Dealing with debt collectors

Being approached by a debt collector

Often your client will be at a stage where they are being pursued by a debt collector, who is putting pressure on them either via phone, letter or in person to pay the outstanding debt.

Many creditors refer debts to a debt-collection agency. Creditors can also “sell” debts to collection agencies. When this happens, the debt collection agency becomes the creditor.

It is common for clients to come to Homeless Law stating that they have been approached by debt collectors and are concerned they will be jailed.  You should reassure your client that they cannot be jailed for an unpaid debt.  They also do not have to let the debt collector into their home – generally, there is no reason for the debt collector to visit a person at their home or workplace unless there is no other way for the debt collector to contact them.  If the client does agree to let the debt collector into their home, the debt collector must leave when asked.

Limitations on debt collectors

The ACL, the Australian Consumer Law and Fair Trading Act 2012 (Vic), the ASIC Act and the National Credit Act and Code contain limitations on the behaviour of debt collectors.

The Debt Collection Guideline: For Collectors and Creditors  (Guideline) prepared by ASIC and the ACCC sets out limitations on how debt collectors can behave.

Importantly, a debt collector should not contact the client directly once they have been informed that you are acting for the client (or that the client has another authorised representative such as a financial counsellor or a community worker).  A debt collector also must not refuse to deal with you (as the lawyer) or another authorised representative, whether by direct refusal or by placing unnecessary obstacles in the way by, for example, insisting on a particular style of form authorisation when the written authority provided already contains the necessary information.  If you tell the debt collector that you do not have instructions from your client about the debt, the debt collector may contact the client directly.  You should therefore make it clear that you will seek instructions and get back to the debt collector. You should also expressly ask that they not contact the client directly.

The Guideline provides that a debt collector should only contact a person when it is necessary to do so and the contact is for a reasonable purpose. A “reasonable purpose” includes:

• making a demand for payment;
• making arrangements for repayment;
• finding out why an agreed repayment plan has not been met;
• reviewing a repayment plan after an agreed period of time; and
• inspecting or recovering mortgaged goods (if they have a right to do so – see Secured Debts and Mortgage Arrears).

As a guide, if contact is “necessary”, it should be limited to:

• phone contact only between the hours of 7:30am to 9:00pm on weekdays and 9:00am to 9:00pm on weekends;
• no contact on national public holidays;
• a maximum of three phone calls or letters per week (or a maximum of 10 per month); and
• face-to-face contact only between the hours of 9:00am to 9:00pm on weekdays and weekends.

The Guideline explains the prohibitions and remedies (contained in both the ACL and the ASIC Act) against debt collectors who engage in:

• misleading and deceptive conduct – for example, by:
  • sending letters that look like court documents;
  • threatening legal action that they are not legally permitted to take, or do not have instructions or authority to take;
  • stating that the debtor has to prove that they are not liable for the debt, when the legal burden lies with the party alleging the debt;
  • trying to persuade a bankrupt person that they should or must pay an unsecured debt;
  • implying that unsecured basic household items can be seized (refer to Warrant to Seize Property);
  • stating that failure to pay a debt is a criminal matter and jail is possible (where there is no fraud or other offence involved); and
  • representing that legal action will or may be taken when a debt is statute-barred;
• unconscionable conduct – including taking unfair advantage of a client’s vulnerability, disability or other hardship. Many of the practices listed above as potentially misleading and deceptive conduct might also be unconscionable if the client is vulnerable and has not had the opportunity to obtain legal advice; and
• the use of physical force, undue harassment or coercion – for example, excessive contact or refusing to leave a person’s property when asked.

Refer to section 45(2)(m) of the Australian Consumer Law and Fair Trading Act 2012 (Vic),   for the legislative prohibitions on conduct by debt collectors.

Options in relation to debt collectors’ conduct

If a client reports that the debt collector is calling repeatedly, contacting their employer or family members, threatening him or her (including making untrue statements about what will happen if they don’t pay) or refusing to leave the client’s property when asked, you should advise the client to write down:

• the date and time of these occurrences;
• the name of the person approaching or contacting them; and
• what was said or done.

You should then write to the debt collector (copying the creditor who has sold or referred the debt), referring to the Guideline and the relevant legislation and identifying any contravention of the Guideline and the relevant legislation. You should reiterate that the debt collector should not be contacting the client directly because they have been put on notice that you are the client’s representative. A sample letter for use when the client is judgment proof is available below.

If this is not successful, a complaint should be made to:

• the relevant External Dispute Resolution scheme (either compulsory EDR in the case of credit contracts or the relevant industry ombudsman, including the Telecommunications Industry Ombudsman and the Energy and Water Ombudsman if the relevant debt collector is a member of these schemes);
• Consumer Affairs Victoria using the online complaint form; or
• the ACCC (regarding consumer contracts for goods and services, including utilities and telecommunications) or ASIC (regarding consumer credit contracts such as credit cards, home loans or personal loans).

In most cases, knowing the limitations on debt collectors’ conduct will be used only to make them cease contacting your client (or to contact your client in a compliant way).  If necessary, though, the following remedies are available for breaches of the legislative provisions that regulate debt collectors’ conduct:

• fines – a debt collector who breaches the harassment and coercion provisions is guilty of an offence punishable on conviction or a fine;
• civil orders – ASIC and the ACCC can also apply for civil orders against a collector, including injunctions against future conduct, non-punitive orders and punitive orders requiring adverse publicity; and
• damages or injunctions – if your client suffers loss or damage as a result of the debt collector’s breach, they may be able to recover the amount of their loss by an action for damages under the ACL or the ASIC Act. In particular, section 46 of the Australian Consumer Law and Fair Trading Act 2012 (Vic)  provides for remedies in the event that section 45 is contravened. Under this provision, where a client has experienced humiliation or distress due to the conduct of the debt collector (on at least two occasions), he or she can apply to VCAT or a court for damages of up to $10,000.