This is why we have debt collection guidelines

Credit Risk|debt collection|debtors

A few landmark cases in Australian courts have highlighted the importance of following debt collection guidelines when recovering overdue cash from debtors. Thanks to high profile cases like these, debt collection practices have improved. They serve as good reminders of what not to do.

In Australia, the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) enforce Commonwealth consumer protection laws, including laws pertaining to debt collection. Their document, Debt collection guidelines for collectors and creditors outlines the responsibilities and expectations of creditors and debt collectors.

Do debt collection guidelines apply to you?

You should follow the ACCC and ASIC debt collection guidelines if you are:

• a creditor directly involved in debt collection activities in-house, or a creditor who uses an agent for collection. (Creditors generally retain liability for their agent’s conduct.)
• a debt collector (including a debt collection agency, debt buy-out service, solicitor and other).

While the debt collection guidelines largely relate to collecting debts from individual debtors, many of the laws and principles in the guidelines are relevant to the collection of small business debts in particular.

Debt collection guidelines for making contact with a debtor

Privacy laws prevail here and creditors and debt collectors have obligations to protect the privacy of debtors. In trying to contact the debtor, you are not allowed to divulge confidential information about the debt or the debt recovery process to anyone other than the debtor (even to the debtor’s spouse, partner, family, workplace etc.) Avoid public shaming of debtors on social media accounts or any channel that is shared with other parties.

Creditors and debt collectors must not misrepresent their identity to the debtor in any way, for example, by implying they are, or work for a debt collection agency.

Case in point #1

In ACCC vs Excite Mobile Pty Ltd [2013] FCA 350:

In 2013, South Australian mobile phone provider, Excite Mobile Pty Ltd was fined for engaging in false, misleading and unconscionable conduct, and using undue coercion in relation to the selling and obtaining payment for mobile phone services (ACCC, Media Release, 29 November 2013).

The company created a fake complaints handling organisation to deceive debtors into believing their disputes about liability were being assessed by an independent body when neither that body nor those activities existed. The company then contacted debtors under the false pretence of a fictitious debt collection agency to induce debtors to pay the alleged debts.

The court found this conduct to be unconscionable and that the company used undue coercion in its dealings with debtors. Several of the company’s employees were also found to have been knowingly concerned and personally liable for the contravening conduct. (ACCC, Debt collection guidelines for collectors and creditors, 2014)

The penalty: Excite Mobile Pty Ltd was ordered to pay penalties totalling $455,000. Excite Mobile’s directors, Mr Obie Brown and Mr David Samuel were also personally fined and were disqualified from managing a corporation for three years and two and a half years respectively.

Debt collection guidelines for conduct towards the debtor or their representatives

Debtors are entitled to respect and courtesy, and creditors and/or debt collectors have been penalised for subjecting debtors to misleading, humiliating or intimidating conduct. 

Included in ACCC and ASIC debt collection guidelines are the following list of things creditors and debt collectors must not do:

• use abusive, offensive, obscene or discriminatory language
• mislead a debtor about the nature or extent of a debt, or the consequences of non-payment.
• embarrass or shame a debtor, for example, by sending open correspondence to a shared post-box, or public online forum    

If a debtor is behaving inappropriately, creditors are advised to maintain professional conduct and refer the matter to appropriately trained management. Violence or extreme conduct from the debtor should be reported to police.

Case in point #2

In ASIC v Accounts Control Management Services Pty Ltd [2012] FCA 116:

In 2012, the Federal Court found that debt collection companies, ACM Group Limited and its predecessor Accounts Control Management Services Pty Ltd, harassed and coerced debtors and engaged in misleading and deceptive conduct when recovering money.

The court found that the collection officers were instructed via the company’s (then) policy manual to threaten debtors with litigation even though less than 0.5% of debtor accounts were sent to the legal department.

The company represented to a debtor that it was commencing proceedings to bankrupt the debtor, which would involve his house being repossessed, when this was not true. The company also represented to a debtor that it would cause Sheriff’s officers to attend the debtor’s home to serve documents when this was not possible.

The court found that the operators were told to make references to legal proceedings and lawyers as a means of achieving debt recoveries. (ACCC, Debt collection guidelines for collectors and creditors, 2014).

In its 2015 report, Research into the  Australian Debt Collection Industry, the ACCC noted that increased regulatory insight had led to an improvement in debt collection behaviour. It notes that 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 guidelines for collectors and creditors  is available in full from the ACCC website.