Sharkwatch April 2003

NOTES & NOTICES

Internet banking scam

Many consumers have received emails purporting to be from various banks, including the ANZ, Westpac, and Commonwealth banks. These ask consumers to click on a link which will take them to each bank’s website. At the website, consumers are then asked to fill in their account details.

These sites look very much like the genuine bank sites, but are, in fact, all fakes. They all incorporate a cleverly designed web engine which is programmed to capture any account details entered into them, and send them on to the scam’s originators, presumably so that the accounts can be accessed illegally.

In light of this scam, it is wise to advise all clients that they should never follow a hyperlink to a banking site—in order to ensure that they log into the correct banking sites they should only ever type in the full banking site address themselves.

Telstra brochure on low income initiatives now available

Telstra have now produced their guide to the range of low income initiatives that are included in their ‘Access for Everyone’ program (see the February 2003 issue of Sharkwatch for a more detailed analysis of these services).

The brochure is called "Access for Everyone: Your A-Z Guide".

An important thing to note about Access for Everyone is that it was put together in consultation with the Telstra Consumer Consultative Council (TCCC) and the TCCC Credit Management Working Group, both of which include a number of practising financial counsellors. In a very real sense, these initiatives arise as a response to needs identified by financial counsellors and other community groups, and provide services which many financial counsellors will find to be very helpful in their day to day casework.

To order these brochures, contact Telstra Consumer Affairs by telephoning them on 1800 804 591 or by emailing them at consumer.affairs@team.telstra.com.

Back issues of Sharkwatch readily available

Many readers ring requesting back issues of Sharkwatch. We have now published the Sharkwatch issues dating from March in 2000 to the current issue on the Wesley Mission website. These are easily downloadable and printable, and are available at no cost. The location of the website is:

http://www.wesleymission.org.au/centres/creditline/sharkwatch.asp

Past issues are listed on the right hand side of the title page of each current issue, about half way up. These can be accessed by clicking your mouse whilst the cursor is resting on the relevant issue.

An index of topics covered in back issues of Sharkwatch appears later in this issue of Sharkwatch, grouped by subject areas (e.g., all the articles related to bankruptcy are listed together, ditto for debt recovery issues, etc.). See pages 12-14 for the full index.

‘Poverty Lines’ report now available free of charge online

The Melbourne Institute has been preparing and publishing the Henderson Poverty Line since 1973 as the standard reference material for those concerned with social welfare policy in Australia.

The Institute is committed to using its research to contribute to community development and to foster informed discussion and debate.

The quarterly update of the Poverty Line is now available for downloading, free of charge, from:

www.melbourneinstitute.com

Printed copies of the Poverty Line will no longer be produced.

(Reprinted from the FCRP News, March 31st, 2003)

Centrepay

Following is a brief article from Centrelink regarding Centrepay (their free, direct bill-paying service for Centrelink clients). It contains valuable information about the service as well as a useful contact number. Following the article we have printed a short piece about Centrepay that was written by Jan Pentland, and which has its origins in a talk she recently gave at a No Interest Loans Scheme (NILS) conference, at which various Centrepay Officers were in attendance. Jan makes several salient points which stem from a financial counsellor’s perspective.

Centrepay - Making Life a Little Easier

Centrelink has developed an easy way for its customers to pay some of their bills and stay in control of their money. Centrepay is a free direct bill paying service offered to customers receiving Centrelink payments. Through Centrepay customers can choose to have regular money for their phone, rent, electricity, TAFE fees, pharmaceutical costs, dental bills, funeral benefit funds and other services deducted from their fortnightly payment. Instead of having large bills every month or quarter, bills are paid in manageable amounts on a regular basis, making it easier to budget. Gradually more services and utilities are beginning to use the Centrepay. To clarify whether or not a service provider is registered to participate in Centrepay call Centrepay Administration in your State or Territory on 1800 044 063. Customers enquiring about Centrepay should be asked to call Centrelink using the telephone number linked to the type of payment they receive. More information about Centrepay is available at:

www.centrelink.gov.au

The Financial Counsellor’s Perspective

Centrepay

Jan Pentland, Chairperson AFCCRA

Financial counsellors are aware of and appreciate the benefits of Centrepay for Centrelink recipients who want to guarantee payment of essentials such as rent or utilities, or have the convenience of a fee free direct debit. Centrepay and its commitment to no cost access to the system for No Interest Loans Schemes (NILS) has contributed to the on-going success story of NILS and is appreciated. However, the important financial juggling ability of low income people needs to be preserved for that time when the electricity bill doesn't get paid this fortnight because the kid has to have new shoes or illness in the family means medical costs which are a priority. I was pleased to hear from a Centrepay officer that requests for more than 60% of income being allocated through Centrepay direct debits, must be checked and the implications explained by Centrelink before the request is approved. I hope that this is being undertaken thoroughly. Financial counsellors who come across instances where this hasn't happened or pressure from creditors for a Centrepay direct debit has led to an untenable financial situation should follow this through with Centrelink. I'd appreciate it if you would also pass on any instances of this to your state or territory representative so that we can keep an eye on it nationally.

What is a financial service or product?

No wonder it is so hard sorting out pay day lenders and others who claim ‘not to provide a financial service or product’. Tricia Ross wrote to Anthony Beven of ASIC asking for a definition of these terms. Here is Anthony’s reply.

“This will answer your question but unfortunately it will confuse you even further as it is not well drafted. Financial Product is defined in s763A of the Corporations Act (but you must read it in relation to a number of other sections referred to in that section, and the specific inclusions and exclusions that follow s763A). Financial Service is defined in s766A of the Corporations Act (but you must read it in relation to a number of other sections referred to in that section, and the specific inclusions and exclusions that follow s766A) If your brain isn't fried after trying to understand that, well it doesn't get any better. Those above definitions are only for the purposes of the Corporations Act. For the purposes of the Australian Securities & Investments Commission Act 2001, Financial Product is defined in s12BAA of that Act, and Financial Service is defined in s12BAB of that Act. Both definitions are similar but not the same. For what I believe you require this information for, credit is a financial product under the definition in the Australian Securities & Investments Commission Act 2001, but not the Corporations Act. If you want to find the definitions as to how credit does that, then there are further references. You start at s12BAA(7) of the ASIC Act "credit facility" and then you have to then go to definition of Credit Facility in Regulation 2B of the Australian Securities & Investments Commission Regulations 2001 (not the Act, the Regs).”

Bankruptcy Update

Jan Pentland

Implementation of the Bankruptcy Legislation Amendment Act (BLAA)

The Bankruptcy Amendment Bill (BLAB) became the BLAA (Bankruptcy Legislation Amendment Act) when the Bill was passed by the federal Parliament in December 2002. It will be implemented on 5 May 2003. In preparation for the amendments becoming effective on that date, the Australian Financial Counselling and Credit Reform Association (AFCCRA) has provided input to the Insolvency Trustee Service of Australia (ITSA) on the proposed regulation of Part IX Debt Agreement Administrators, the new discretion of Official receivers to reject a debtor’s petition, a review of the Prescribed Information document which debtors are required to read before lodging a voluntary bankruptcy petition or a Part IX debt agreement, and a review of the Statement of Affairs.

Privacy issues raised by Victorian financial counsellor, John Hartnett, and confirmed by the Privacy Commissioner, are being addressed in the Statement of Affairs (SOA) review, and AFCCRA has provided comments. Aside from this, it seems that financial counsellors are reasonably happy with the current SOA, but we have suggested that the ‘gambling and speculation’ tick boxes for Question 2. be removed to be replaced with a tick box for ‘debt collection action’, given that our experience is that collection action is often the final pusher into bankruptcy for debtors. We have also asked that ‘all debts’ be highlighted on Question 40., and that the statement on page 1. about possibly being ‘charged with and offence and imprisoned for up to 12 months’ be softened.

I have also been contacted by ITSA in relation to a proposed new draft Statement of Affairs and Debt Agreement Proposal. The draft was provided to AFCCRA Council members and AFCCRA has just submitted comments to ITSA.

Bankruptcy Reform Consultative Forum

On March 6 David Tennant and I, representing AFCCRA, attended the Bankruptcy Reform Consultative Forum meeting in Canberra. Attorney General Daryl Williams attended the meeting briefly and David and I were able to raise continuing concerns about Part IX Debt Agreements with him on behalf of AFCCRA.

We also acknowledged our support for the current Section 271 Review. AFCCRA is talking to David Bergman, ITSA Policy Advisor, about the process of the Review and I am interested in hearing from anyone who would like to be involved in the consultation. Much of the consultation will focus on legal aspects of Section 271 and I am pleased with the involvement from Gary Sullivan of West Heidelberg Community Legal Service, Penelope Hill from Credit Helpline, David Tennant from CARE Financial Counselling Service in Canberra, solicitors from Wesley Community Legal Service in Sydney, the Council of Gamblers Help Services Victoria and the Interchurch Gambling Taskforce.

A feature of the Forum meeting was the acknowledgement of all present that there is a need for more research in relation to bankruptcy and proposed reform. AFCCRA is particularly interested in current data and research on Part IX Debt Agreements. We also raised concerns about the proposed limited regulation of Debt Agreement Administrators by the Inspector General in Bankruptcy, which will come into effect, together with other changes to the Act, on 5 May 2003, and have subsequently written to Terry Gallagher to express our continuing concerns.

Mortgage broking was another issue of concern to most Forum participants. The ASIC/CCLC Sydney research report has subsequently been launched in late March with significant media interest.

The draft report of the Review of Part X was presented and discussed at the meeting, and AFCCRA has subsequently provided feedback. Contact me if you would like a copy of the final report when it becomes available.

Please contact me on 0407 042 483 or at: janpentland@hotmail.com if you have any queries about any of the above.

Jan Pentland is a financial counsellor at CamCare in Ashburton, Victoria, is the current Chairperson of AFCCRA, is a consumer representative on the Australian Securities and Investment Commission’s Consumer Advisory Panel and sits on the Victorian Financial and Consumer Rights Council Co-ordinating Committee. Phew!

Round Up

Queensland

A new service opens at Mackay

The Mackay region, with a population of approximately 140,000 (80,000 live in Mackay itself), is a large area on the mid Queensland coast. Non-farm-based Mackay residents have never had access to a local financial counselling service, with the nearest financial counsellors being Saskia ten Dam at Townsville (400 kms North) and Margaret Clements at Rockhampton (326 kms South).

It is a great boon to the people of Mackay then, that the George Street Neighbourhood Centre Inc. commenced a new financial counselling service in September, 2002. Called the Mackay Regional Financial Counselling Service (MRFCS), this was originally staffed on a voluntary basis, but with new funding from the Gambling Community Benefit Fund (Qld), has been able to employ a full time coordinator/financial counsellor from March this year.

At the helm is Carol Wakefield, who has tertiary qualifications in Business Accounting, has worked at length in the Mercantile Industry, and has more latterly become accredited as a financial counsellor. During her relatively short time at MRFCS, Carol has seen the demand for her service grow considerably, and anticipates a busy time ahead.

For more information about the service, Carol can be contacted at:

Carol Wakefield
Mackay Regional Financial Counselling Service
PO BOX 4112
South Mackay, Queensland, 4740
Ph. 07 4957 2626 Fax 07 4957 6728
Email: mrfcs.gsnc@orion-online.com.au

Victoria

Fines and bankruptcy decision pending

Kit Hauptmann from the Financial Counselling Rights Service in Victoria recently reported on the appeal by the Victorian Government in relation to bankruptcy and fines. Kit reports that the full bench (three Judges) of the Federal Court sat on the 25th February 2003 to consider the appeal, lodged by the Victorian Government, against the decision handed down by Justice Merkel on the 27th September 2002, allowing PERIN fines to be provable debts under bankruptcy. PERIN is the computerised court process in Victoria for parking and traffic fines, etc. The decision may take several months to come down. Meanwhile, action on PERIN fines identified on a bankrupt’s Statement of Affairs is being stayed awaiting the outcome of the appeal.

South Australia

Port Adelaide Central Mission (PACM) is looking for a Financial Counsellor/No Interest Loans Scheme Coordinator. Applicants must be accredited by SAFCA (the South Australian Financial Counsellors’ Association), and should have values consistent with those of the PACM. Desirable personal characteristics include self-motivation, enthusiasm, flexibility, creativity, the ability to work with limited supervision, highly developed interpersonal and communication skills and the ability to work within the team at PACM. A drivers licence is essential, and applicants should have financial counselling skills and experience, the ability to develop a new program and implement policies and procedures, and a good working knowledge of the pattern of services available to persons on low incomes. The position is for 3 days (22.8 hrs) per week. Applications are due by 23/5/03 at 4.00 p.m., and should be addressed to:

Judy Stacey
Manager Port Mission Family Centre
PO Box 3032
Port Adelaide, South Australia, 5015.

Job descriptions are available from Margaret Galdies, by phoning her on (08) 8440 2286, or emailing her at mgaldies@pacm.com.au

Any contributions to “Round Up” would be most welcome. Our aim is to include some news from each state and territory. Contact Wayne Warburton on 1800 647 409 if you have anything you would like to have included. Alternatively, you can email to: wayne.warburton@wesleymission.org.au

AFCCRA REPORT

News, views and information on what’s happening in financial counselling around Australia.

Jan Pentland, Chairperson

AFCCRA Council

AFCCRA, the Australian Financial Counselling and Credit Reform Association is the national association for financial counsellors. The AFCCRA Council has met by teleconference in February and April. The Council welcomed John Haywood as the new representative for NSW, Ann Elder for Western Australia and Jackie Harris for the ACT. It was with regret and best wishes for the future that we farewelled David Tennant (ACT), Elizabeth Terry (NSW) and Tania Buck (WA) with appreciation for their contributions.

A broad exchange of information on financial counselling issues was discussed. Good news that a Payday Lender which had commenced operations in the Northern Territory last year has been closed down by Consumer Affairs after more than 50 breaches of legislation were identified. Congratulations to the ACT on the establishment of a Consumer Law Centre co-located with CARE Financial Counselling Services in Canberra. Concerns in relation to debt collection practices and a 28% rise in electricity prices were expressed from South Australia. The Radio Rentals rent-to-buy scheme being trialled in Tasmania was discussed, including feedback from a recent meeting of several consumer advocates under the CFA banner with Radio Rentals/Thorn Australia. This meeting gave Thorn an ultimatum about withdrawing this unconscionable product and we await further developments. Case work and policy work on debt collection, credit reporting, utilities, and bankruptcy reform continues across the country.

Bankruptcy Reform

AFCCRA continues to prioritise bankruptcy reform, and is, or has recently been, involved in the Review of Part X, Review of Section 271 in relation to gambling, and the clarification of Centrelink debts in bankruptcy. With the implementation of the recent amendments to the Bankruptcy Act on 5 May 2003, we have also been involved in reviews of the Prescribed Information from ITSA and debtors Statement of Affairs, new discretion of Official Receivers to reject a debtor’s petition, and drafting of regulations for Part IX Debt Agreement Administrators.

Funding

On March 5, AFCCRA Council members Jan Pentland and David Tennant met with Francis Foo, Assistant Director of the Financial Counselling funding program in the Commonwealth Department of Family and Community Services. Francis confirmed the Department’s commitment to funding financial counselling and to the community based, fee-free service delivery model. The Financial Counselling Program within FACS is now co-located with the Emergency Relief Funding Program, enhancing relevant discourse across issues related to low income people. AFCCRA will be responding to the FACS Discussion Paper on the Emergency Relief Program.

ASIC

As consumer representatives on the ASIC Consumer Advisory Panel, David Tennant and Jan Pentland take the opportunity to raise financial counselling issues in that forum. They are also seeking to clarify with ASIC, the position of financial counsellors in regard to ASIC’s licensing obligations for providers of financial services under the Financial Services Reform Act.

Telecommunications

AFCCRA continues to be involved in telecommunications issues through its representatives on various forums including the Telstra Consumer Consultative Council (Lola Mashado); the Optus Consumer Liaison Forum (Anne-Marie Paulsen); the Consumers Telecommunications Network Council (Loretta Kreet); and the ACIF Review of the Credit Management Code of Practice (Betty Weule). These representatives report back to the AFCCRA Council and through the ‘AFCCRA News’ which is published twice a year.

If you would like to discuss any of the above, please contact Jan Pentland on 0407 042 483 or at janpentland@hotmail.com

The Law Matters

by Richard Brading
Principal Solicitor
Wesley Community Legal Service

The New Comparison Rates

The Consumer Credit Code has finally been amended to require the use of comparison rates from 1 July 2003, in the following:

In advertisements for fixed term credit which quote an annual percentage rate, and
In “schedules” which are to be made available to consumers at the time they apply or inquire about a particular loan.

However, continuing credit products, such as credit cards are not required to provide a comparison rate.

Comparison rates must be accompanied by this warning:

“WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.”

What is a comparison rate?

The main difference between the comparison rate and an “ordinary” interest rate is that the comparison rate attempts to incorporate all credit fees and charges that are ascertainable, such as establishment fees and account maintenance fees. The comparison rate does not include government taxes and possible enforcement charges such as collection fees.

The quoted comparison rate has to be calculated for a range of “typical” loan amounts and loan terms. Loans under $10,000 are presumed to be unsecured, and loans over $30,000 presumed to be secured. In between, the lender must state whether the loan is to be secured or unsecured.

A complicated formula is set out in clause 33F of the Consumer Credit Regulation 1995. The comparison rate must be accurate to 0.01% p.a.

Why have a comparison rate?

Comparison rates are designed to force lenders to disclose a more realistic interest rate so that potential borrowers can compare competing loans.

The comparison rate was debated over the long years while the Consumer Credit Code was being developed and the finance industry continued to stall it for another 6 years. Until now, lenders have been able to offer ‘bait’, such as attractive introductory interest rates, and have been able to load up low interest loans with establishment fees, account-keeping fees and more to get customers in the door.

Will it help consumers?

The fact that the finance industry stalled the Code for so long indicates that there may well be real benefits for consumers. But there are a number of loopholes. The main one is that any credit advertisements that do not provide an interest rate do not have to provide a comparison rate. This means that a credit provider can make general claims such as “low rates”, or quote a bait repayment amount like “payments from $5 a week”, without needing to disclose the comparison rate.

Undoubtedly many credit providers will offer bare bones loan products with very low advertised comparison rates to get customers through the door, but these will have onerous restrictions so only a few customers will be eligible, while the others end up with more expensive loan products.

Where a credit provider fails to comply with the new rules regarding comparison rates, the Consumer Credit Code provides for enforcement by the Fair Trading Department or possibly a claim for compensation by consumers.

When is Pawn Regulated by the Code?

Moore v Fast Access Finance

In May 2001, Mr Moore saw an advertisement in a local paper offering finance with same day approvals. As he had a mobile phone bill that needed paying he called Fast Access Finance and then attended their office at Lismore. He spoke to one of their loans operators, who obtained details of his income, outgoings and assets, and told him that he was eligible for a $300 loan. He was told that the interest rate was 20% per month but did not really take in the meaning of this. He signed the papers and understood that his car was to be security for the loan.

Mr Moore paid off the first loan in a few weeks and then sought a further loan of $500 from Fast Access Finance. After he made a first payment of $70 he received a statement showing a balance of $502.47. He then had another look at the loan documents and saw the interest rate was 240% per year. This caused him some concern, so he contacted a local financial counsellor who referred him to Paul Batley of Legal Aid for assistance.

The case was heard by the N.S.W. Consumer Trader & Tenancy Tribunal who provided a decision on 23 December 2002 (available on http://www.austlii.edu.au).

The main issue was whether the Fast Access Finance loan was excluded from the Consumer Credit Code under s.7(7), which exempts credit provided in the ordinary course of a pawnbrokers business.

In N.S.W. a "pawnbroker" is defined by the Pawnbrokers and Second-hand Dealers Act 1996 as "a person who carries on a business of lending money on the security of pawned goods." The papers signed by Mr Moore correctly stated that Fast Access Finance was a licensed pawnbroker.

However, the Tribunal held that the provision of credit to Mr Moore was not provided in the ordinary course of the pawnbrokers business. The Tribunal held that the 2 loans were not pawnbroking transactions but rather the provision of credit through securing mortgages over Mr Moore's car. It was not pawned because Mr Moore was still driving the car around. Ordinarily a pawnbroker takes actual possession of the goods that are pawned and then sells those goods if the loan (& interest) are not repaid. Any shortfall after the sale of the pawned goods cannot be collected from the borrower. Fast Access Finance had not taken possession of the car so it was not a pawnbroker's loan and therefore the loan was deemed to be regulated by the Consumer Credit Code.

As well as taking "actual" possession of the car, Fast Access Finance could have taken "constructive" possession, according to the Tribunal. This is a bit of a worry, as "constructive" is an artificial sort of legal creation which may allow other pawnbrokers to succeed where Fast Access Finance failed. The Tribunal did not say what "constructive possession" is, only that it requires some sort of "overt conduct", so that a simple book entry or something similar is not sufficient to give constructive possession.

The result was that the loan transaction was found to be regulated by the Code and a contravention of the N.S.W. interest rate limit of 48% p.a. (cl.7 Consumer Credit (New South Wales) Special Provisions Regulation 1996).

The Tribunal imposed a civil penalty of all the interest charges under the first contract ($44) and the second contract ($283.45). However Mr Moore was still required to repay the application fee of $30 and the principal of both loans.

Sold debts

It is becoming increasingly common for large companies to sell their debts to collection companies such as Lion Finance, Baycorp Advantage, Dunn and Bradstreet, and others, always for a fraction of their worth. Recent debts (e.g., debts less than 12-24 months old) may attract as much as 11 or 12 cents in the dollar, but old debts sell for tiny sums that may be 1 cent in the dollar or less. Typically, large amounts of interest and other ‘charges’ are then added to the original sum by the debt’s buyer. Collection agents usually pursue such debts vigorously, even though a tiny return from the debtor will usually net them a significant profit.

One tactic being employed by agents who have bought very old debts (i.e., debts that may be outside the limitations statutes for their particular state and which are very cheap to buy), is to contact the debtor in the hope that the debtor will offer some indication that they remember the debt. Agents listen carefully for the debtor to make a statement like “I haven’t heard about that debt for years”, or ‘wasn’t that paid years ago?”. Generally speaking, despite differences in the limitations Acts in each State and Territory, statements of this type can usually be legally construed as an acknowledgement of the debt, and such an acknowledgement can then be used to reactivate the debt as if it were current. For this reason, if a debtor responds to this type of call with any indication that they have knowledge of the old debt, the collection agent will normally follow up the call with a letter telling the client that the debt has been acknowledged and is thus current, and asking for full repayment of the amount owed. Legal recovery procedures are also threatened, should the debtor fail to pay within a certain time.

Such debts have usually blown out hugely (in one case a 17 year old, $600.00 debt was now valued at $15,000.00+ with cumulative interest and charges), but can often be settled for a reduced lump sum (say 15-20 cents in the dollar). This means that for a $500.00 debt which has blown out to say $3,500.00 with interest and charges, and which was probably purchased for less than $10.00, the creditor might now accept, say, $700.00 as a full and final settlement. Not a bad days work for a phone call and a couple of letters. If the debt goes through to judgment, their return may be even greater. And of course, some debtors will just pay the debt in full to get the collector of their backs.

Counsellors should inform their clients of the ramifications of acknowledging their old debts if they receive such a call, and should also advise them of appropriate alternative responses they might use if a debt collector rings about an old debt. If the client has acknowledged their old debts, and they did truly owe the money, there is little that can be done to deny responsibility for these debts—the statutes would usually no longer apply—but there are strategies that can be used to minimise how much they will have to pay. The most obvious is to negotiate a reduced lump sum payment with the new debt owner. You can make it clear to the creditor that you understand how small a return they need to cover their costs and make a fair profit, and, by providing evidence that your client has a minimal capacity to repay, you may be able to convince the creditor to accept quite a small return, especially if bankruptcy is on the cards. Generally speaking, lump sums seem to be preferred to repayment plans by most collectors who buy debts.

Some counsellors have adopted the strategy of telling the creditors to ‘go jump in the lake’ when presented with a claim for a very old debt. Whilst this has sometimes worked, my fear is that such a strategy could lead to the client eventually receiving a Statement of Liquidated Claim against them for a very inflated amount of money, and that the legal system could then be used to recover this large sum after the debt goes to judgment.

It should also be noted that one of Australia’s largest debt sellers, Telstra, has a stringent code of conduct for debt buyers, and will not allow them to add interest to purchased debts. If you have a client with a debt that has been onsold by Telstra, and which is being collected in an unethical way or which has had interest or undue charges added to it, you should contact Telstra (see Sharkwatch, April 2001, pp 14-15, for contact details).

There is no doubt that financial counsellors will find many creative ways to deal with such situations, and we at Sharkwatch are most interested in hearing from readers about their solutions for dealing with sold debts. With more and more large companies aggressively selling their debts (often after less than 18 months), this is an issue that will grow in importance and prevalence, and the more strategies financial counsellors have for dealing with sold debts the better.

In the Media

National Australia Bank Outsources Debt Recovery

Original article by Anthony Hughes

Paraphrasing and Comments by the Sharkwatch Editorial Team

The National Australia Bank (NAB) decided early in April to outsource its debt recovery operations. This means that monies owed on NAB mortgages, credit cards and personal loans will all be collected by external agencies.

In a recent Sydney Morning Herald (SMH) article, the writers expressed concern that the NAB’s strict performance criteria for these external agents would ‘make the contracts unprofitable’. Specifically, the SMH suggests that the agents will be expected to produce a return of 24% for the NAB, even though 10% has been a more realistic figure historically.

The two successful tenderers (Dunn and Bradstreet Australia and RMG collections) had not commented on these criteria at the time publication.

The NAB has had thirteen debt recovery agents originally, and had hoped to pare this down to three with its new policy. According to the SMH, however, the NAB has had to settle for two agents, because no other agents could be found who would adhere to their performance criteria.

This development is of interest to financial counsellors because it suggests that collectors such as RMG and Dunn and Bradstreet are going to have to push NAB debtors very hard in order to recover enough money to satisfy their contracts with the creditor, and may be more reluctant to enter into informal schemes of arrangement for repayment. If this approach by the NAB is adopted more widely, and becomes a trend in the industry, it could mean tougher times ahead for financial counsellors.

Sydney Morning Herald, 29th April, 2003.

Loan Brokers Rapped: Excessive Fees and Poor Service Found

Original article by Gay McNamara

A new report has detailed serious problems with mortgage brokers, who arrange one third of the nation’s home loans, worth more than $76 billion.

The NSW Consumer Credit Legal Centre reports has found problems with undisclosed commissions, excessive fees, poor advice, inappropriate loans, fraudulent mortgage applications, and fly-by-night operators. It prepared a report for the Australian Securities and Investments Commission (ASIC) following an increase in complaints about brokers.

It found there was no guarantee that consumers using a broker would receive the cheapest or most suitable loan—instead they could be in a worse position because there was limited recourse to resolve disputes.

In extreme cases, pensioners had lost their homes after they consolidated relatively minor debts with an expensive interest-only loan secured by their house.

West Australian, 27th March, 2003

Consumers Rack Up Record Debts

Original article by Michael Weir

There were fresh fears yesterday about the potentially crippling levels of debt being taken on by Australians after the release of figures showing personal borrowings soared to record highs in December. … The results came as Australia’s bankruptcy watchdog released new figures showing a fall in conventional bankruptcies but a 48% surge in art IX debt agreements used by consumers with credit card problems and small debts.

West Australian, 18th February, 2003

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