriate action in such cases – the protection of vulnerable and disadvantaged consumers is an ongoing priority for the ACCC.
- Credit repair businesses often increase costs for consumers with debt problems – the issue is that these businesses charge consumers for doing what is freely available, that is, contacting the credit reporting agencies, industry ombudsmen, the Office of the Privacy Commissioner and state funded financial counsellors.
Key consumer protection provisions
The Australian Consumer Law provisions which relate to debt collection are mirrored in the Australian Securities and Investments Commission Act 2001. They prohibit:
- use of physical force
- undue harassment and coercion
- misleading and deceptive conduct
- unconscionable conduct
The ACCC and ASIC will use these provisions to pursue civil penalty proceedings against businesses which don’t follow the Guideline to collect their debts.
Key market sector comments
- Financial Services Sector – this sector is regulated by ASIC because credit regulated debt is involved. The other sectors are regulated by the ACCC. Debt collectors for credit debt must hold an Australian Credit Licence and must be a member of an External Dispute Resolution Scheme (CIO or FOS), just like the credit providers. Better systems and processes to identify potential hardship cases are recommended.
- Energy Sector – Energy costs have risen well above inflation raising affordability and hardship issues. More effective consumer engagement and innovative assistance are recommended to manage billing issues, hardship, disconnections and referral of the debt to multiple debt collectors.
- Telecommunications Sector – billing or contract issues predominate, along with consumer understanding of their debt. Retailers need to effectively screen the ‘can’t pay’ customers suffering hardship from the ‘can pay’ customers before sending the debts for debt collection.
- Education Sector – Because the cost of education is a known quantity, and because student attendance gives the provider regular contact, there is less debt collection activity in this sector. Chief concerns are signing up vulnerable consumers on courses which are not suitable or denying exit from the contract if the student does not want to continue or cannot continue the course.
- Healthcare Sector – Debt collection activity is low because Medicare or Private Health Funds cover patients, and where gap payments are applied, they tend to be paid up front.
- Government Sector – Centrelink and the Australian Tax Office are long term users of external debt collection services. The Commonwealth Ombudsman deals with complaints, which often centre upon inappropriate use of garnishees, rejection of payment arrangements and re-raising of debt. Parking tolls, fines and other government debt is seen as an emerging area.
After working with the debt collection industry to improve Guideline compliance based upon the Report, the ACCC will pursue businesses which continue with non-compliant practices under the consumer protection provisions of the Australian Consumer Law.
The ACCC’s enforcement action will include issuing infringement notices and taking court action.