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At LCollect we believe that knowledge is power. Every month our debt collection blog gives you practical tips, stories and news from around Australia and the world.

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).


Federal Court Finds Against Debt Collection Agency

Thursday, August 30, 2018 - Posted by Michael McCulloch

A debt collection agency who act for Telstra has lost their case in the Federal Court following proceedings being commenced by the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investments Commission (ASIC).

The proceedings, which commenced in June 2016, highlighted the pressure some agencies apply to collect payment including engaging in misleading, deceptive and unconscionable conduct in it's dealings with 2 particular customers.

The first customer, CT*, who was living in a care facility on a disability support pension, after having suffered 3 strokes, received in excess of 60 demands for payment for a debt of $5,770. The Court found that the agency knew of CT's condition, which left him with the inability to care for himself or readily speak, however called the care facility approximately 40 times and sent approximately 20 demand letters seeking payment. Several times CT was threatended with legal action despite the agency not having any plans to follow through with the threat.

In the other matter a single Victorian mother of three, who worked part time and received a Centrelink payment, was demanded to pay $3,150. It was alleged that the woman was told that legal proceedings would be commenced against her and that a payment default would be recorded. The woman in question promised a payment of 50% of the debt in an attempt to avoid legal proceedings, despite this payment leaving her unable to pay rent and meet her other day-to-day expenses.

The Judgment, which you can read online, also criticises the capitalised use of words in demand letters and the use of “the words 'could' and 'may' would reasonably be read in the light of the prominent heading to the pro forma letter, the terms of which strongly suggest that ACM intended shortly to commence legal proceedings .....".

In a statement to the media the ACCC said that they will be seeking Orders preventing agencies engaging in misleading, deceptive and unconscionable conduct and will be seeking for large fines to be imposed.

Source: itnews - July 2018

* Name noted as per the original Judgment


Victoria Plans Crackdown on Debt Collection Industry

Monday, July 30, 2018 - Posted by Michael McCulloch

The Labor party in Victoria has planned a crackdown on debt collection in Victoria if re-elected at the November State election.

news.com.au and radio 3AW 693 are reporting that organised crime groups will be the focus of a planned State Government crackdown on the debt collection industry with Police Minister, Lisa Neville, announcing earlier this month an overhaul of the regulations. In a statement to the media she said, "We'll clean up this industry, like we did with scrap metal - to tackle organised crime and crack down on rogue operators."

The Labor Government, if re-elected, would like to establish a dedicated commission and harsher penalties for those involved in unlicensed debt debt collection in Victoria and would work more closely with the police, Consumer Affairs Victoria and industry leaders to clean-up the industry.

Chief Executive of the Australian Collectors and Debt Buyers, Alan Harriers, said in response, "If they are that [sic] then it's up to Fair Trading to stop them as being illegal persons doing debt collection. I am unaware of any prosecutions against people in this regard. If they were actual proper debt buyers, they would hold an Australian credit licence that is issued by ASIC. It's a very highly regulated industry."

In Victoria there is not a legal requirement in which to hold a debt collection licence.


Cash Converters Fined $650K For Breaching Guidelines

Thursday, June 28, 2018 - Posted by Michael McCulloch

Cash Converters has again found itself in the spotlight for all the wrong reasons with ASIC finding that the company failed to meet regulatory guidelines and breaching the ASIC and ACCC Debt Collection Guidelines.

An ASIC investigation found that the pay day lender routinely breached the frequency of contact guidelines of 3 times per week or less than 10 times a month -

5. Frequency of Contact
(c) Unnecessary or unduly frequent contacts may amount to undue harassment of a debtor. We recommend that you do not contact a debtor more than three times per week, or 10 times per month at most (when contact is actually made, as distinct from attempted contact) and only when it is necessary to do so. This recommendation does not apply to face-to-face contact which is specifically addressed below. 

The investigation also uncovered that a related company, Safrock Finance Corporation (QLD), was also found to have provided incorrect information to a credit reporting agency. The error resulted in 38,500 customer being reported  inaccurate amount owing over a 1 month period. According to ASIC the financier has since worked with Equifax to ensure all incorrect credit listings have been removed.

ASIC has since imposed licence conditions on Cash Converters which includes outsourcing all of their debt recovery to a 3rd party collection agency and must seek consent from ASIC prior to bringing these activities back in-house.

In retribution this time around, Cash Converters has paid $650,000 in community benefits payments to the National Debt Helpline for breaching the Guidelines.

Peter Kell, ASIC Deputy chair, said in a statement to the media, "Consumers expect to be treated fairly and in a manner that complies with consumer protection laws. ASIC expects all financial service providers to have appropriate systems and controls in place to ensure that debt collection practices are consistent with the guidelines. It is also critical that licensees ensure that credit information provided to credit bureaus is accurate."

This is not the first time that Cash Converters has been investigated by ASIC. You may recall that in our May 2017 blog post that Cash Converters were fined and paid $1.35 million in penalties for breaching responsible lending conduct provisions and refunded consumers $10.8 million in fees through a consumer remediation program.

You can download a copy of the ASIC and ACCC Debt Collection Guidelines from their website.

Source: TheAdvisor - May 2018


Finance Broker Pleads Guilty to Loan Fraud

Friday, April 27, 2018 - Posted by Michael McCulloch

A former finance broker has appeared before the Perth Magistrates' Court following charges being laid over giving false information and fraud.

ASIC allege that between January 2013 and April 2013 that Peter Lachlan McDonald of "Get Approved Finance" provided Esanda information that falsely represented consumers. In a statement to the media ASIC said, "...between January 2013 and April 2013, Mr McDonald, in the course of brokering four motor vehicle finance contracts, provided the lender Esanda with information that falsely represented that persons, who had in fact only agreed to be loan guarantors, were the applicant borrowers who would ultimately own the vehicle to be financed."

ASIC went on to say that in 1 case Mr McDonald inserted what he "purported" to be a consumers signature on an extended warranty policy and submitted the documents to Esanda.

Following an investigation by ASIC Mr McDonald was permanently banned in July 2015 from engaging in credit activities and providing financial services with a number of Get Approved Finance Brokers also being banned by ASIC for similar actions. 

We had previously reported ANZ had been found to have breached responsible lending laws with ANZ, the former owner of Esanda, agreeing to compensate more than 70 borrowers a total of $1.38 million for car loans organised by Get Approved Finance.

Mr McDonald has pleaded guilty to the charges and and was bailed to appear on Thursday, 10 May 2018 for sentencing.

Source: Sydney Morning Herald - April 2018


Mortgage Arrears Stable

Friday, April 27, 2018 - Posted by Michael McCulloch

Moody's Investor Services are reporting that home loan arrears tracked by credit rating agencies declined during the June 2017 to September 2017 quarter with half a dozen suburbs across Australia being 30 days or less behind on repayments.

The sample size, which covered $125 billion of mortgages across 2,400 postcodes, showed that Australians on top of their mortgage reside in Carlingford, Crows Nest and Mosman in New South Wales, Bentleigh and Glen Iris in Victoria and Ormiston in Queensland. Darlinghurst, NSW also reported an arrears rate of below 0.1%

Meanwhile Gladstone in Queensland is reporting that nations highest delinquency rate of 4.95% meaning that 1 in every 20 households with a mortgage is in danger of defaulting. Gladstone saw a large population increase owing to the construction of several LNG export terminals however as these projects were finalised unemployment rose substantially. Gladstone wasn't the only town impacted with Alpurrurulam, in the Northern Territory, also being impacted by the mining slowdown with a 30 plus day delinquency rate of 4.95% The sample indicated that properties in Queensland and Western Australia were the hardest hit owing directly to the resource investment downturn and the subsequent fall in housing prices.

Moody's have reported that they believe there will be an increase in delinquency this year (1.45% national average) with a pattern emerging that as property prices fall there is a close correlation with higher mortgage arrears. A spokeperson said, "Softening housing market conditions, particularly in the key states of NSW and Victoria, will drive delinquencies moderately higher. Less favourable income dynamics and ongoing volatility in the resources sector will also weigh on mortgage performance."

Source: ABC News - April 2018


Enforcement of Judgment While EDR Investigates

Thursday, March 29, 2018 - Posted by Michael McCulloch

As you may be aware once a debt has been referred to External Dispute Resolution ("EDR") all collection action should cease pending the complaint or dispute being resolved. What happens though when you have a Judgment and a dispute or complaint is lodged?

Both of the current EDRs in the Financial Ombudsman Service ("FOS") and the Credit and Investments Ombudsman ("COSL") have Terms of Service which clarify their position when it comes to a Judgment with both indicating that where Judgment has been entered they have no jurisdiction but how does this work in a practical sense?

In our quest for answers we reviewed some of the outcomes where Judgment was entered and a complaint or dispute was lodged with an EDR. In our search we came across a Review by COSL in August 2016. The original complaint related to:

  • a Security Certificate breach that appeared on the FSPs website on or around June 2012; and
  • a Default Judgment obtained by the FSP from the Local Court of NSW on or around October 2015 to recover $47,454.49 from the consumer.
The outcome of the review has been transcribed below:

The claim that the FSP committed a breach of the consumer’s privacy by not remedying the security certificate breach
The claim that the consumer’s privacy was breached as the FSP did not remedy the security certificate breach. We would not be the appropriate forum to consider complaints about security certificates. Based on the available information, we consider it more appropriate that the consumer
direct this claim with the Office of the Australian Information Commissioner. The OAIC can investigate privacy complaints covered by the Privacy Act 1988 (CTH) and also complaints relating to handling of the consumer’s personal information by the FSP.


The consumer’s claim that the Statement of Claim was issued to the wrong address despite the consumer updating the consumer’s new address on xx July 2015
The FSP has provided us a copy of the judgment by the Local Court of NSW against the consumer dated xx October 2015 and a copy of the notice dismissing the consumer’s motion to set aside the default judgment dated xx May 2016. A court has ordered that the consumer pay the judgment debt. We cannot deal with a complaint if the subject matter of the complaint has been determined by the court. This is because we are not able to make a decision that would be seen to conflict with a decision of the court. Furthermore, only a court is able to set aside a court’s judgment. If the consumer wishes to set aside the default judgment, the consumer’s claim would be better raised with the Local Court of NSW.

The consumer’s claim that the FSP attended the hearing on xx May 2016 despite being aware of the complaint being open with CIO
We received the consumer’s complaint against the FSP on xx May 2016. When we receive a complaint, the financial services provider is required to cease enforcement action for as long as we deal with the complaint. On or around the same time the consumer lodged the complaint with us, the consumer approached the Local Court of NSW to set aside the default judgment obtained by The FSP. Both the parties attended the hearing to set aside the default judgment on xx May 2016. The court dismissed the consumer’s motion to set aside the default judgment and upheld its original default judgment against the consumer dated xx October 2015. We do not consider that the FSP breached our Rules by attending the court hearing. This is because the FSP already obtained a judgment against the consumer on xx October 2015 and was attending the court to respond to the consumer’s notice to set aside the default judgment. We are unable to find that this amounted to a continuation of enforcement action as The FSP is entitled to defend itself to legal proceedings commenced by the consumer.


With the consumer being unhappy with the Review the matter was referred to the Ombudsman for Determination. The Ombdusman concluded in their Final Decision:

Decision
49. For the reasons set out in the Review and this Determination, I find that the consumer's claims have either not been made out or are outside our jurisdiction.

In summary it is now our opinion having read the Review, Determination and Decision that while enforcement of a Judgment Debt cannot continue while a complaint or dispute is before EDR that if a Defence or a Motion is filed by a consumer in the Court that the FSP has the right to respond to an action raised by a consumer.

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



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