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Credit law toolkit

Debt collection and enforcement

In this section:

How to Guide: Dealing with debt collectors

There are two types of debt collectors:

  1. Agents
  2. Assignees

Agents

Agents are debt collectors who are acting on behalf of the credit provider. This means that the credit provider is responsible for the debt collector. You can raise the dispute directly with the credit provider. If the loan is regulated under the Credit Law (See Credit Law overview) then the credit provider must be a member of an EDR Scheme.

Assignees

Assignees are debt collectors who have bought the debt from the original credit provider. Under the Credit Law, assignees must be in EDR and comply with their Credit Law obligations.

Which type of debt collector are you dealing with?

There are two ways to work it out:

  1. Get a copy of a letter to your client from a debt collector. If the debt collector is an agent it will state they are “acting on behalf of” the credit provider or similar. If they are an assignee, they will refer to the assignment of the debt.
  2. Ring the debt collector and ask. Remember you will need to send an authority under the Privacy Act signed by your client otherwise they will not talk to you.

Step 1 Does your client owe the debt?

Before you advise your client on their options for paying the debt, you need to make sure the client actually owes all of the money.

Ask your client:

  • Do they remember the debt?
  • Does the amount being claimed seem accurate (remembering interest and fees) would continue to be charged while ever the debt was outstanding)?
  • Did they have a repayment arrangement? If so–
    • Was the repayment arrangement confirmed in writing?
    • Did they strictly keep to the arrangement?
    • If not, did they receive another default notice?
  • When was the last repayment? Get advice if it is possible the debt is statute barred (See Debt Collection).
  • When the original credit was approved, could the client afford to make the repayments? If not, get advice as the contract may be unjust or have breached the responsible lending conduct provisions of the Credit Law (See Responsible lending conduct and Unjustness).
  • Did they receive a notice assigning the debt?
  • If there appears to be a problem with the amount claimed or your client has a possible defence:

If the client is sure they owe part or all of the debt and do not have a defence, then proceed to step 2.

Step 2 Making repayments

If you client cannot afford repayments consider options such as a release on compassionate grounds (see How to Guide: getting a release) or bankruptcy.

If your client does not have a defence then your client should begin making repayments. Even if your client is sure they only owe part of the debt claimed your client should still start making repayments to work towards clearing the undisputed amount of the debt while raising a dispute on the amount they believe they do not owe.

You should encourage your client to start making repayments (or continue making repayments) while trying to negotiate a repayment arrangement

Your client should start making repayments because:

  • It will start reducing the debt
  • It shows that your client is willing to pay
  • It gives your client a chance to make sure the repayments they are making are affordable

If your client is in a position to repay the debt in full, or close to this, you may wish to try to negotiate a reduced lump sum settlement. This means that you offer an amount less than the amount claimed (eg, 50–80%). Debt collectors will often consider a reduced lump sum settlement as the debt collector usually buys the debt for a reduced price.

  • Do NOT start making repayments if there is a chance the debt is statute barred. Get legal advice.

Step 3 Negotiating a repayment arrangement

It is recommended that you negotiate a repayment arrangement on the grounds of financial hardship. (See Financial hardship, How to Guide: Financial hardship and Sample letter: Financial hardship.)

Remember: Debt collectors can be very aggressive. They also usually have very poor financial hardship policies in place. You will need to consider going to EDR urgently if negotiations are failing.

Always confirm any successfully negotiated repayment arrangement in writing. Do not wait for the debt collector to confirm the arrangement in writing! (See Sample letter: Confirming a repayment arrangement.)

EDR

Many debt collectors have now joined EDR. This means that if you have a dispute with a debt collector, or are having difficulty making a repayment arrangement, you can file a dispute in EDR.

As there is a transition period, it is possible some debt collectors will not have joined EDR. If this is the case for your dispute, get advice immediately.

Where the debt collector is an agent?

File in EDR against both the credit provider. You should tell the debt collector that a dispute has been lodged in EDR with the credit provider. The credit provider will deal with the dispute but it helps to keep the debt collector informed as well.

Where the debt collector has purchased the debt (assignment)

If the debt collector owns the debt, it is now responsible for any disputes regarding the debt. You should lodge in EDR against the debt collector.

If the debt collector has issued a Statement of Claim

You need to act fast to file in EDR.

  • Immediately work out when the debt collector can obtain judgment
  • Make sure you file in EDR well before this time expires
  • Keep trying to negotiate with the debt collector

If the debt collector is not in EDR (because of the transition of the Credit Law), get legal advice immediately. Your client may be able to file a defence on the grounds of financial hardship.

Negotiating a repayment arrangement after a court judgment has been obtained

Many debt collectors take legal action quickly to get a court judgment. As you cannot go to EDR after a court judgment, it is essential to go to EDR before the Statement of Claim or Summons expires.

Once the debt collector has a court judgment there are a number of possible consequences, including a garnishee against the client’s salary or bank account, or seizure and sale of personal property. If your client owns their own home, there is a real risk of your client being forced into bankruptcy by the debt collector, which can result in the forced sale of the home and up to tens of thousands of dollars in trustee’s fees.

If you have a client with a court judgment debt – Get advice!

Debtor harassment

See Debt collection.

If your client has been a victim of debtor harassment you should encourage your client to:

  • Seek compensation in EDR
  • Complain to ASIC (see Complaining to ASIC)
  • Refer to specific breaches of the Debt Collection Guideline.

Sample letter: Debtor harassment complaint

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cio.org.au – use search for members)

Address

Dear,

RE: Client name
Type of loan:
Account number:

I am assisting (client name) in relation to the above loan account.

Please find attached an authority to release information, signed by my client.

My client has instructed me to raise a dispute about your conduct in relation to the collection of my client’s alleged debt. I also refer to your obligations under the ASIC/ACCC Debt Collection Guideline: for collectors and creditors.

Write the details of your client’s experience of harassment by the debt collector. Include dates, times, events, and names of people involved. See Debt collection for examples of conduct by a debt collector that may be considered debtor harassment. Some examples of harassment appear below:

Example 1:
A representative (name) of your business has been ringing my client very frequently. During the last four weeks, my client has been contacted over 30 times by phone. Some of those phone calls occurred after 9:00 PM.

Example 2:
A representative (name) of your business rang my client at their workplace (name of workplace) and spoke to a co–worker about my client’s alleged debt. The representative also asked my co–worker for personal details about my client including my client’s home address and phone number. My client was terribly embarrassed and I believe that your conduct caused significant harm to my client’s professional reputation.

Example 3:
On or about (date) (name) of your business contacted my client by phone. At that time, my client was told s/he owed a debt. You told my client that if s/he did not pay the debt immediately, the Sheriff would come around and take his/her possessions (including her car to pay the debt). My client has since found out there is no court judgment against her/him that would enable the sheriff to seize his/her possessions.

Example 4:
You told my client that you would not consider a repayment arrangement until a significant up front payment was made. This is a breach of the Debt Collection Guideline.

I demand that the harassment of my client detailed above stop immediately.

I request that all future correspondence in this matter be in writing to me as an authorised representative of my client.

Yours faithfully,

Sample letter: Confirming a repayment arrangement

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cosl.com.au – use search for members)

Address

Dear,

RE: client name alleged debt to (name of creditor)
Reference no.

I am assisting (client name) in relation to the above loan account.

I refer to the telephone conversation with (person’s name) of your office on / / .

In that telephone conversation, you agreed to the following repayment arrangement:

For example

  1. Repayments of $200 per month commencing on / / .
  2. The repayments to be increased to $300 per month after three months.
  3. Any arrears to be capitalised.and the term of the loan extended

As this is an agreed variation to the contract, no further default fees or interest should be charged. It is also my understanding that if my client defaults on this arrangement a further default notice under s. 88 of the National Credit Code (being Schedule 1 of the National Consumer Credit Protection Act).

Yours faithfully,

How to Guide: Car repossession

There are two parts of car repossession that consumers come to get help with:

  1. Trying to stop repossession
  2. Trying to get the car back after it has been repossessed
Important. You always need to act quickly in car repossession matters! The car is at risk and it can be costly to get the car back.

If the consumer is in financial hardship

(See How to Guide: Financial hardship – credit cards and personal loans and associated sample letters.)

Step 1 Is the consumer going to be able to repay the loan?
Can’t pay

If the consumer cannot make the loan repayments and probably will not be able to afford the repayments in the foreseeable future, it may be best to get permission to sell the car for best available price, or just surrender the car or let it be repossessed. As cars usually depreciate, this will mean there will be a shortfall.

If there is a shortfall, the consumer has three options:

  1. Negotiate a repayment arrangement on the shortfall (see How to Guide: financial hardship)
  2. Do nothing. It is likely the debt will be sold to a debt collector and court proceedings and enforcement may follow.
  3. Compassionate grounds/long term financial hardship waiver/release
  4. Consider bankruptcy
Financial hardship

The consumer may be able to pay in the future. Then the aim is to make a repayment arrangement with the credit provider so the car is not at risk of repossession.

Step 2 Work out where the repossession is up to.

Has:

  • A default notice issued?
  • The default notice expired?
  • A repossession agent turned up to try to repossess the car?
The car cannot be repossessed if:
  • A default notice has not been sent (s. 88 of NCC).
  • Default notice has been sent but the time given to rectify the default (at least 30 days) has not expired
  • The default has been paid BEFORE the default notice time expires (including any repayment due in the default notice period
  • The amount owing is 25% (or less) of the amount of credit or $10,000 whichever is the lesser (s. 91 of the NCC). For example, if the amount of credit was $30,000 if the current loan balance is $7,500 or less, then the credit provider cannot repossess the car without a court order.
  • The car is on private residential property (without a court order or written consent from the consumer)

There are some minor exceptions to the above rules (for example, fraud) and advice should be obtained immediately if the credit provider is seeking to rely on an exception.

If a default notice has not been issued or has been issued and not expired you should aim to have a repayment arrangement in place BEFORE the default notice expires.

If the default notice has expired then it is time to move fast!

Remember once the default notice has expired (and the default has not been fixed):

  • The whole loan is payable and
  • The credit provider can commence proceedings and/or repossess the car at any time
Step 3 EDR is an important tool when the car is under threat of repossession.

An application to EDR will stop the credit provider taking the car while the matter is in EDR.

A suggested process if the car is under threat of imminent repossession:

  • Ask the credit provider not to repossess and request hardship
  • If they refuse, file in EDR and request hardship
  • The consumer should leave the car on private residential property while negotiating for hardship

If the car is under threat of repossession soon:

  • Send a letter or make a phone call requesting hardship.
  • Follow up the letter with a call to the credit provider to ask–
    • That they got the letter requesting financial hardship and
    • That they agree not to take further action including trying to repossess the car (a stay)
    • If the credit provider refuses to give a stay and the car is under threat of repossession (default notice expired) then file in EDR
  • If the credit provider agrees to the stay, then keep a file note and confirm in writing.
  • If the credit provider refuses the consumer’s request for financial hardship–
    • Ring the credit provider to find out why. See if another arrangement can be negotiated that the consumer can afford
    • Make an application to EDR immediately
    • Review the consumer’s situation to see if their financial position has improved, worsened, or stayed the same
  • If the credit provider agrees to the application for financial hardship, you should tell the consumer to make sure–
    • They keep to the arrangement
    • If things have not improved seek advice BEFORE the reduced repayment term comes to an end
    • Make sure all default fees and interest have stopped
Remember that a hardship notice will stop further action including repossession if it is the only hardship notice in the last 4 months.

Illegal repossession

Illegal repossession of cars is uncommon. If a car is repossessed in breach of the Credit Law (see list above when a car cannot be repossessed) then:

  • Immediately raise a dispute with the credit provider. Request a response within 30 days. If the car is required urgently, give seven days and give reasons as to why the return of the car is urgent.
  • If the car is not returned within the time requested, a dispute should be filed in EDR immediately. (See Sample letter: Illegal car repossession.)

Remember if the car is repossessed illegally, the consumer can claim:

  • The return of the car
  • Compensation for the loss of the use of the car
  • Reimbursement of all enforcement charges

After repossession

After the car has been repossessed, the credit provider must send a notice within 14 days stating:

  • The estimated value of the goods
  • Enforcement expenses incurred to date
  • A statement of the consumer’s rights (See Credit law forms, Form 14)
  • The consumer has 21 days from the date of the notice to:
  • Negotiate with the credit provider before the car is sold
  • Pay the arrears and reasonable enforcement expenses (and the usual repayment) to get the car returned and the contract reinstated
  • Pay out the loan

After 21 days of the date of the notice, the car may be sold.

So if the consumer wants to avoid the car being sold it is essential that:

  • A repayment arrangement has been agreed which includes the return of the car or
  • A dispute has been filed in EDR

Otherwise, the car may be sold.

The consumer is in default but they sold the car some time ago!

The loan contract states that the consumer cannot sell the car without the permission of the credit provider. If the consumer sells the car without the permission of the credit provider this is a breach of contract. It entitles the credit provider to make the whole loan payable and repossess the car and/or commence court proceedings.Your client may also be liable to the person who they sold the car to for compensation

It is recommended in this situation that the consumer negotiate to catch up the loan repayments and continue to make the loan repayments until the loan is repaid in full.

If the consumer remains in default and the credit provider becomes aware of the sale of the car then the consumer may be:

  • Reported to the Police for fraud
  • Unable to go bankrupt on this debt due to the possible fraud

Get advice.

Sample letter: Illegal car repossession

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cosl.com.au – use search for members)

Address

Dear,

RE: Client name
Type of loan:
Account number:

I am assisting (client name) in relation to the above loan account.

Please find attached an authority to release information, signed by my client.

My client has told me that his/her/their car was repossessed in breach of the National Credit Code because:

Delete the options that are not applicable:

My client negotiated an agreed repayment arrangement with the credit provider on  /  /  . This arrangement remains in place as my client has kept to the required repayments of $    per week/ fortnight/month. As there is an agreed repayment arrangement, my client is no longer in default.

My client has not been served with a default notice under the National Credit Code.

My client received a default notice dated  /  /  . The 30 days given under this notice to fix the default has not expired or my client has paid the default in full.

The amount owing on the loan is less than 25% of the amount borrowed. Under s. 91 of the National Credit Code my client’s car cannot be repossessed without a court order.

My client’s car was situated on private residential property at the time it was repossessed. My client or the owner of the property did not consent to the repossession. No court order was produced. Under s. 99 of the National Credit Code my client’s car cannot be repossessed from private residential property without written consent or a court order.

My client’s car repossession is in breach of the National Credit Code. My client demands:

The return of his/her/their car immediately.

All enforcement costs refunded and interest recalculated.

Compensation of $    (increasing each week by $    ) (amount of costs caused by the inconvenience of having no car).

The return of my client’s car is urgently required because (eg, to get to work, take children to school, get to doctor’s appointments).

Please respond by  /  /  .

Yours faithfully,

EDR Guide: Illegal car repossession

  • The contact details for both EDR schemes are:
  • Applying online to EDR is processed faster and confirmed quickly
  • You can apply online for your client.
  • EDR stops all legal action while the dispute is being considered
  • If court proceedings have commenced, always lodge online and make sure you get confirmation of successful lodgement and that you state in the application that court proceedings have commenced.

This guide This guide is for completing an application to EDR. There are a number of questions in the form but this guide concentrates on answering the problem description and the requested resolution.

Goods/car repossession and EDR

Both EDR Schemes have the power to determine that the goods or car must be returned.

Problem description

My client has told me that his/her/their car/goods were repossessed on  /  /  .

My client contends that the repossession was in breach of the National Credit Code because:

Delete the options that are not applicable:

  • My client negotiated an agreed repayment arrangement with you on  /  /  . This arrangement remains in place as my client has kept to the required repayments of $    per week/fortnight/month. As there is an agreed repayment arrangement, my client is no longer in default.
  • My client has not been served with a default notice under the National Credit Code.
  • My client received a default notice dated  /  /  . The 30 days given under this notice to fix the default has not expired or my client has paid the default in full.
  • The amount owing on the loan is less than 25% of the amount borrowed. Under s. 91 of the National Credit Code my client’s car cannot be repossessed without a court order.
  • My client’s car was situated on private residential property at the time it was repossessed. My client or the owner of the property did not consent to the repossession. No court order was produced. Under s. 99 of the National Credit Code my client’s car cannot be repossessed from private residential property without written consent or a court order.

Requested resolution

My client requests the following resolution of his/her/their dispute:

  • The return of his/her/their car immediately
  • All enforcement costs refunded and interest recalculated
  • Compensation of $    (increasing each week by $    ) (amount of costs caused by the inconvenience of having no car)

The return of my client’s car is urgently required because (for example, to get to work, take children to school, get to doctor’s appointments).

How to guide: Requesting a debt release

Sometimes, the consumer is in such a poor financial and personal situation that the only workable solution is to get a release from the debt or to go bankrupt.

This How to Guide covers when and how to ask for a release from a debt.

Remember: Credit providers generally don’t agree to release a consumer from a debt lightly. You really need to make your case. Also, this is a request you should make carefully and only when really needed.

When to consider requesting a release

As a guide, you should consider requesting a release of the debt when:

  • The consumer cannot afford the repayments and will not be able to afford the repayments for the foreseeable future
  • The consumer has a chronic and debilitating illness (or in particular, a terminal illness)
  • The consumer does not have any significant assets that could reasonably be sold to repay the debt
  • The consumer is facing bankruptcy and the credit provider would not get any money returned through the bankruptcy because the consumer’s assets are protected (for example, household goods)

When not to request a release

As a guide, do not request a release of the debt if:

  • The consumer has a possible defence to the debt (although it is possible that you may still want to request a release anyway because even if the defence was successful the amount remaining may still be impossible for the consumer to repay)
  • If the debt is secured (the security needs to be surrendered first)
  • A release of the debt will not assist the client because they have numerous other debts they cannot afford to repay
  • They have assets or savings that could reasonably be used to repay the debt
  • The consumer can afford to make some repayments on the debt
  • The consumer may be able to gain employment in the foreseeable future

What information to get from the consumer

You need the following:

  • Evidence of the consumer’s current income (Centrelink receipt)
  • Medical certificates
  • A statement of financial position/money plan (which the consumer should sign to confirm the details are correct)

What to tell the consumer

It is important that you tell the consumer that:

  • The credit provider does not have to agree to a release
  • The consumer needs to be open and honest about their financial situation (which may mean obtaining further evidence of their financial or medical situation)
  • If the credit provider will not agree to a release other, options will need to be considered

What if the credit provider asks for more information?

The credit provider needs to satisfy itself that the request is genuine and made in good faith. It is essential to cooperate with any requests for further information made by the credit provider.

What if the credit provider says no?

You could ask the credit provider to review its decision and provider further information. It may be necessary to look at other options.

DON’T FORGET: Say ‘Thank you’ if the credit provider agrees to a release of the debt. It is a big deal!

Sample letter: Requesting a debt release

Date

Credit provider

(Write to the IDR contact person for the credit provider available at www.fos.org.au or www.cio.org.au – use search for members)

Address

Dear,

RE: Client name
Type of loan:
Account number:

I am assisting (client name) in relation to the above loan account.

Please find attached an authority to release information, signed by my client.

My client requests that you consider releasing my client from the above debt on compassionate grounds.

My client’s circumstances

My client instructs me that:

Example only of matters to mention

  1. My client’s sole source of income is Centrelink benefits since 1996. My client receives the Disability Support Pension. Evidence of my client’s income is attached.
  2. My client has a number of chronic illnesses (details. My client has significant medical costs for his health conditions.).
  3. My client is 59 years old.
  4. My client does not own a home. His rental costs are $    per week/fortnight/month. He has a car worth $3,000, with which he needs to get to medical appointments.
  5. See attached money plan, which shows that my client cannot reasonably afford to make repayments to the debt.
  6. My client’s financial situation is unlikely to change.

Request for a release from the debt

As can be seen from the above information, my client is unable to repay the above debt and will not be able to repay the debt in the foreseeable future.

My client requests that s/he be released from the debt given her/his poor financial circumstances.

If you require any further information, please let me know.

I assume you will not take any further action against my client while you are considering the above request. If this assumption is incorrect, please advise me in writing immediately.

I look forward to your reply.

Yours faithfully,