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Released every month our debt collection blog contains news, stories and tips to keep you informed.

Early Release of Superannuation

Sunday, November 01, 2009 - Posted by Philip Harvey

The early release of superannuation can be an effective way for a debtor to clear their arrears and get back on track with their mortgage.  Both ASIC & APRA have some basic requirements that need to be met before superannuation is released.

When reviewing these requirements, you will note that a Credit Card / Personal Loan is not included. Also of note is that an investment property / second property is not included.

ASIC Requirements:

Incapacity 


Requires the debtor to contact the superannuation fund. The debtor may also be paid a 'non-commutable' income stream during a period of temporary incapacity (debtors won't be able to get a lump sum in the case of a temporary incapacity). 

Severe financial hardship 

Requires the debtor to contact the superannuation fund. If the rules allow early release of benefits, you must satisfy the trustee that you have been receiving a Commonwealth income support payment for a continuous period of 26 weeks and you cannot meet your reasonable and immediate family living expenses. 

Compassionate grounds 

Requires the debtor to contact the superannuation fund. If the rules allow early release of benefits, the 'compassionate grounds' are set out in the law. 
Compassionate grounds involve medical treatment for serious conditions that is not readily available through the public health system, transport for medical treatment, changes to a home or vehicle because of a severe disability, palliative care, funeral and burial expenses, or to prevent the forced sale of your home by your mortgagee. 

APRA Requirements:

Medical treatment 

To help pay for medical costs, for you or your dependant, required to: 
- treat a life-threatening illness or injury; and/or 
- alleviate acute or chronic physical pain; and/or 
- alleviate an acute or chronic mental condition 
provided that the treatment is not readily available through the public health system and is not covered by any applicable private health insurance and/or Workers’ Compensation. 

Medical transport 

To assist with the cost of transportation to and from medical treatment, for you or your dependant, when that treatment is required to: 
- treat a life-threatening illness or injury; and/or 
- alleviate acute or chronic physical pain; and/or 
- alleviate an acute or chronic mental condition 
provided that the transport is not readily available through the public health system and is not covered by any applicable private health insurance and/or Workers’ Compensation. 

Mortgage assistance 

To prevent your home from being sold by the lender with whom you have the home’s mortgage. 

This ground does not include rent, or making payment on a mortgage: 
- for which you expect to have difficulty paying in the future (but are not yet in arrears); 
- for which you are in arrears, but not to the extent that the lender has decided to sell; 
- for which one of your dependants, other family member or friend is liable; or 
- that is for a second or investment property. 

The substantiation required from the mortgagee (lender) to satisfy APRA's requirements may be set out in a single letter or document or in separate letters or documents. Providing mortgage account details and BSB numbers will also enable funds to be directly deposited to the mortgage account once they are released by the superannuation fund. Documentation from mortgagees (lenders) must be clear about the mortgagee’s (lender’s) intention to continue or commence enforcement action. Using phrases such as “may proceed”, “may be entitled to commence”, or “reserve the right to proceed” is not considered sufficient to meet the requirements of the 
legislation. The legislation requires that the mortgagee (lender) must state that if the borrower fails to pay the overdue amount, the mortgagee (lender).

LCollect can issue a Mortgage Default Notice on your behalf which satisfies the requirements for superannuation to be released under this category.

Modifications to your home and/or motor vehicle 

To pay for modifications required to accommodate special needs if you or one of your dependants has a severe disability 

Funeral assistance 

To assist with funeral, burial, cremation and other expenses related to the death of a dependant. 

The deceased person must have been reliant on you financially, domestically or personally on you: it is not enough that the person was a family member. 

Care for terminal medical condition 

To provide care for yourself or your dependant if you or your dependant is dying from a terminal medical condition. This kind of care is often referred to as “palliative care”.

Seizure of Real Estate under a Writ in NSW

Sunday, November 01, 2009 - Posted by Philip Harvey

The process of seizing real estate under a Writ in NSW has recently been simplified. This can be an effective collection tool for debtors who have the capacity to pay but refuse. The basic process is as follows;

1. Obtain Judgment

2. Issue a Writ. The Writ can then be registered with Land Titles.

3. Receive a Notice of Non-Levy from the Sheriff. 

4. Lodge an affidavit at Court with the Non-Levy and registration of writ attached.

5. Lodge a Form 67 with the court who stamp 2 forms and return them to be served.

6. If no payment has been received 28 days after service, then Form 68 is issued. The court directs the sheriff to sell the property.

There are two things you need to be aware of before undertaking this process;

i) The debtor can lodge an instalment order at any stage which stops the process. If they default on the installment order, the process recommences.

ii) The sheriff's sale costs are paid prior to the mortgage.  Therefore searches have to be performed to make sure that enough equity exists to warrant undertaking the process.

APRA Statistics for the Early Release of Superannuation

Sunday, November 01, 2009 - Posted by Philip Harvey

You will note a downward trend for 2008/09 which can be directly attributable to the sharp decline in interest rates during the period.                                                                       
   
  

Financial year  

 Number of 
applications received

Applications 
approved 
in part or full  

Amount 
approved 
for release 
$  

Average amount 
released 
per application 
$

2003/04*

11,504

8,558

55,459,704

6,480

2004/05*

11,818

9,764

77,680,070

7,956

2005/06*

15,027

12,754

120,842,292

9,475

 2006/07

18,245

15,412

156,905,338

10,181

2007/08*

20,524

14,947

 173,602,110

11,615

2008/09

17,918

11,776

144,739,434

12,291

*Revised figures.

Debt Collection & APRA Provisioning Guidelines

Thursday, October 01, 2009 - Posted by Philip Harvey

The effectiveness of your organisations Debt Collection has a direct impact on the Provisions for Bad Debts your organisation must make. Provisions for Bad Debts are expenses to your organisation that can add up very quickly and can threaten the profitability of your organisation on a poor performing ledger.

As a collector, have you ever completely understood why you are sometimes put under intense pressure to reduce the arrears, order new valuations and consequently, reducing the required provisioning? By summarising the APRA Provisioning Guidelines (Guidance Note AGN 220.3) below, we hope to increase your understanding. Please take note that your own organisations provisioning guidelines may be different to the APRA Guidelines (ie more conservative). 

The provisioning guidelines are divided into 4 categories based upon the associated risk of each Loan Type, being;

  1. Category 1 - Well-Secured Facilities,  including;
    • a residential fully mortgage insured registered 1st mortgage,
    •  a residential registered 1st mortgage where the loan balance is less than or equal to 80% of the property value (without mortgage insurance) Note: Where the exposure is 90 days or more worth of payments past due, and the valuation must be no older than 12 months
    • a residential registered 2nd mortgage where;
      •  the value 1st mortgage + the value of the 2nd mortgage is less than or equal to 80% of the property value and the first mortgage cannot be extended without it being subordinated to the second mortgage OR
      • the value 1st mortgage + the value of the 2nd mortgage is between 80 & 100% of the property value and the first mortgage cannot be extended without it being subordinated to the second mortgage AND the outstanding balance is 100% mortgage insured
  2. Category 2  - Registered 1st Mortgages on residential properties where the total loan balance (less any component that is mortgage insured) is between 80% - 100% of the property value (where the loan is 90 days or more worth of payments past due, the valuation must be no older than 12 months).
  3. Category 3 - Personal & Commercial Loans (Secured & Unsecured) and mortgage loans where the Total Loan balance less any mortgage insurance is greater than 100% of the Property Value. Please note that APRA do also allow some exemptions which can be applied for in this category.
  4. Category 4 - Overdrawn Savings Accounts and Overdrawn Limits on credit cards, overdrafts and line of credit facilities.

The % of the Total Loan Balance that must be provisioned per APRA Guidelines is determined by the number of days in arrears the borrower is in meeting contractual obligations. The categories & percentages are outlined below;

                                            % Provision Required by Category

# Days in Arrears Cat 1 Cat 2 Cat 3 Cat 4
0-13 Days 0% 0% 0% 0%
14-89 Days 0% 0% 0% 40%
90-181 Days 0% 5% 40% 75%
182 - 272 Days 0% 10% 60% 100%
273 - 364 Days 0% 15% 80% 100%
365 + Days 0% 20% 100% 100%

You can see as a Collector how the performance of your arrears ledger will have on your provisioning when you apply the above matrix.

For Category 1 & 2, the guide mentioning a valuation that is not older than 12 months becomes important. For example, if you had a category 1 loan without mortgage insurance that was more than 90 days in arrears without  a valuation performed in the last 12 months, this would Default to be a Category 3 loan. Lets attach a loan value of $100,000 to this example, this means that instead of having a provision of zero, a provision of $40,000 would be required, going straight to your organisations bottom line. 

Another important consideration for your Category 1 (& somewhat category 2) Loans is the potential consequence of doing nothing when an account is in arrears. We have seen examples of case law where due to inaction / slow action of the lender that has lead to excessive interest & fees being accrued against the loan, the Courts reversing these excessive amounts in favour of the borrower. The key point to remember is though your provisioning is not impacted, if your lack of action is to the financial detriment of the borrower, the Court may award in favour of the borrower for the amount of the financial loss suffered from the lack of action.

The full APRA Guidance Note (AGN 320.3) can be located on the APRA Website.


The Role of the NSW Sheriff and Collecting Debts

Thursday, October 01, 2009 - Posted by Philip Harvey

The office of the NSW Sheriff provides several important roles including;

      • Serving summonses;
      • Serving enforcement orders;
      • Serving Warrants;
      • Serving orders of the various courts (Supreme, District & Local) in New South Wales;
      • Serve and enforce orders within the borders of New South Wales on behalf of Commonwealth courts, including the High Court, Federal Court and the Family Court of Australia;
      • Responsible for Arranging security for the Supreme Court, District Court, certain Local Courts and a range of tribunals;
      • Administers the jury system in New South Wales and;
      • Administers the Sheriff’s Office;

Importantly in the Collection of Debts, the Sheriff can be very useful tool to use. Some examples of how this is done are:

  • Where a debtor has ignored an examination order to attend the local court, an arrest warrant can be issued & the sheriff will then arrest the debtor and take them to the local court to perform the examination order. This can assist you in ascertaining the debtors circumstances & obtaining employment information so you can take further action and receive payments on your account;
  • Performing Writs. When you issue a writ, the sheriff will attend the debtors address and look for any assets that can be seized & sold at auction. Historically LCollect through the sheriff has seized vintage cars & bikes where the debtor has subsequently paid the debt in full to reacquire the goods. We have also had experiences where upon the sheriff attending the debtors property, the debtor has then paid the debt before anything has been seized;
  • Upon obtaining a Supreme Court Order for possession of a property, the Sheriff will then effect the repossession of the mortgaged property so it can be liquidated to pay the debt.

If you would like to find out more about how you might be able to use the sheriff in order to enforce your debts, please contact us.

Some interesting historical information on the role of sheriff in NSW & what additional responsibilities they also had were: 

      • Carry out death sentences in Criminal Cases
      • Discharge the Duties of the Coroner;
      • Run the Gaols;
      • Execute all the judgments, decrees and orders of the Supreme Court. 

Privacy Act Review leads to potential enhanced Credit Reporting Information

Thursday, October 01, 2009 - Posted by Philip Harvey

A recent Federal Government Response to Australian Privacy Law & Practice Reforms has provided a favourable response to proposed enhanced credit information allowing lenders to more accurately assess the Credit History of loan applicants. 

The approved recommendations should permit credit reporting information to include the following categories of personal information, in addition to those currently permitted in credit information files under the Privacy Act: 
(a) the type of each credit account opened (for example, mortgage, personal loan, credit card); 
(b) the date on which each credit account was opened; 
(c) the current limit of each open credit account; and 
(d) the date on which each credit account was closed.

Further to the additional personal,  the new Privacy (Credit Reporting Information) Regulations should also permit credit reporting information to include an individual’s repayment performance history, comprised of information indicating: 
(a) whether, over the prior two years, the individual was meeting his or her repayment obligations as at each point of the relevant repayment cycle for a credit account; and, if not, 
(b) the number of repayment cycles the individual was in arrears.
Note: there is a recommendation for the deletion of any repayment performance history (whether positive or negative) after 2 years.

There are also a number of exclusions to the repayment performance history including;

  • Not listing amounts less than a prescribed amount
  • Not listing dishounered cheques
  • Not listing people under the age of 18
  • Must have taken reasonable steps to ensure the individual concerned is aware of the intention to report information.

This is a move that could see Australia adopt the United States model where Positive Credit Reporting has been available for many years.

If these recommendations are passed into Law, it may mean increased responsibility on both the Lending Teams & Collections Teams to report information to a CRA (Credit Reporting Agency). Unless a "smart" technological solution can be adopted that would update this Repayment performance History automatically, someone would have to key in all this data at key milestones in order to gain the benefits for the industry and reduce credit risk.


SA Govt to reduce unpaid debts

Tuesday, September 08, 2009 - Posted by Philip Harvey

A review by the South Australian Government has looked at ways to reduce unpaid fines / debts. The recommendations from the review include:

  •  Impounding cars until debts are paid
  •  Obtain Credit Card details when registering a vehicle or renewing a license
  •  A possible prison sentence for repeat offenders
  •  A debt recovery body be setup to recover the the debts / fines instead of the using the court system
  •  Remove a constraint on fine collection officers that prevents them from seizing assets listed under the Bankruptcy Act
  •  Publishing names of repeat offenders
  •  Requesting the Federal Government to consider giving state collection agencies greater access to Commonwealth data the track down the people avoiding the fines / debts.

These are interesting methods that the South Australian Government review has raised. If you compare this to the direction that the National Credit Code has taken (increasing consumer / debtor protections), the State Government appears to be heading in the opposite direction (decreasing protections / ways of avoiding debts).

The Publishing of names is an interesting point given the obligations of the Privacy Act.

It will be interesting to see what actions the South Australian Government ultimately take, and comparing this to the National Credit Code.


National Consumer Credit Reform License Requirements

Saturday, August 01, 2009 - Posted by Philip Harvey

ASIC recently launched a Consultation Paper on Training and Competence for credit licensees. 

The Key points from the ASIC paper are;
"The new credit regime proposed by the National Credit Bill is aimed at boosting consumer protection and raising standards in the credit industry. It requires credit licensees to maintain their competence and ensure their representatives are adequately trained to engage in credit activities. In granting Australian credit licences, ASIC must have regard to whether particular people are 'fit and proper'. We will look to these people to demonstrate whether the credit licensee is competent as a whole. While credit licensees must determine for themselves how best to meet their obligations, we are proposing to set out our expectations as to:    
  • Credit licensee competence;
  • Training requirements for representatives; and
  • Transitional arrangements
To reinforce the training and competence requirements, we propose to impose some standard licence conditions." Impact to Collectors Under Clause  47(1)(g) of the National Credit Bill the credit licensee must ensure all represtatives are adequately trained, and competent to engage in credit activities authorised by their license. The Key Points that ASIC have drawn with regards to this are are;

"Under the National Credit Bill, credit licensees must ensure that their representatives are adequately trained, and are competent, to engage in the credit activities authorised by the licence. Generally, we think that credit licensees should determine for themselves what is appropriate initially and ongoing training for their representatives. However, we propose that representatives working as mortgage brokers should hold at least a Certificate IV in Financial Services (Finance / Mortgage Broking) and should undertake 20 hours of continuing professional development a year. "

ASIC is deliberately not prescribing prerequisite qualifications or ongoing training requirements for representatives at this time.

But what does this mean for Collectors? Your licensees need to ensure you are trained & competent to engage in credit activities which includes collections. Your licensees need to determine what the basic competency & ongoing training requirements are. Additionaly training programs will need to be documented.

The full ASIC release can be viewed here.

Building Societies, Credit Unions and Retail Banks Sign Up to Help Borrowers in Distress

Saturday, August 01, 2009 - Posted by Philip Harvey

Following from last months article on Hardship, The Federal Treasurer (Wayne Swan) recently announced "that all 144 retail banks, building societies and credit unions have signed up to the Government's Principles to assist borrowers who are experiencing financial difficulty as a result of the global recession." 

Options available under these principles to assist borrows in distress include;

  • postponement for up to 12 months the dates on which payments are due under a mortgage contract (with interest to be capitalised into the loan);
  • an extension of the period of the contract and a reduction in the amount of each payment due under the contract;
  • interest-only breaks on loan repayments;
  • fee waivers;
  • extending the loan term and reducing repayments;
  • reducing the limit available under the credit contract and
  • one off temporary overdrafts for short term needs

Additional to this is the Hardship threshold limit increasing to $500,000.

All members of the Association of Building Societies and Credit Unions (ABACUS) have signed and agreed to these principles. ABACUS have released these principles which are located on this link.

To view the full press release made by the Treasurer click here

Further the the Treasurer's announcement and ABACUS accepting the principles, an ASIC press release under the new National Consumer Credit Bill has advised that ASIC's expectation is that Credit Licensees have a contact number for hardship applications. 
ASIC's comments;
"We consider that credit licensees should have clear and effective arrangements to assist borrowers who are facing financial hardship. This includes having a dedicated telephone number for consumers to make hardship applications."

The full ASIC release can be viewed here (ASIC consultation paper 112) 


Court Instalment Orders vs Contractual Obligations

Saturday, August 01, 2009 - Posted by Philip Harvey

Can the Local Court Registrar accept an Instalment Order from a debtor where the amount offered is less than the contractural obligations?

But the amount accepted by the Court means the arrears on the loan will continue to grow, is there anything I can do?

We have had a number of questions on this topic, in this article we'll go through the process.

Can the Local Court Registrar accept an Installment Order from a debtor where the amount offered is less than the contractural obligations?

The short answer to this question is yes, they can.

When the Registrar responds to a debtor attending the Local Court, an examination is conducted. When determining if the debtors proposed Instalment Order is an acceptable amount, the Registrar is reviewing;

  • If the proposed amount is enough to pay the court interest (important note; Court Interest is Simple Interest calculated on the balance of the judgment debt only ie - it is NOT compounding). If the instalment amount will not cover the interest, generally the Instalment Order will be rejected;
  • The debtors capacity to repay the Judgment Debt after reasonable living expenses;
  • The amount of time it will take the Judgment Debt to be satisfied. Where the intsalment amount will not pay back the Judgment Debt in a reasonable time frame, the Court will generally reject the installment order.
  • History of Instalment Orders being maintained with the Local Court. If the debtor habitually defaults on court installment orders, the court will generally reject the installment order.

Note that at no stage does the local court ever refer to the Contractual Obligations (Loan Contract - contracted repayments) when determining an acceptable amount. The Court views the debt from a completely different perspective - that is the Judgment Debt.

But the amount accepted by the Court means the arrears on the loan will continue to grow, is there anything I can do?

Yes, there is something you can do. However you will need to think long & hard to determine if you actually want to......

You can lodge an objection to the Instalment Order with the Local Court. The Local Court will then set a hearing date which can be up to 3 months away. When the hearing does finally take place, a solicitor must be in attendance to act on your behalf.

Our experience in this process is that unless you have exceptional circumstances (eg Debtor misleading the Local Court), this is a costly and time consuming process with no guarantee of a positive outcome.



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