Released every month our debt collection blog contains news, stories and tips to keep you informed.
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.
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.
Legislation has been passed which gives the Australian Securities & Investments Commission (ASIC) new powers to regulate this emerging sector. The laws provides ASIC with the power to protect at-risk consumers with James Shipton, ASIC Chair, stating, "These new powers will enable ASIC to take broader, more proactive action to improve standards and achieve fairer consumer outcomes in the financial services sector. This will be a significant boost for ASIC in achieving its vision of a fair, strong and efficient financial system for all Australians."
The reforms will be phased in over a period of 2 years and will require companies to identify in advance if a product is appropriate for a consumer. Read the ASIC media release at 19-079MR ASIC Welcomes Approval of New Laws to Protect Financial Service Consumers
You may recall that in our June 2018 edition we published a blog ASIC Warns Consumers About Credit Repair Services. The article focused on a campaign being run by ASIC that was designed to inform consumers of the high level of fees charged by credit repair and debt relief firms. This month the Consumer Action Law Centre (CAL) has released an article, "Stop Debt Vultures", again highlighting the need for regulatory oversight of this industry.
As indicated in the article the credit repair and debt management firms operate outside of any regulatory licensing with no minimum requirements for competency, ethical standards or licensing. The reality of the situation is that anyone, regardless of their level of education, character or background, can start a credit repair business. In a statement to the media Gerard Brody, CEO of the CAL said, "The promise of fixing your debt worries and getting you back on track just doesn’t live up to reality in our experience. The fact is they can charge hidden and high fees, they can mislead about what it is they can do, and leave people in further debt."
With Australian household personal debt being one of the largest in the world, the CAL are asking that ASIC create a robust regulatory framework to ensure that credit repair and debt relief firms are held to a higher standard.
We will continue to monitor developments in this area.
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."
The NSW State Government has recently announced a new free online legal service to assist people who may be experiencing mortgage stress.
The LawAccess NSW website now provides 2 interactive guided pathways to match people with the information they may need to assist them in resolving issues surrounding mortgage stress or unpaid council rates with another 4 pathways on other topics to come online later this year.
Attorney General Mark Speakman said, "This service is arriving at a crucial time for families facing mortgage stress. The online pathways are convenient and easy to use, with users only needing to answer a few simple questions to get reliable legal information and practical solutions tailored to address their situation. For example, the mortgage stress pathways provide information on budgeting, seeking a ‘hardship variation’ to a loan and tips on avoiding ‘quick fix’ pitfalls that could ultimately cause greater financial pain."
The pathways are a new online resource which makes up part of the NSW Government's $24 million Civil Justice Action Plan which harnesses technology and innovation to make it faster and easier for people to navigate the Court system and resolve their legal issues. Other key aspects of the plan include:
- creating a $1 million Access to Justice Innovation Fund to encourage legal professionals, digital experts and community groups to develop ideas to improve the way legal problems are solved;
- allocating almost $20 million in new funds for community legal centres over the next 4 years;
- expanding the online Court services to allow more people to finalise their case from the convenience of their own PC;
- increasing the jurisdiction of the Local Court's Small Claims Division to hear disputes up to $20,000 (the current limit being $10,000); and
- introducing online guidelines to encourage local and State Government to resolve unpaid debts early including negotiating time to pay arrangements.
Learn more via the Guided Pathways site at LawAccess NSW.
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.
With severe bushfires impacting those in the communities surrounding the Gladstone, QLD region we are granting moratoriums to those in impacted areas.Our staff have been made aware of the impact on these regions however owing to the overall size of the regions being impacted you may still be contacted. Please ensure that you communicate your situation to us if it is safe to do so. Where possible we will attempt to negotiate payment extensions or make alternate arrangements.
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:
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
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.