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PPSR and Debt Collection Warnings

Thursday, June 05, 2014 - Posted by Philip Harvey

The importance of internal processes and procedures that are correct when a debt is written off before being outsourced for collection cannot be emphasised enough.

 

In 3 similar examples of consumer credit files, involving 3 different lenders, the security interest was made void on the PPSR (Personal Property Security Register) through their actions. In one of the examples, upon being referred a written off debt for collection we were no longer able to collect the debt at all because of our clients actions.

 

In the most extreme example of what can go wrong in the collection of a debt, upon receipt of a new debt to collect it was noted that debt was secured by a motor vehicle The PPSR reflected our clients interest correctly. We repossessed the security 6 days later. Having waited for the Notice After Taking Possession of Mortgaged Goods to expire, we sought to sell the vehicle through an auction house. The auction house notified us that our client's interest was not listed on the PPSR.

 

We were concerned this was some form of error and immediately checked the PPSR and with our client what had happened. The collections manager informed us that they had done nothing to remove the PPSR listing. However, digging a bit further it was discovered that when a file is written off to a zero balance a report is generated for the loans team for zero balance loan accounts. This report then goes to an operator who is responsible for updating and removing listings on the PPSR. The listing is then subsequently removed, as it was in this case. Once a PPSR listing is removed the security is lost.

 

It got worse. The debtor was under a Part IX Debt Agreement. Our client was not part of the Part IX because of the security interest. In addition to removing the PPSR listing, a paid in full letter was issued to the debtor. The debtor subsequently forwarded this to the Trustee.

 

Putting this example into monetary values;

  • The vehicle was valued at $6,000. Our client was not entitled to any of the proceeds (the car was actually reclaimed by the debtor in this example). 
  • The Part IX debt agreement was for 60% of the value of the debts, our clients 60% equated to over $6,000.
  • Total loss to our client was over $12,000 plus the costs of the repossession.

 

Generally, the three examples of our clients removing their PPSR interest have some form of the following processes in place;

  • A bad debt is written off to a zero balance by the collections team.
  • The collections team puts a flashing file note showing the debt has been written off and outsourced for collection.
  • A report is subsequently generated of loans with a zero balance by a different team.
  • This report goes to a designated person whos role it is to update the PPSR register.
  • Any security interests are removed
  • A paid in full letter is issued

 

We are aware that some of our clients have additional steps in place to prevent this from occurring which include;

  • Changing the address on the debtors file (and making a file note as to why) to a designated internal address
  • The automated report from our understanding is altered, with exclusion criteria around the above designated internal address, such that any zero balance account with this address is not captured in the reporting.
  • Should this not work, and someone still tries to send a paid in full letter, the letter itself gets posted back to the lender, thus the debtor does not received a paid in full letter.


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