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

The Consequences of Bankruptcy

Tuesday, July 30, 2019 - Posted by Michael McCulloch

If you have worked in the debt collection industry for any period of time you would have spoken with people who believe that bankruptcy is the only way out of a financial mess.

While this may be the case for some people, at times they may not be fully educated about the consequences of taking this path with an emotional decision being made rather than a rational decision. We are not implying that it is your role to talk someone out of bankruptcy, however, always ask the person whether or not they understand the consequences of their decision. So what are these consequences?

Bankruptcy Can Impact Income and Employment
A person earning over the indexed amounts may be required to make compulsory payments to the Trustee. The base income threshold amount for a person with no dependents is currently $57,866.90 with the index rising to $78,698.98 for person supporting over 4 dependents. Compulsory payments are calculated by the Trustee and can be paid to creditors to reduce their liability.
While bankruptcy does not stop someone from being employed there are professions that impose restrictions and licence conditions on bankrupts. Some professions do not allow the management of Trust Accounts such as those held by accountants or Solicitors by a bankrupt nor can a bankrupt be a Director of a company, manage a company or hold certain public positions.

Not All Debts Are Released
Most unsecured debt are covered once a person files for bankruptcy however not all. Some exceptions include Child Support, HECS and HELP debts, penalties imposed by Courts and fines. Debts owing to Centrelink, the ATO, Victims of Crime and some toll fines may not be covered and enquiries should be made by the bankrupt to see if the bankruptcy covers them.

A Life on the National Personal Insolvency Index (NPII)
As a bankruptcy a record is maintained on the NPII for life. This is a searchable public register that records insolvency proceedings in Australia.

Obtaining Future Credit
Some creditors ask if a person has ever been bankrupt. This must be disclosed at the time of the application. Credit Reporting Bodies also keep a record of personal insolency for 5 years from the date of bankruptcy or 2 years from when the bankruptcy is discharged by law (whichever is later).
The indexed amounts pertaining to credit limits allow a bankrupt to apply for credit, such as goods or services on credit, hire purchase, leases, etc up to $5,778. Amounts over and above this the bankrupt must disclose they are bankrupt to the organisation providing them with credit.

Restricted Overseas Travel
Planning an overseas holiday? As a bankrupt permission must be sought from the Trustee to travel overseas. It is an offence to travel overseas without obtaining written consent from the Trustee.

Assets Can Be Sold
The Trustee in Bankruptcy may elect to sell assets, including real property, in which to satisfy creditors. Any assets must be declared to the Trustee and these assets must not be disposed of by the bankrupt.

Discharge of Bankruptcy
Bankruptcy usually last for 3 years and 1 day from the date the person files for bankruptcy or, where a creditor commences the bankruptcy proceedings, 3 years and 1 day from the date the Statement of Affairs is filed. In some cases a Trustee may apply to the Court to extend the automatic date of discharge for up to a period of 8 years.

This is not an exhaustive list of the restrictions that a Trustee may impose on a bankrupt. This list has been provided in good faith so that you may better educate people you come across in your day-to-day role about the possible consequences of their decision.

If you have any questions we urge you to speak with a qualified legal practitioner, Trustee or Collection Law Partners.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.


AFCA Averaging 5900 Complaints Per Month

Friday, June 28, 2019 - Posted by Michael McCulloch

The Australian Financial Complaints Authority (AFCA) has recently released a snapshot of statistics following their first 5 months of operation.

The release of these statistics follows an article, 'Appalling Treatment': Bank Customers Making 5,900 Complaints a Month in the Sydney Morning Herald where the Chair of AFCA, Helen Coonan said in a speech allegedly seen by The Sydney Morning Herald and The Age, "Poor culture in financial institutions has been identified as the main culprit that permitted a slew of bad practices, appalling treatment of consumers and small businesses, and in many cases arrogant indifference to regulatory and compliance risk. Now almost seven months old, AFCA is playing an important part in restoring shattered community trust and confidence in the financial services sector."

The statistics show that between 01/11/0218 and 31/03/2019 AFCA -

  • Received 29,873 complaints (closing 55% as of 31/03)
  • Awarded $67 million in compensation
  • Identified 81 system issues that are still currently under investigation
  • Attended and / or held 138 events and meetings across the ACT, NSW, QLD, SA, VIC and WA
  • Received more than 61,237 phone calls; and
  • Had 568,933 visits to their website

Both credit reporting and responsible lending topped the most complained about issues for credit providers (1,935 and 1,198 complaints) with 45% of complaints relating to credit related products. 1,142 complaints were received about debt collectors or buyers however the nature of these complaints were not disclosed.

Download a copy of the full released statistics at Snapshot of AFCA's first five months.

Social Media Complaints and IDR

Thursday, May 30, 2019 - Posted by Michael McCulloch

It is now being widely reported across several media sites, including Money | Management, that the Australian Securities and Investments Commission (ASIC) has issued a discussion document to Financial Service Providers (FSPs) regarding complaints made via social media platforms such as Twitter and Facebook.

It is a move that appears to recognise that there are other channels for complaints to be made meaning that even a single tweet on Twitter could require the IDR process to be applied and legally acted on. ASIC Deputy Chair Karen Chester said in a statement to itnews.com.au, "It is widely acknowledged there is room for much improvement when it comes to handling consumer complaints in our financial system. Consumers expect and need a fair, timely and effective way to have their complaints dealt with, and to be provided redress where appropriate. The absence of such effective redress, and the failure of firms to identify and look into systemic complaints, were key findings of the FSRC and the Prudential Inquiry into the CBA."

The discussion paper, which can be downloaded here, asks contributors several questions including what constitutes a complaint, are complaints made via social media channels dealt with under IDR processes and is the treatment of a complaint handled differently if the complainant is made via an external platform and not the FSPs own social media platform.

ASIC have have indicated that it plans to release the revised regulatory guide by December 2019.

Moves to Track IDR Within FSPs

Thursday, May 30, 2019 - Posted by Michael McCulloch

Mirage News is reporting that the Australian Financial Complaints Authority (AFCA) has welcomed the news from the Australian Securities and Investments Commission (ASIC) that financial service providers will be required to supply standardised data on their internal processes for handling customer complaints.

The proposed standard, which is pending public consultation, will include new mandatory data reporting with FSPs required to meet new standards when a complaint goes through the Internal Dispute Resolution (IDR) process with a view to make complaints handling performance transparent. In making the announcement, ASIC Deputy Chair Karen Chester, said, "It is widely acknowledged there is room for much improvement when it comes to handling consumer complaints in our financial system. The Ramsay Panel Review, recent ASIC research, case studies before the Financial Services Royal Commission (FSRC) and our own supervisory work have all identified shortcomings in consumer complaints handling. Consumers expect and need a fair, timely and effective way to have their complaints dealt with, and to be provided redress where appropriate. The absence of such effective redress, and the failure of firms to identify and look into systemic complaints, were key findings of the FSRC and the Prudential Inquiry into the CBA. With the benefit of broad consultation, ASIC’s new standards will lift complaints handling performance of firms and ultimately consumer outcomes and fairness of the financial system. And transparently so. These standards will also apply in their entirety to all APRA regulated superannuation funds".

In response to the news, AFCA Chief Ombudsman and CEO David Locke said, "Increased transparency is good news. It will help firms to continuously improve, and that will be good for the firms and their customers alike. We also welcome the idea of requiring firms to provide a standard set of data – this will help companies know how they compare to their competitors and help to inform consumers about the companies they’re dealing with. In this digital age, the move by ASIC to require firms to include complaints made on social media platforms, is entirely appropriate".

ASIC has sought public input on the consultation documents by 9 August 2019 and aims to release the new standards in a new Regulatory Guide by the end of 2019. You can find out more and read the media release by ASIC at ASIC Media Release 19-115MR


AFCA Approach to Financial Difficulty - Early Release of Superannuation

Thursday, May 30, 2019 - Posted by Michael McCulloch

Following on from last month where we looked at the AFCA Approach to Mortgagee Sales this month we look at the Australian Financial Complaints Authority (AFCA) approach to Financial Difficulty - Early Release of Superannuation.

The purpose of this article is to summarise the approach AFCA have regarding the early release of superannuation and what lenders obligations are when considering a request from a consumer to support the early release of superannuation.

Grounds for Release
There are 2 primary circumstances where a consumer may apply for the early release of superannuation. These are due to several financial hardship or compassionate grounds (mortgage arrears). A consumer that has been in receipt of a Government support payment, such as Newstart Allowance, continuously for 26 weeks may be entitled to the early release of superannuation on the grounds of financial hardship. A consumer may access between $1,000 to $10,000 once a year and the application must be made directly to their superannuation fund. The payment can be utilised for any purpose and does not require the support of the FSP.
Where the application is being made on compassionate grounds (mortgage arrears) the process is administered by the Australian Taxation Office (ATO). A consumers application to the ATO for payment of mortgage arrears will need a letter from their FSP stating that the amount is overdue and if the overdue amount is not paid by the due date the mortgagee will foreclose or force the sale of the consumers principal place of residence. More information is available from Access on Compassionate Grounds on the ATO website.

AFCA Expectations
There is an expectation from AFCA that FSPs will consider alternatives rather than simply supporting a request for the release of superannuation as the release of superannuation is a last resort. AFCA expects FSPs to take appropriate steps to understand the consumers financial position, decide what assistance it can provide the consumer and communicate its decision to the consumer. 

Factors to Consider
When considering if support should be given for the early release of superannuation the FSP, , should explore all alternative options -
Where it is apparent that the consumer can afford to continue with the contractual repayments but unable to clear the arrears the FSP may consider it more appropriate to capitalise the arrears. 
Where the FSP is unable to determine if the consumer can meet their ongoing contractual obligations it may be more appropriate for the FSP to provide a reasonable moratorium period to allow the consumer time for their situation to improve.
Where it is clear that the consumer will be unable to meet their ongoing contractual obligations supporting a release for superannuation may not be appropriate as any release will only delay the inevitable. In certain situations it may be beneficial for the FSP to allow the consumer time to sell the security property which will preserve their superannuation and may offer some financial relief.

Failing to Meet Obligations
Where AFCA believe that the FSP has failed to meet their obligations AFCA may rule that the FSP has failed to meet financial difficulty obligations under the AFCA Rules. Where the consumer has suffered a financial loss AFCA may award compensation.
Where the FSP has supported an early release for superannuation that AFCA believe inappropriate they will generally not require the FSP to refund the superannuation monies or reimburse any tax paid as a result of the withdrawal of the funds as in most cases the consumer will have obtained the benefit of the funds and will have potentially saved on interest, fees and charges.

To learn more or to read this article in its entirety visit AFCA Approaches - Early Release of Super.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relief on in any way.


AFCA Approach to Mortgagee Sales

Monday, April 29, 2019 - Posted by Michael McCulloch

Recently the Australian Financial Complaints Authority (AFCA) released a series of guides outlining their approach to common complaints. This month we take a look at the AFCA approach to Mortgagee Sales.

Where a consumer (Borrower) is unable to repay a loan a Financial Service Provider (FSP) may elect to take possession of the property to sell it to reduce or payout the loan. AFCA have set out their guidelines as to what a FSP must do when it takes possession and what they will take into account if there is a complaint raised by the Borrower about the sale process -

Reasonable Care
The FSP must take reasonable care when it takes possession to ensure that the property is sold at its market value. The FSP does this by making important decisions at key milestones and oversees the entire sale process.

Consulting the Borrower
The FSP does not need to consult the Borrower about key decisions or the sales process nor is there an obligation to keep the Borrower informed as to the progress of the sale. There is however an obligation on the FSP to communicate to the Borrower when the sale is completed and how the sale proceeds have been used.

Property Maintenance
The FSP generally does not have to spend money to improve the property nor does it need to find new tenants or let existing tenants stay to make money prior to the sale. The FSP however may need to pay for common maintenance issues such as repairing broken windows or replacing locks to secure the property, cleaning, gardening or lawn mowing, repairing pool equipment or fencing a pool if it is required by law before the property can be sold.

Insuring the Property
The FSP should insure the property prior to taking possession.

Market Value
The FSP should obtain at least 1 sworn valuation from an independent registered valuer.
According to the International Valuation Standards Council the definition of "market value" is -
"The estimated amount for which an asset or liability should exchange on the valuation date between a willing buyer and a willing seller in an arm’s length transaction, after proper marketing and where the parties had each acted knowledgeably, prudently and without compulsion."

Marketing the Property
The FSP should obtain at least 1 marketing proposal from a reputable property agent. This proposal should include recommendations on the market value, the best way to sell the property (auction, private sale, tender), marketing and advertising strategy and any work needed to prepare the property for sale such as repairs and maintenance.
Advertising campaigns may include print media, online ads through reputable sites such as domain.com.au and realestate.com.au, billboards at the property, flyers or handbills, contact with potential purchasers through an agents internal marketing list, public inspections or inspections by appointment.
It is at the discretion of the FSP is they advertise the sale of the property as a mortgagee in possession. This may attract more purchasers with the onus on the auctioneer to ensure that the auction generates competition between bidders to achieve a sale at market value.

The Sale Method
In a vast majority of cases the property will be sold an auction with AFCA recommending a minimum 4 week advertising campaign with weekly inspections and inspections on the day of the auction.
If there is advice from a the FSPs experts recommending a private sale the FSP must take reasonable care with marketing and advertising. It must show that it bought the property to the attention of all potential purchasers thus creating competition and achieving market value.
Where the property is being sold at auction all available information should be considered such as valuations, marketing reports and previous offers.

Proceeds of the Sale
All proceeds following the sale must be accounted for and must be explained to the Borrower after the sale has been completed.
Funds from the sale may be used to reduce or payout the debt the Borrower owes to the FSP or other Creditor with a mortgage over the property, pay reasonable costs incurred in taking possession of, maintaining and selling the property.
Any surplus from the sale should be paid to the Borrower. Where the Borrower has loans from the FSP for more than one property any surplus may be used to reduce the balance of the other loan.

Reasonable Costs
The FSP should only do what is necessary to obtain possession of the property. For example if the Borrower is prepared to offer up possession and agreeing to the sale it would be unnecessary for legal action.
Once in possession the FSP can reimburse itself for costs relating to the security, insurance and maintenance of the property as well as the relevant advertising and sale costs including agent commissions.
The FSP, under the Loan Contract or Mortgage, will also usually be allowed to recover reasonable and proper legal costs. The FSP, of course, must not recover more costs than was paid to it legal representative and must apply any discount or rebate to the Borrowers loan.
In the event of a complaint the FSP must provide invoices for all costs it has taken from the sale proceeds.

To learn more or to read this article in it's entirety visit AFCA Approaches - Mortgagee Sales.

Disclaimer: This article is general information only and does not constitute legal advice and is not intended to be relied on in any way.

Unfair Financial Difficulty Policies

Friday, March 29, 2019 - Posted by Michael McCulloch

Case Study - Unfair Financial Difficulty Policies

Issue: There were concerns that a bank's financial difficulty policies and procedures for its home loans were not compliant with section 72 of the National Credit Code (NCC), clause 28 of the Code of Banking Practice (CBP), and the AFCA Approach to Financial Difficulty.

The financial firm’s hardship policies prevented it from offering hardship solutions if a customer had been in long term financial difficulty and had previously failed to adhere to hardship agreements, or where the period of delinquency was significant. This means the financial firm refused to consider options such as a serviceability test followed by a capping arrangement, and instead focused on alternative repayment options which were unaffordable in light of the circumstances.

Outcome: Following our identification of the issue, the financial firm updated its hardship policy to offer more sustainable solutions. This included having practical discussions with customers experiencing financial difficulty to assist them to overcome their hardship.

The firm also offered capping arrangements for investment properties on a case by case basis. Training was provided to the firm’s hardship team to ensure that the updated policies were implemented correctly.

Application: Policies should not automatically exclude a customer from receiving hardship solutions due to long term hardship and issues such as high arrears or long periods of delinquency. Instead, financial firms should assess each request for assistance on an individual basis, and place an emphasis on the customer demonstrating their ability to service the loan.

If a customer has a positive change in circumstances that allows them to restart payments on a loan, they could be offered a repayment trial followed by capitalisation of arrears – the repayment trial could be the usual minimum monthly payment (MMP), interest only payments or loan term extension with reduced MMP.

Alternatively, if the customer has received hardship assistance over an extended period and they are still unable to meet the repayment schedule, then it may be appropriate to decline further hardship assistance, but instead consider other options such as a timeframe to permit the asset to be sold to repay the debt.

This article originally appeared in AFCA News and has been reproduced with the permission of AFCA


AFCA Rules Consultation

Friday, March 29, 2019 - Posted by Michael McCulloch

In our February 2019 edition of Debt Collection News we reported that the Australian Financial Complaints Authority (AFCA) would be looking at accepting complaints dating back to January 2008. In a recent media release AFCA has now confirmed that they are seeking submissions on the proposed changes to their Rules.

AFCA has announced that the proposed change would see a new section added to their rules which solely pertains to legacy complaints and would only apply for the period 01/07/2019 to 30/06/2020 after which time the proposed new section would be removed from the AFCA Rules. A draft of the proposed new section, Section F, has been reproduced below:

F.1 Application of this Section

F.1.1 Legacy complaints will be dealt with under this section of the Rules as at 30 June 2019. All other complaints will be dealt with under the other sections of the Rules that apply as at the date the complaint was lodged.
F.1.2 Legacy complaints will not be subject to the time limits set out in B.4.
F.1.3 In all other respects, Sections A to E of the 30 June 2019 Rules will apply to legacy complaints unless modified by Section F. In the event of inconsistency between the other sections of the Rules and Section F, Section F prevails as it relates to legacy complaints.

F.2 Requirements for Legacy Complaints

F.2.1 AFCA will not consider a Legacy Complaint:
a) unless it is submitted to AFCA between 1 July 2019 and 30 June 2020.
b) about conduct that occurred and ended before 1 January 2008.
c) in relation to which a decision or determination has been made by a court or tribunal.
d) in relation to which a decision or determination about the merits of the complaint has been made by a Predecessor Scheme or AFCA.
e) that has previously been finally settled by the Complainant and the Financial Firm to whom the complaint relates (other than a complaint which can still be made under the Rules).
f) in relation to a superannuation death benefit.
g) that solely relates to a right or obligation arising under the Privacy Act.

You can learn more, read the consultation paper and provide feedback via their consultation page.

AFCA to Accept Complaints Dating Back To January 2008

Wednesday, February 27, 2019 - Posted by Michael McCulloch

Following the final report from the Royal Commission into Misconduct in Banking it has been revealed that the Government is proposing a change to the Australian Financial Complaints Authority (AFCA) Rules which will allow them to deal with disputes dating back to January 2008.

The proposed change would see AFCA being able to investigate disputes about misconduct that have not been dealt with previously by the Financial Ombudsman Service (FOS), the Credit and Investments Ombudsman (CIO) or by the Courts. AFCA has indicated in a media release that consumers and small businesses will soon be provided with information as to the complaints procedure however confirmed that until such as time as the Rules are changed that they cannot consider such disputes.

In a statement to the media AFCA Chief Executive and Chief Ombudsman, David Locke, said, "The announcement from the Government today that AFCA will now be able to consider some of the legacy disputes excluded by the predecessor schemes going back to 1 January 2008, means that many more people will be able to get access to justice and have their matters properly considered. This is a really positive step for consumers and we will be issuing guidance shortly to assist people to bring these disputes to us."

AFCA has also publicly welcomed the Commissioner's recommendation in relation to s912A of the Corporations Act 2001 which will see AFSL holders being required to take reasonable steps to cooperate with AFCA to resolve disputes and release documents.



AFCA Warns FSPs of Bigger Compensation Bills

Wednesday, January 30, 2019 - Posted by Michael McCulloch

Newly appointed Chief Ombudsman, David Locke, has recently announced in an article in the Financial Review that Financial Service Providers (FSPs) that fail to respond quickly to matters brought to the attention of the Australian Financial Complaints Authority (AFCA) may face bigger compensation bills.

Since its inception in November 2018 AFCA claim to have received 11,500 complaints of which 4,000 have been about FSPs. By direct comparison the Financial Ombudsman Service, at its peak, received 2,100 complaints per month.

Mr Locke indicated that responsible lending and misleading sales were among the issues most frequently complained about by consumers and said in a statement, "The volumes of matters coming to us are very high. A lot of people have been treated very poorly by financial institutions over a number of years. The royal commission has shone a bright and forensic light on some issues but most people still feel they haven't been heard or had their matters addressed."

While Mr Locke was unable to provide an actual dollar figure for compensation ordered to date he did indicate that the AFCA cost model is structured so FSPs pay more the longer a dispute goes on so there is an incentive to resolve disputes as quickly as possible.

Of the 11,500 complaints since AFCA came into power 32% of cases have been resolved.



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