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When debt collecting, it
is best to use mild (not undue) harassment and firm (not
coercive) demands to avoid breaching the Australian Consumer
Law
The abolition of the debtor’s prison in the late 1800s
took away the most potent threat that debt collectors had to
press for payment of a debt. Ever since, debt collectors
have relied upon lesser threats, such as the threat of legal
process, public disclosure and additional fees.
The ACCC (Australian Competition & Consumer Commission)
keeps a close eye on the threats made by debt
collectors and businesses for debt recovery. The ACCC will
prosecute if harassing and coercive threats are made in
breach of section 50 of the Australian Consumer Law (the
ACL), which states:
A person must not use physical force, undue
harassment or coercion in connection with the supply or
possible supply of goods or services or the payment of
goods or services.
The corresponding section for financial services is
section 12DJ of the ASIC Act.
This article looks at the case studies on undue
harassment and coercion in the report the ACCC has recently
issued – Research into the Australian Debt Collection
Industry [May 2015]. They illustrate the ACCC’s current
views. For my overview of the Report see:
https://www.lexology.com/library/detail.aspx?g=25e7e197-f82c-407b-a65d-b6a7b360d090
Case Studies on Undue Harassment and Coercion;
and also on Misleading or Deceptive (or false)
Representations
Harassment or Coercive Conduct is the most common type of
complaint category received by the ACCC (43% of complaints),
with General – no breach or issue second (40% of
complaints), and Misleading or Deceptive Conduct (including
false representations) third (12% of complaints).
The Report uses these case studies to illustrate how
businesses, debt collectors and lawyers need to take care to
tailor their demands so as to not be unduly harassing or
coercive and to not make misleading or deceptive (or
false) representations when pursuing debt recovery.
- Conduct of a telecommunications company
Excite Mobile made three kinds of false
representations to its customers when demanding
payment of its mobile phone debts:
- that an independent organisation handled
complaints (false - it did not exist);
- that an independent debt collector sent the
letters of demand (false - the debt collection was
in-house);
- that legal proceedings had commenced and so an
additional 20% was payable (false - legal
proceedings had not commenced), and a court would
repossess all assets of value (false).
The Federal Court fined Excite Mobile $455,000, fined
the two directors $55,000 and $45,000 (respectively) for
their involvement, and disqualified them from managing a
corporation for 3 years and 2 ½ years (respectively).
Australian Competition and Consumer Commission v Excite
Mobile Pty Ltd [2013] FCA 350 & [2013] FCA 1267
- Conduct of a large debt collection business
Advanced Credit Management (one of Australia’s largest
debt collection companies) had a debt collection
training manual which contained ‘scripts’ that
encouraged the debt collectors:
- to engage in undue harassment and
coercive conduct by threatening debtors that
they would inform their family, friends and employer
of the debt, that Sheriffs’ Officers would call by,
that a warrant for their arrest had issued and that
they could not travel overseas;
- to make false representations that it
specialised in legal proceedings, had decided to
commence legal proceedings and had referred the file
to its lawyers, that legal proceedings including
bankruptcy would be commenced immediately, and that
NSW Sheriffs’ Officers would serve documents on the
debtor at home.
The Federal Court permanently restrained ACM from
making these threats. Australian Securities and
Investments Commission v Accounts Control Management
Services Pty Ltd [2012] FCA 1164
- Conduct of a Lawyer
Pippa Sampson (a lawyer) sent approximately 20,000 debt
collection notices per month to collect small debts for
video rental stores around Australia. The notices
contained misleading and deceptive representations:
- that the video store was always entitled to
recover legal costs (not for small debts)
- that the customer would always be liable to pay
legal costs, even if the court does not award costs
(only if the court awards legal costs)
- the form of notice was similar in format to a
court document (it was not a court document)
- that judgement could be entered without a formal
court order unless the debt was paid in full (a
court order is needed)
- that a warrant or a garnishee order could be
issued by the solicitor (only issued by the court)
The Federal Court ordered the lawyer to stop making
the misleading representations, to publish corrective
advertising, to undertake trade practices compliance
training, and to pay $30,000 for costs. Australian
Competition and Consumer Commission v Sampson [2011]
FCA 1165
The lawyer was found guilty of professional misconduct
and was fortunate to receive a reprimand, as opposed to
a suspension of her practising certificate. See [2013]
VCAT 1439
Is adding Additional Fees
Coercive Conduct?
Debt collectors commonly impose additional fees and
charges on outstanding debts to recover collection costs and
to ‘encourage’ payment before the amount payable increases.
In the Report, the Consumer Action Law Centre (CALC)
provided these case studies to persuade the ACCC to rule
that consider the imposition of additional fees is coercive
conduct and therefore unlawful:
- A debt collection agency first demanded payment of
$292, then $700, then $1,350, on a debt of $140 for an
air conditioner repair by imposing an administration fee
of 40% each time.
- A debt collection agency demanded $390, consisting
of $190 for the medical consultation fee, $70 commission
and $130 ‘legal costs’.
- A debt collection agency demanded $3,780, for a debt
of $2,875, without explanation for the increase in
amount demanded.
The Report makes the points that: (i) the additional fees
need to be supported by a trading term and condition which
specifies recovery of costs; and (ii) the additional fees
must be reasonable, otherwise the term may be an unfair
contract term and be void.
Is Continued Contact with
the debtor Undue Harassment?
The Report notes that it is an ACCC/ASIC debt collection
guideline that where a debt collector is aware that a
consumer is unable to pay a debt, then it is undue
harassment to continue to contact the debtor.
For example, the debtor might be on Centrelink payments
(which are protected income) because of unemployment,
disability or age.
The creditor must wait until the debtor’s financial
situation has improved before making further contact.
Tips for compliance
In short, if you are a debt collector or a business, you
can harass mildly but avoid undue harassment; and you can
demand firmly, but not coerce, payment.
Debt collectors and businesses should review their
manuals and collection processes for compliance with the
ACCC/ASIC Debt Collection Guideline for Collectors and
Creditors, and in particular:
- Remove any threats to contact the debtor’s family,
friends or employer
- Remove any representations made that legal
proceedings are commencing, unless they have commenced
- Remove any references to the Sheriffs’ Officers,
garnishees and to repossessing assets in demand notices,
unless a court judgement has been entered
- Remove any additional fees unless they are supported
by a term or condition and are reasonable
- Cease to contact debtors who are unable to pay
because of their financial situation
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