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

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.

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.

Typo Error Results in Creditors Statutory Demand Being Struck Out

Friday, March 29, 2019 - Posted by Michael McCulloch

In a recent matter before the Supreme Court in Victoria a Creditors Statutory Demand has been set aside by the Court on the basis that the demand was incorrectly addressed.

By way of background the Plaintiff, Mills Oakley, commenced proceedings against the Defendant, Assets HQ Australia, in the District Court in NSW and obtained a Judgment in October 2018. A Statutory Demand was issued in respect of the debt for $158,905.67 which remained unpaid. Pursuant to s459C(2)(a) of the Corporations Act a company is presumed to be insolvent if it has failed to satisfy a Statutory Demand within 21 days of service being effected.

In the proceedings Mills Oakley v Asset HQ Australia Pty Ltd [2019] VSC 98, the Plaintiff relied on non-payment as a presumption of insolvency and commenced wind-up proceedings in the Supreme Court however Solicitors for Asset HQ Australia argued that there was insufficient evidence of the Statutory Demand being served. The basis of this argument focused around:

  • the registered companies address being noted as "Pacific Way" rather than "Pacific Highway" on the Demand;
  • the company claiming to have never received the Demand; and
  • the Plaintiff being able to prove that service was affected by Australia Post.
In the decision handed down it was determined by the Court that as there was insufficient evidence of service being effected. The Court was not satisfied that the Demand was served at the Registered Office of Asset HQ Australia and noted in the Judgment:
  • the Demand was not addressed exactly as it appeared in an ASIC search;
  • the claims by the Plaintiff that there was no "material difference" or "practical difference" between "Way" and "Highway" was not to the point. "Way" was not the Registered Office of the Defendant; and
  • The fact that the envelope was not "returned to sender" is insufficient evidence of the Demand having been served.
Judicial Registrar Matthews who heard the matter has indicated he will hear from the parties as to future progress of the matter and Costs.

Use & Access of Electoral Roll Data

Wednesday, February 27, 2019 - Posted by Michael McCulloch

It is being reported by the Sydney Morning Herald that electoral roll data of more than 16 million Australians is allegedly being used by buy now, pay later providers, betting agencies, marketing firms and debt collectors to identify individual consumers.

Data allegedly obtained from a data marketing company, Illion, allows companies such as Afterpay to match identities to addresses as it processes customers. The data is allegedly being accessed under recent changes to the Anti-Money Laundering and Counter-Terrorism Financing Act.

Historically, prior to changes to the way the electoral roll was accessed, the roll was being used by debtor collectors (among others), for the purpose of making enquiries to locate a debtor or verify that a debtor may be residing at an address prior to commencing further action. Changes to the laws prohibited the search of the electoral roll for this very purpose, specifically stating that information contained in the roll is protected information and that such protected information shall not be used for a commercial purpose.

The Australian Electoral Commission would not comment on whether use of the data by the companies involved was appropriate with enquiries being directed to Home Affairs.

In accordance with the Act, LCollect do not access electoral roll data for any commercial purpose and only monitor accounts on legally available search facilities complying with the requirements of the Privacy Act 1988 (Cth).


Federal Court Fines Debt Collection Agency $750K

Wednesday, January 30, 2019 - Posted by Michael McCulloch

You may recall in our August 2018 edition of Debt Collection News that we reported that the Federal Court found against a debt collection company acting for Telstra after proceedings were commenced by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC).

It has now been revealed by Yahoo! Finance that the Federal Court has ordered the debt collection agency involved to pay $750,000 in penalties for intimidation and harassment of the 2 customers who collectively owed $8,920.

The debt collection agency involved in the proceedings was ruled last year to have violated Australian Consumer Law after the ACCC commenced legal action in June 2016 where it was alleged that the agency had contacted a stroke victim on more than 40 occasions demanding payment including 20 demands made by letter despite the customer indicating to the agency that he had difficulty in speaking and could only utter single words like "stroke", "no" and "speech" in an attempt to indicate that he was disabled and unable to communicate.

ACCC Commissioner, Sarah Court, said in a statement, ".... continued harassment and intimidation of a care facility resident who had difficulty speaking after suffering multiple strokes is one of the worst cases of unconscionable conduct we have seen in the debt collection sector .... conduct towards another consumer who was in difficult financial circumstances, which included giving false information and making empty threats of court action, was also particularly egregious."

Commissioner Court went on to say, "Unconscionable conduct such as harassment, intimidation and coercion of consumers is unacceptable to not only the ACCC and the court, but the wider community."

A spokeperson for Telstra distanced the company from the proceedings stating, “collection activity is being conducted on behalf of the new owner, not on Telstra’s behalf” and that the telco sells debt to a third party only as a last resort."


Is It Legal to Charge Interest to a Debt?

Thursday, November 29, 2018 - Posted by Michael McCulloch

It's a question that we come across on a regular basis from our commercial clients and one that is more common than you may think.

Interest is the price (charge) paid for the use of someone else's money. For commercial clients, it is a charge that your clients pay when they don't pay that your invoice by the due date. When they don't pay you on the due date, they are effectively borrowing money from your organisation.

While those in the finance industry often have very well worded Contracts and Terms and Conditions that allow the calculation of an annual percentage rate (APR) many small business owners struggle to understand the requirements and while they understand the practical value of incurring interest they worry about the practicalities of applying additional interest fees or charges to an outstanding account.


Can you charge interest to a debt?

The short answer to this question is yes provided your terms and conditions permit it. There are however strict requirements you must meet in order for your claim for interest to be legally collectable, and we would recommend you seek legal advice to ensure your interest charges are recoverable.



What are the requirements?
There should be a provision in your Contract, Agreement and / or Terms and Conditions for the calculation of interest that the customer has agreed to prior to monies being advanced for the goods or services you have provided. This provision should be easy to understand, outline to the customer exactly when interest charges may apply, how they are calculated, the date that interest may start to accrue on the debt and should be a fair and reasonable rate.


What is a fair and reasonable rate?

A fair and reasonable rate can be difficult to determine however most businesses charge between 5% to 10% per annum. The interest charge should be at a rate that is a genuine estimate of the cost of the late payment to your business (ie your banks overdraft rate). Anything higher than this may not be enforceable. 

The Local Court of NSW currently prescribes a pre-Judgment interest rate of 5.50%. This rate is 4.00% above the cash rate last published by the Reserve Bank of Australia and is reviewed every 6 months. The current rates can be found at Interest Rates Applicable After 1 July 2010.


Should you charge interest?

Charging interest to a debt can have pros and cons, and is ultimately a commercial decision. Where a customer knows that interest may be charged on an overdue account or invoice it is often incentive enough for them to pay on time. On the other hand you may alienate a particular customer who may take their business elsewhere. While you may offer a better product or service than your competitor, applying interest to a debt could be the very reason you lose business.

In a situation like this it is often better to communicate to your customer that their payment is late and granting an extension for payment before charging interest and being flexible enough to agree to waive these charges if a customer can be retained.


Is there a minimum amount I can charge interest on?
In NSW the Uniform Civil Procedure Rules 2005 states the following:

36.7 Payment of Interest
(2) The Local Court may not order the payment of interest up to judgment in any proceedings in which the amount claimed is less than $1,000.


While interest may be charged on a debt less than $1,000, assuming that this is clearly set out in your Contract, Agreement and / or Terms and Conditions, it will, if legal proceedings prove necessary, be at the discretion of the Court as to whether or not interest will be awarded.

Have a question about interest, fees or charges? We recommend that you speak with Collection Law Partners or a qualified legal practitioner.

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

ASIC Provides Transition Relief for CIO Members

Tuesday, October 30, 2018 - Posted by Michael McCulloch

The Australian Securities & Investments Commission (ASIC) has provided transition relief for members of the Credit and Investments Ombudsman (CIO) who are currently awaiting membership certificates to be issued by the new Australian Financial Complaints Authority (AFCA).

In a statement to the media ASIC said, "ASIC understands that some licensees and credit representatives who are members of the CIO scheme have not yet obtained their membership to the AFCA scheme. ASIC understands that this includes licensees and credit representatives who: have lodged an application with AFCA Ltd, but membership has not yet been approved; and have not yet lodged an application with AFCA Ltd."

The initial deadline for licence holders was Friday, 21 September 2018 however ASIC said it would be giving transitional relief to prevent authorisations from becoming invalid due to circumstances however stressed to representatives affected by the changeover delays that they would only be granted relief as long as they ensure that their membership with CIO is maintained. A representative of ASIC went on to say that, "If you are not a member on 1 November, your authorisation will become invalid, and you will need to cease providing credit activities."

ASIC has recently sent a reminder to all financial services and credit licensees to join AFCA which combines the Financial Ombudsman Service, the Superannuation Complaints Tribunal and the Credit and Investments Ombudsman.

Source: TheAdviser - September 2018


Timeshare Lender Fined for Responsible Lending Failure

Thursday, September 27, 2018 - Posted by Michael McCulloch

A timeshare lender, Future Holiday Finance Pty Ltd (FHF) has recently been pursued by the Australian Securities and Investments Commission (ASIC) for breaches of responsible lending practices.

FHF provides finance for the purchase of membership in ULTIQA Lifestyle which is described as a points-based timeshare arrangement with many consumers being approached by employees of FHF providing scratch cards that tells them that they've won a free holiday. After attending a seminar, which is charged at between $20 to $40, consumers were being given the chance to sign-up to a timeshare scheme to enjoy cut-rate prices at major hotels. To be eligble consumers had to agree to enter into a Contract, with what appears to be a cooling-off period of 14 days, and paying between $12,000 to over $25,000 to secure their points and pay an ongoing yearly subscription.

In the action commenced by ASIC it was found that FHF signed consumers up to loans without assessing affordability and a review of the documentation attached to the loan identified potential unfair contract terms.

FHF has been fined and paid a penalty of $135,000 in response to 3 infringement notices and has been ordered to pay up to $3 million in compensation. FHF will also review loans provided to consumers between 01/07/2012 and 30/08/2018 and will provide refunds to customers where the loan was unsuitable. The refund scheme will be overlooked by an indepdent expert who will also assess FHF's compliance with future responsible lending obligations.

In a statement released to the media, ASIC Deputy Chair, Peter Kell, said, "Timeshare finance operators must ensure that they comply with their responsible lending obligations. 'Consumers should always take the time to consider upfront and ongoing costs of timeshare, including finance, given they are a long-term commitment and can be difficult to sell."

Consumers can get more information about the refund scheme by visiting the MoneySmart website.

Source: ASIC Media Centre - August 2018


Limitation Period for Body Corporate Debt Recovery

Thursday, September 27, 2018 - Posted by Michael McCulloch

There has been some anxious times recently for body corporates who have been eagerly awaiting the decision in the Queensland Court of Appeal in Body Corporate for Mount Saint John Industrial Park Community Title Scheme 18632 v Superior Stairs & Joinery Pty Ltd [2018] QCA 173.

In the District Court the Defendant, Superior Stairs & Joinery Pty Ltd (STJ) argued that the action by the Plaintiff, Body Corporate for Mount Saint John Industrial Park Community Title Scheme 18632 (Body Corporate), should be struck out after action was taken for the recovery of unpaid levies, recovery costs and penalty sums on the basis that the proceedings were commenced outside of the limitation period. STJ arguies that the limitation period for bringing body corporate debt recovery action was contained in Section 145 of the Body Corporate and Community Management (Standard Module) Regulation 2008 (QLD) -

Part 4 Payment and Enforcement of Body Corporate Debts
s145 Payment and Recoery of Body Corporate Debts

(1) If a contribution or contribution instalment is not paid by the date for payment, the body corporate may recover each of the following amounts as a debt -
(a):  the amount of the contribution or instalment;
(b) any penalty for not paying the contribution or instalment;
(c) any costs (recovery costs) reasonably incurred by the body corporate in recovering the amount.
(2) If the amount of a contribution or contribution instalment has been outstanding for 2 years, the body corporate must, within 2 months from the end of the 2-year period, start proceedings to recover the amount.

STJ successfully argued in the District Court that the time limit for recovery of a debt by the body corporate was 2 years and 2 months pursuant to s145(2) however the Body Corporate submitted at the time that the time limit was 6 years from the date the levy became due and payable pursuant to Section 10 of the Limitations of Actions Act 1974 (QLD).

 The District Court agreed with STJ at the time however on appeal, the Court of Appeal, overturned the District Courts decision. In the decision Justice McMurdo, Justice Mullins and Justice Bond stated that the issue raised on appeal was not that of conflicting limitation periods but whether or not s145 prescribes a limitation period. The Justices concluded that s145 is to compel a body corporate to commence proceedings but cannot be interpreted as a limitation period and therefore s10 of the Limitiation of Actions Act is the governing legislation (ie 6 years from the date the contribution becomes outstanding).



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