28 Sep 2021

Budget advisors push for Govt restrictions on debt collectors

7:18 am on 28 September 2021

Budget advisors want the government to crack down on debt collectors saying they should not be allowed to constantly bombard those who owe money.

New Zealand dollars

Photo: 123RF

A report out today commissioned by FinCap - formerly the National Building Financial Capability Charitable Trust - detailed Aotearoa's debt collection practices from the perspective of budget advisors.

FinCap policy advisor Jake Lilley said one concerning aspect was the constant communication from collection agencies.

"People are bombarded with contact from debt collectors, especially if they've got multiple debts, they might get multiple texts in a day, multiple emails and calls from an automated robocall system.

"It just makes it completely impossible to know where to start."

Victoria University in association with FinCap, invited every financial mentoring service under the FinCap umbrella, plus other organisations that offered free financial mentoring services to participate in the research.

The report found it was not just the high volumes of contact, but the type of contact, which was concerning.

"Contact via social media can be difficult for the recipients, or phone calls in the evening (after 9pm) and on weekends. Contacts that include threats, say of repossession, can also cause a burden. Facebook stalking was mentioned by several mentors," the report said.

Lilley said changes to the Fair Trading Act were needed.

"[There needs] to be targeted regulation and also appropriate penalties when protections are broken, because without that, there's a real power imbalance between people who are really struggling to make ends meet and someone demanding a lot of money."

"Getting some guidelines in place and offences if they're broken to say, this is a reasonable amount of contact and if someone tells you they're in a situation where it's just not going to work, stop constantly contacting that person to the point where it might stress them out and really affect their mental health."

Lilley said changes should also include bringing debt collection companies within a dispute resolution scheme.

Debt purchasers are required to belong to an independent dispute resolution scheme but debt collection agents are not.

"It would be great to see an approach like the Australian regulators, which has quite clear guidelines on debt collectors and what they should or shouldn't do - and a really clear line at which you could identify someone's crossed."

He said attachment orders were another issue that needed addressing.

"An example might be someone had an old power debt from when a flat broke up, say 10 years ago, and at some point that got assigned to a debt collector ... they never got any of the paperwork and never really realised someone's chasing them before it went through a court judgment process.

"Then that creditor then goes on and applies for an attachment order, which is basically an order saying, you can take up to this much out of someone's wages or this much out of someone's benefit."

He said those orders disproportionately impacted beneficiaries.

"We know there's about 25,000 that go against the benefit per year, and roughly 5000 that go against wages."

Where is the debt coming from?

Lilley said a lot of the debt was related to utilities but providers were improving how they worked with customers that were experiencing hardship.

The report found power bills was "by far" the most common problem debt. Credit card and car loans were also problematic.

Researcher Victoria Stace said buy now pay later was also an emerging debt problem.

"There's no reason why they shouldn't be treated like a credit arrangement and then become subject to the Responsible Lending rules."

There was also a widespread view that most of the debt was unaffordable from the start.

"Nine times out of 10 they probably shouldn't have been lent the money in the first place because they would have failed the affordability test ... we see it way too often," one interviewee said.

Lilley said the upcoming changes to the Credit Contracts and Consumer Finance Act would make a difference.

"Better affordability assessments will mean people don't get into situations that are really tricky in the first place, which then go on to debt collection.

If you or anyone you know needs more support around debt collection, contact the MoneyTalks helpline on 0800 345 123.

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