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.
In our August 2018 edition of Debt Collection News we reported that ASIC were recommending reform to the "buy now, pay later" providers such as AfterPay and zipPay.
Following a report from the Australian Securities and Investments Commission (ASIC) it is being reported by Financial Review that the National Credit Code would not extend to the buy now, pay later sector however ASIC are indicating that there will still be close monitoring of those involved in providing the service to consumers.
The report from ASIC identified 3 key areas of focus:
- ASIC states that it will take regulatory action to address misconduct and monitor industry and risks to consumers;
- ASIC is "considering their legal position" of scenarios where a merchant inflates the cost of the underlying goods if a consumer uses a buy now pay later arrangement.
- ASIC is also 'monitoring' the issue of consumers becoming increasingly indebted due to the ability to access an alternate providers where they have missed payments. According to ASIC, each provider reviewed takes some steps to refuse some credit applications eg if a consumer misses a scheduled repayment, five of the six providers suspend that consumer’s ability to make additional purchases until they have remedied the missed payment. However, only one out of six providers in the review examined the income and existing debts held by consumers before providing their services. ASIC also received reports of instances where consumers were allowed to the service despite having limited or no income and substantial existing debt; and
- ASIC states that it expects providers to ensure that:
(a) consumers adequately understand the terms of their arrangement;
(b) a complaints process is visible and accessible for consumers;
(c) consumers understand that they can request financial hardship assistance from their provider; and
(d) merchants act consistently with guidelines supplied by the provider which limit how these arrangements may be promoted and provided to consumers. ASIC writes that 'while we identified instances where providers could have done more, each provider demonstrated a readiness to work with ASIC by improving their practices in response to our recommendations' and that some have already implemented 'several improvements'.
A copy of the report released by ASIC can be read online at Report 600: Review of Buy Now Pay Later Arrangements November 2018.
You may recall in our November 2016 edition of Debt Collection news that there were moves within the Government to crack down on late paying large corporations and Government departments.
It appears that this issue has been raised again with the Small Business Ombudsman, Kate Carnell, telling Fairfax Media that she was again conducting a review of payment times and the impact that this has on cash-flow on small businesses in Australia.
This again follows the Ombudsmans review into payment times last year, which we covered in Australian SMEs Owed More Than $10,000, which identified Australian payment times as the worst in the world with invoices paid, on average, 26.4 days past due. In a statement to the media Ms Carnell said, "It is big businesses using small business as a cheap bank," Ms Carnell said. "It really does slow down the economy. Poor cash flow is the primary reason for insolvency in Australia.”
The recent move by the Ombudsman appears to have been prompted by Small Business Minister, Michaelia Cash, who requested in writing advice from the Ombudsman for advice as to the impact payment practices have on small business. Ms Cash said, "I am still getting reports of payment terms of 60, 90 or 120 days or alternatively loans for extended payment terms. I find that very troubling particularly when cash flow is king for small businesses. It continues to be an issue and we will tackle it."
Following last years inquiry the Business Council of Australia launched a voluntary code to ensure that small businesses were paid within 30 days of an invoice being issued. With, however only 47 of 139 members, subscribing to the Code there is now some consideration being given to passing legislation in which to compel payment to ensure small businesses continue to survive.
A short survey is available online for small businesses to complete about the payment times they encounter.
Do you know when your interest on the Personal Property Securities Register (PPSR) is due to expire?
It can be one of the more challenging things that we come across in the debt collection industry. A customer has relocated several times over a number of years however the debt is believed to be secured by an asset which, if repossessed, may finalise the debt or may entice the debtor to enter into a repayment arrangement which is maintained. Upon conducting a search of the PPSR it's then found that the security interest has lapsed. You now have essentially an unsecured debt with very little or no bargaining power.
While many organations used to employ a specialists securities agents this role has gradually been phased out and is now considered a day-to-day role of administration staff who may or may not keep an accurate register and may not know or realise the implications of the interest lapsing especially where a debt has been written-off. If this sounds familiar did you know that if you have a PPSR login that you can generate a report called Registrations Due to Expire?
The report includes information such as:
In our January 2018 edition of debt collection news we posted an article AfterPay and zipPay Post-Christmas Warning which indicated that Westpac was warning their brokers that these payment schemes must be assessed as a liability when assessing a persons capacity to service a mortgage.
This month the Australian Securties & Investments Commission (ASIC) has come out and released a report "Design and Distribution Obligations and Product Intervention Power"which recommends broadening their powers to cover the buy now, pay later sector which is not currently regulated by the National Credit Code. In the report ASIC noted:
In our April 2018 edition of Debt Collection News we reported that the ABA announced a new Banking Code of Practice which was subject to approval by ASIC.
ASIC has now signed off on the new Banking Code of Practice following an independent review and extensive consultation with the ABA.
The new Code provides for increased protections for small business borrowers and expands the reach and impact of legal protections against unfair contract terms. Expanded protections for consumers included:
The Code will commence operation from July 2019.
Source: Money | Management - July 2018
The Attorney Generals Department has recently released a discussion paper regarding the relationship between consumer credit reporting and hardship.
The purpose of the paper is to examine whether hardship is currently treated adequately under the credit reporting provisions in Part IIIA of the Privacy Act, whether there are opportunities for reform and if so what reforms are appropriate.
The Attorney Generals Department did stress that the paper is not a general review of repayment history information in the consumer credit reporting system.
The Financial Services Royal Commission has recently heard evidence from a widow that the Financial Ombudsman Service (FOS) made a Determination that she should pay her deceased husband's business loans worth $226,000 over a period of 12 to 18 months.
The evidence was highlighted after the widow, Jennifer Low, was pursued by Suncorp for the repayment of business loans that were provided to her and her late husband after a workplace accident claimed Mr Low's life in 2016. It is understood that Ms Low approached the Consumer Action Law Centre for assistance when Ms Low proposed to pay off the outstanding debt over the loans original 17 year term with monthly repayments of $1,111 which was higher than the contractual repayment however FOS declined her proposal.
FOS found that it would be reasonable for Ms Low to repay the loan, interest free, within 12 to 18 months or a maximum of 5 years. During the hearing, Phillip Field, Lead Ombudsman for Banking and Finance was forced to explain his decision where he claimed that he did not want Ms Low to be still paying the debt in her 80's. Mr Field told the royal commission, "What I had in mind was that situation where you had somebody who was in their 60s paying it until they’re 80. And certainly, from my perspective, if a bank were to lend to somebody in that scenario, I would regard that as not reasonable." He went on to say in the witness box, "In hindsight, I don’t think that was the correct thing to do. I think I should have accepted that the [Consumer Action Law Centre] position was correct and then got on the phone to the bank then and there to try and resolve the matter. I should have said that… once the arrears were cleared on — and at the time of that call it was, but provided the arrears — any arrears on the interest-free loan were also cleared, then if she could make those payments, she was entitled to do so and it would be interest-free until it was paid off."
While the Low Family has not yet accepted Suncorp's offer to extend the repayment period to 5 years instead of 12-18 months, Mr Field said that he expects the bank to change their position and allow Ms Low to make monthly principal-only repayments for the duration of the loan as per her original proposal.
Source: mortgagebusiness - May 2018
The Australian Banking Association ("ABA") has recently announced the retail banks wishing to become members will now be required to sign up for the new Banking Code of Practice ("The Code").
The Code, which is currently awaiting approval by ASIC will be binding, enforceable by law and will be monitored by an independent body. The Code, which was originally introduced in 1993, requires retail banks to provide plain English contracts, stop unsolicited offers to raise credit limits, give customers the ability to end credit cards online and inform customers about service fees before they are incurred.
Regulating the Code will be the responsibility of the Banking Code of Compliance Committee ("BCCC") which will have the power to investigate breaches and apply sanctions. The move comes as the financial services industry tries to regain customer trust with the Financial Services Institute of Australasia ("FINSIA") calling for an industry-wide code to restore professionalism among its members as a way of winning back customer trust.
The ABA is looking to implement The Code within 12 months of approval being received from ASIC.
Source: Financial Standard - March 2018
A total of 278,683 Radio Rental leases that led to poor outcomes for consumers has resulted in ASIC pressuring parent company, Thorn Australia, to issue $19.9 million in refunds.
The action comes after ASIC filed proceedings in the Federal Court where ASIC proposed a $2 million penalty in addition to the $11.8 million the company has already refunded to affected consumers for not upholding responsible lending practices. A further $6.1 million will also need to be paid to cover refunds and defaults for 60,000 leases and potentially a further $200,000 more in costs to ASIC.
This is seperate to thet $50 million class action that was filed by law firm Maurice Blackburn in March 2017.
2 of the examples provided to the Federal Court of irresponsible lending include: