Sharkwatch January 2004

NOTES & NOTICES

Telstra doubles penalty for overdue accounts

Telstra will double the financial penalty for late payment of some accounts from March, 2004.

In the past, Telstra have charged a $5.50 penalty fee for accounts above $55.00 that are 14 days past the due date. This system was used as a deterrent for the 46% of commercial customers and 37% of domestic customers who did not pay their bills on time. Telstra has estimated that late payments cost them about $75 million per year for reminder notices and other follow up measures.

The introduction of the fee however, whilst somewhat effective initially, has not had the required deterrent effect in recent times (i.e., the amount of late payers dropped somewhat but has now substantially risen again). This is possibly because not enough customers knew about the fee, or because customers just used the fee as a credit charge that bought them extra time to pay. For this reason, Telstra plans to introduce a new higher fee in March, 2004.

The new schedule applies to accounts that are:

Not disputed
14 days past the due date
Commercial or domestic

The planned schedule of penalties is:

$0.00 for accounts less than $65.00
$5.50 for accounts between $65.00 and $130.00
$11.00 for accounts of $130.00 and above

The fee can be waived in certain circumstances:

Fees can be waived once per annum by a member of the Telstra credit management staff
The fee can be waived if a payment has been delayed
The fee may be waived if a customer agrees to pay future accounts by direct debit
The fee may be waived in circumstances involving financial hardship
The fee may be waived where a financial counsellor contacts Telstra on behalf of the client and facilitates an arrangement for payment.

For more information go to www.telstra.com.au

Australia wide survey on debt collection practices

Do you have clients who:

Have been unduly harassed, misled or coerced by creditors or debt collectors?
Have been threatened by debt collectors to list a default on their credit report? - Have only recently been pursued for very old debts?
Dispute the existence of a debt? Have been chased by debt collectors for debts they don’t owe?
Have had their indebtedness revealed to their friends, relatives or employer by a debt collector?
Have not been able to make a reasonable repayment arrangement?
Have been threatened with the sale of their car, possessions, property or ‘that’ belonging to their spouse or other family members?

The Consumer Credit Legal Centre (NSW) and the Australian Consumers Association (ACA) would like to invite community legal centres and financial counsellors to encourage their clients who have such problems to complete a debt collection survey over the phone by ringing (02) 9212 4111 or by logging onto www.choice.com.au (follow the link). The survey will take place from Feb 10 – 17, and is available between 9.00 am and 9.00 pm weekdays.

Participation in this survey will assist us to obtain an accurate picture of the extent of unfair and illegal procedures adopted by debt collectors. This will help us formulate policy recommendations and lobby for reforms to ensure fair debt collection procedures in the community. Unfortunately we cannot offer a 1800 number but we can arrange to call back consumers who are calling from Interstate or from Rural/Regional NSW.

For more details, contact Karen Cox (02 9212 4949).

The Newest Debt Strategy: Internet Begging

Wayne Warburton

‘Internet begging?’, I can hear you say. What is that? Well, as it turns out, it was the strategy that Karyn Bosnak, a spend-up-big New Yorker, used to repay all of her debts. In a nutshell, Karyn used her website, savekaryn.com, to ask the public to help her pay almost $30,000 in debt, accumulated through high living and extravagant shopping sprees. Interestingly, the public responded with surprising generosity. Money poured in, and Karyn, now a minor celebrity, is not only debt free, but is probably heading towards becoming wealthy from her numerous public appearances, a possible movie about her life, and sales of her book, Save Karyn, which continues to ride the best-seller lists.

Her story is nothing short of remarkable, and although I have my doubts that such a strategy would work nearly as well for those who would follow in Karyn’s footsteps, the financial counsellor’s instincts in me have been roused to consider the possible outcomes that such an approach might have brought to some of my own clients.

So — how did Karyn go about the task of eliminating her personal debt and setting herself up nicely along the way? Was it simply by asking others to pay her debts and then writing a best-selling book about it, or was there more to it? Here is Karyn’s story and a brief analysis of her success.

Karyn’s story

Karen Bosnak: Picture from her website

A trip to Karyn’s website these days will show the message “Thanks to you I don’t need to be saved any more”, along with details of the many ways that you can purchase her new book (well there’s a clue—shameless self-promotion may have helped). However, things weren’t always as rosy as they are now.

Between May 1999 and June 2002, Karyn, who is now 31, racked up almost $30,000.00 in debts, through living the high life — Prada shoes, Gucci bags, expensive clothes, $500.00 hair cuts, pedicures, exotic cocktails, high priced restaurant meals and even a personal trainer.

This was a pattern not unfamiliar to Karyn, who claims to have ‘always been bad with money’, and to have desired ‘nice things’ even as a child. She speaks of her adult spending in terms of being an ‘addiction’, and, although she is unlikely to get too much sympathy for being a ‘spending addict’, her later life fits the pattern known only too well to financial counsellors. Karyn offset feelings of insecurity and inadequacy when she moved into the ‘big time’ world of daytime television by spending increasing amounts of money. A whole raft of justifications for her actions followed, and, as her spending behaviour became more and more out of control, the justifications for it became less and less rational. Karyn says “shopping became my reward. I felt I worked so hard I deserved to get a massage or my hair done. I deserved it all. I became overwhelmed by the mess I was in” (Marinos, 2003, p. 16).

Despite a huge income ($143,000.00 per year!!), it became more and more obvious that Karyn’s spending was getting her into serious trouble, with her levels of debt continuing to rise out of control. Karyn tried a number of questionable strategies to turn things around. For instance, she would buy items and return them a few days later. The full cost of the returned items was credited to her card account immediately, but the initial cost of the items was not charged to the card till the following month, giving the net impression that she had credited money to her account. While this may have kept the creditors at bay, it added to the long term problem by allowing Karyn to keep spending and spending.

Then disaster struck: she lost her high-paying job as a daytime TV Producer. Her subsequent job was in the same industry, but paid only a fraction of what the old did, and so there was very little left after the rent and utility bills were paid.

By June, 2002, Karyn owed almost $30,000.00 and had hit rock bottom. She started to desperately try to gain control of her finances, by spending on nothing but essentials.

One day, at her local supermarket, she came across a sign asking shoppers if they could help a person with a $7,000.00 debt by donating money. This happenstance got Karyn thinking — what would happen if I tried the same thing using the internet? Karyn set up a website in June, 2002, and, reasoning that she would have a better chance of success by asking for small amounts, asked people only for “an extra buck or two”.

The rest, as they say, is history. Money started coming in — usually amounts between $1.50 and $7.00. Karyn kept people interested by posting weekly totals and giving hilarious accounts of the desperate things she was doing to save a dollar here and there. Karyn’s efforts quickly gathered public notoriety: her website was listed on the popular USA Today website within weeks, and the Today show interviewed her soon after that. The trickle of money became a flood. In just 20 weeks, her website had 2 million hits and by November the 10th, 2002, her debt was paid off! Not only that, but in the meantime, Karyn had also been offered six figures for the movie rights to her story, and had signed up to write a book about her experiences. No doubt Karyn Bosnak will be wealthy one day, but for the moment, she claims to still be following a budget.

Why did it work?

There are a number of factors that may have contributed to Karyn’s success:

Repentance. People can identify with someone who has made a mistake and admitted it, but don’t like someone who they feel is not being fair dinkum about themselves. When another is repentant about a mistake, it allows us to take the high moral ground or to feel better about or own behaviour. For these reasons, we are much more likely to condemn someone who does not admit their failings, but be generous to someone who does.

Attractiveness. It is a sad but true fact that people are more willing to help an attractive person than a less attractive one. It is a human trait to believe that those we find attractive are more intelligent, more kind, more skilled, more interesting and more motivated by altruism than they really are. Also, people tend to put a positive spin on an attractive person’s behaviour. Karyn seemed to be quite careful to manage her public image well, by presenting her physical features to best advantage and portraying a bright and bubbly disposition.

Realistic demands and easy to help. Karyn didn’t ask too much of people — just a dollar or two — so people didn’t feel they were being taken advantage of. Interestingly, people did only give small amounts — usually less than $7.00 — but plenty of people were willing to do that. Also it was easy to pay those small amounts using the various payment systems Karyn made available. Often people would like to help another, but it is too much hassle in practical terms. By making it easy to pay, Karyn received help from those who would not have helped if it was more trouble to do so.

Honesty. Karyn was honest about how she got into the mess and about what she was doing with the money she received. In her “Daily Buck” updates, she was equally honest about going to restaurants as she was about her frugal attempts to make ends meet. This gave people the confidence to trust her, and a sense that they were a genuine part of her life rather than being conned.

Responsibility. Karyn took responsibility for her actions and for fixing up the mess that ensued. People like to see another person ‘get in and get it done’ and will often offer their own help when they see that the other person is really trying to do something positive about a problem.

Shameless self-promotion. It appears to me that Karyn also single-mindedly pursued her own self-promotion. This kind of ‘front’ doesn’t come easily to most people, but may be an important factor in raising public awareness about a problem. Unless people know you need help, they won’t be able to give it. It is as simple as that. By making sure that as many people as possible knew about her problem, Karyn maximised her chances of getting others to help her.

Could a financial counsellor use a similar strategy?

Now there’s a question! Would Australians respond to internet begging? It certainly could have helped some of my clients in the past.

I suspect that the answer is yes, but there are a number of things that would probably need to happen first. The campaign would need to be well publicised, the client would have to present him/herself as being repentant, honest and responsible, and there would have to be an easy way for people to assist with a minimum of effort. It would also help if the client had a public image and personality that could capture the imagination and sympathy of those who heard their story.

By and large, Australians are a generous people who like to help. Every time Ray Martin reveals another Aussie battler in strife, many people are moved to dig deep and assist them. I see no reason why this couldn’t happen for our clients too. It certainly bears thinking about.

Telstra’s New Campaign: Customer Credit Awareness

Wayne Warburton

Telstra, who have been quite pro-active in their reform of credit management practices in recent years, have put together a package of options and policies designed to facilitate better credit management by customers. These are being put to the public under the banner of a new community awareness campaign called Stay Connected, which, Telstra says, aims to ‘help all customers understand the range of payment and account management options Telstra offers’.

The campaign will kick off in mid-January with a brochure detailing account management options being sent to all Telstra customers. This will be followed in February, March and April with a brochure being inserted into all reminder notices. In the meantime, Telstra will be launching their Stay Connected website and contacting key welfare and community organisations about these initiatives.

Here is a brief look at some of Telstra’s new initiatives:

Telstra to make a courtesy call when phone use jumps

This reform has been discussed for some time by consumer and financial counselling representatives on the Telstra Consumer Consultative Council (TCCC) and the TCCC Credit Management Working Group (CMWG), and is a welcome policy addition to Telstra’s credit management procedures. Here is the press release detailing the service, and also giving an over view of the Stay Connected campaign:

Telstra today announced that it would start contacting customers whose account usage increased markedly between bills to enable these customers to take control if the usage had been unintended.

This new service called "Courtesy Call" will start with a pilot this week and will be fully implemented across fixed, mobile and internet services by mid-2004.

Telstra, National General Manager of Credit Management Services, Mr Nixon Roberts, said some customers experienced unintended use of their fixed, mobile or internet services and only became aware of it when they received their bills.

"Unintended use occurs in many ways, such as our customers using their services at a level that gets away from them or where friends or family members use their services either without their knowledge or more excessively than they thought," he said.

"Telstra has decided to lead the way in the industry to address the issue of excessive unintended use of services by announcing the Courtesy Call initiative," Mr Roberts said.

The Courtesy Call initiative will involve Telstra contacting customers before they receive their bills, where their usage markedly exceeds their previous pattern of usage. During the pilot we will test the appropriate parameters to determine exactly how it will work.

"For example, if we can see that a customer's next bill is likely to be more than twice the amount of either of the last two bills then we will contact the customer before the bill is sent," Mr Roberts said.

"What we propose to do is to contact the customer and advise of the marked increase so that the customer can alter usage, change to another plan that better suits their needs, or make a payment arrangement to make sure they don't fall behind."

The pilot will initially target a sample of bills that go over $1000, where usage is more than twice the average amount spent, to gauge customer reaction to this initiative. In 2004, the credit management system will be tailored to identify customers' usage patterns and detect any unusual aberration automatically.

The launch of the Courtesy Call initiative is one aspect of a new community awareness campaign, called Stay Connected, which aims to help all customers understand the range of payment and account management options Telstra offers.

The awareness campaign is an ongoing initiative that involves:

All new customers receiving a brochure commencing in January, highlighting the options that are available to help them manage their accounts with Telstra;

A targeted brochure being inserted into reminder notices commencing in February, and continuing in March and April next year, highlighting the account management options available to Telstra customers;

Launch of a Stay Connected website that provides customers with detailed information on how they can better manage their Telstra accounts; and,

Ongoing communications with key welfare and community organisations to ensure they are aware of the many payment and product options that are available to their members who are also Telstra customers.

A specialised team of customer service consultants will be trained in how to identify customer accounts with unusually high usage and charges and will be contacting customers.

All privacy obligations will be adhered to as part of the Courtesy Call initiative and customers wishing to opt out will be able to do so after receiving an initial call.

"Every customer is important to us and we believe this initiative will be appreciated as a service to help customers manage their bills," Mr Roberts said.

For more information about the campaign go to: www.telstra.com.au/accessforeveryone/connect.htm

Broadcast quality audio news grabs are available from: www.mediagame.com.au . If you have any questions on how to retrieve these contact Peter Mullen at Media Game on 0414 393 703.

Given the huge advantages such a scheme would have for many of our clients, one can only hope that the pilot is a successful one.

Information sheets

Ways to pay your Telstra bill.
This sheet details Telstra’s various payment options, including such important methods as Centrepay (Centrelink customers can have a small amount from their Centrelink payment put aside towards their next Telstra bill each fortnight), Telstra Payment Cards (customers can use this card to put any amount over $20.00 toward their future Telstra bill), and Online Billing (customers can get their bills, see what they are spending and pay the bill over the internet).
What to do if you can’t pay your bill.
This sheet details Telstra’s options for people having trouble paying their account. The types of options outlined include:
- Extensions of time to pay
- Telstra Bill Assistance Program (A voucher system administered via welfare agencies—see Sharkwatch, Februrary 2002 for details).
- Telstra Payment Cards
- Centrepay
This brochure also notes in general terms the types of penalties that may apply for late payment.

It is pleasing that this brochure suggests that ‘if you are experiencing financial difficulty and having a problem paying your Telstra home phone bill, you may like to contact a community financial counsellor or welfare agency for advice and help’.
Ways to control your phone bill.
The sorts of options detailed in this sheet are designed to help prevent consumers from overspending on their Telstra credit account, and include:
- Reducing bill frequency
- Use bill itemisation to see where the money is going
- Combine eligible home, mobile, Foxtel and BigPond bills into a single account
- Use call barring for certain types of calls
- Call control (using a pin number to lock your phone so no one else can use it without asking the bill-payer
- Pensioner concessions)
- Use Homelink 1800 to charge phone calls from any Telstra phone (public or private) back to your home phone account.
Mobile phone services.
This sheet offers advice on choosing a mobile plan and provides a list of questions to ask yourself, and another set of questions to ask the provider, so that you will have adequate information on which to make an informed choice. It also gives general advice on prepaid mobile plans, barring services, issues relating to mobile phone contracts and the consequences of non-payment.

I was particularly pleased to note that along with the possibility of barring calls that attract higher rates, it is also possible to set a monthly spending limit of $20.00 with premium SMS services. I could see a great deal of advantages for consumers if such an initiative were to be introduced for other telecommunications products.
Ways to have a phone service.

This sheet details the various types of phone plan Telstra customers can choose from. I am pleased that Telstra also included its alternatives for the lowest income groups—the InContact phone service (incoming calls only, no line rental, outgoing calls possible with Phone Away card) and the Message Box service (a free message bank service for eligible transient individuals, such as the homeless or victims of domestic violence).

For more information about Stay Connected, go to: www.telstra.com.au/accessforeveryone/connect.htm

The Law Matters

by Richard Brading
Principal Solicitor
Wesley Community Legal Service

Binding Financial Agreements

A recent innovation in the world of Family Law is the Binding Financial Agreement (BFA). The BFA was reputedly created to permit the offspring of mega-wealthy media magnates to marry without the risk of being taken to the cleaners when the marriages later failed. Indeed, the BFA has been eagerly embraced by many wealthy Australians. For example, doctors who are worried about the limitations of their insurance cover are busily using BFAs to transfer their assets to their spouses.

The Australian Taxation Office and creditors are less than enthusiastic about BFAs. It appears that some less-than-wealthy people have transferred their assets to their nearest and dearest and then declared themselves bankrupt, leaving the ATO and other creditors unpaid.

The Family Court recently said that it had no power to hear a complaint by a creditor who opposed the making of a BFA (Sydney Morning Herald 16/10/03).

A BFA can be quite simple. The main requirement is that each party see their own lawyer and for both lawyers to attach a certificate of independent advice to the BFA. Despite the involvement of lawyers, the process can still be quite straightforward. Because of the risks inherent in the process, most community lawyers are very reluctant to prepare or be involved in the BFA process.

The BFA does not need to be approved or registered by the Family Court, so there is no requirement that it be fair. This is something that worries lawyers. As well, there is currently no requirement that creditors be considered, or notified, of the creation of a BFA.

A BFA can be set aside where:

There is fraud; or
If it was made under duress, mistake, or undue influence was involved; or
It is impractical for all or part of it to be carried out; or
There has been a material change in the care of a child leading to hardship if the BFA remains; or
A party has been engaged in unconscionable conduct when making the BFA.

If the couple later separate, the Family Court is prevented from changing the terms of the BFA. This can produce an unjust result.

While the BFA is popular with wealthy people who have a lot to protect, there is no reason why ordinary people cannot use them as well. Whilst we do not recommend them as a device to avoid liabilities to creditors, they do have potential to protect family assets in the following situations:

Family businesses
Risk of public or professional liability claims
Problem gambler
Uncontrolled spending

The disadvantage in entering a BFA is that the transfer of assets to one spouse could leave the transferor in a poor financial situation if the couple later separate.

The government is currently looking at ways to protect creditors, particularly the ATO from the misuse of BFAs. We anticipate that some changes to the law will be made shortly that will give creditors, such as the ATO, the right to dispute Binding Financial Agreements in court.

Relocating Children

The Family Court has power to prevent one parent taking a child to live a long distance from the other parent, such as overseas or interstate.

Section 60B Family Law Act explains that the object of the law is “to ensure that children receive adequate and proper parenting to help them achieve their full potential, and to ensure that parents fulfil their duties, and meet their responsibilities, concerning the care, welfare and development of their children.” In particular, “children have a right of contact, on a regular basis, with both their parents and with other people significant to their care, welfare and development.”

Last year the High Court considered the situation where one parent wanted to take her child to live overseas, but the other parent wanted the child to stay in Australia. In the case of U v U, the parents were both raised in India but had migrated to Australia. After separation, the mother returned to India to live for two years, taking their six year old daughter, N. The mother had strong family support in her home city of Mumbai and better employment opportunities. The father had family and employment in Australia but had some extended family in Mumbai. While the mother lived in Mumbai the husband visited her five times and had extensive contact with N. The mother then returned with N to Australia and attempted a reconciliation. The reconciliation failed. When the mother tried to take N with her to India a second time, she was prevented from leaving the country by the Australian Federal Police, as the father had secretly obtained an order from the Family Court restraining her from taking N out of Australia and had placed N's name on a "watch list" maintained at all airports. The parties then took their differences to court.

The court counsellor did not favour either parent but noted that "Should Ms U be ordered to remain in Australia with N to facilitate contact between N and her father, it is unclear how Ms U's distress might manifest itself, and what the implications of this might be for N. It does appear, however, that the degree of distress may be quite debilitating, as evidenced by her current preoccupation with returning to India."

The trial judge decided that it would be in N's best interests to continue to live in Australia. Although the judge could not order the mother to remain in Australia, the practical effect is that she had to do so, as she would have to abandon N to return to India. However, the judge ordered that N would live with the mother most of the time.

By a 5-2 majority, the High Court supported the decision of the trial judge. They had no problem in preventing the mother leaving the country, although it would damage her right of freedom of movement, happiness, employment prospects and ability to obtain support from her extended family.

Although the mother was pressed about her intentions if N was not permitted to leave Australia, the father was not asked whether he would consider moving to India to be near N. Gaudron J., one of the dissenting judges said "The failure to explore the possibility, particularly given the father's origins, his profession, qualifications and family contacts in India, seems to me to be explicable only on the basis of an assumption, inherently sexist, that a father's choice as to where he lives is beyond challenge in a way a mother's is not."

Most child residence orders do not specify where the parents will live. This means that the parents are mostly free to move within Australia. However, where the main residence parent wants to move a long way with the child, the Family Court has the power to prevent this on the application of the contact parent. However, where a residence order, contact order, or care order is in place, a person who is a party to that order must not take or send the child out of Australia without the written consent of the other parent or a court order. There is a maximum penalty of 3 years jail. In future, Family Court judges should consider all the residence options when one parent wants to stop the other taking the child to live a long distance away. This would include the possibility of one parent moving to follow the other parent who wants to move to a new location.

However, it is clear that judicial conservatism favours the maintenance of the status quo, so in most cases the court will order that children not be removed from Australia. Clients who want to stop the other parent of their child taking that child to live a long way, either within Australia or overseas should act quickly. An order to prevent the removal of a child from Australia can be obtained in a few hours. Legal Aid may be available, and DIY applications can be attempted by those who cannot afford private lawyers.

Splitting Superannuation

Superannuation is now treated as another asset in a property settlement. The Family Court can now order superannuation fund trustees to hold superannuation accounts which were previously in one name in several different ways including:

Immediate split on a percentage basis, e.g. 50/50 on behalf of each husband and wife, so that each can make contributions to their respective interest;
Future split at the time of payment, so that future contributions are split in the court ordered ratio;
Flag orders which require the trustee to refrain from paying out money until the Family Court decides the percentage split at some future time. Note that payments to a member on behalf of severe financial hardship and similar grounds are not frozen by flag orders.

Superannuation agreements can also be split by a Binding Financial Agreement or consent orders.

In order to work out the likely entitlement, a spouse of a member of a superannuation fund is entitled to obtain information about the member’s superannuation interest. This can be done by completing a Form 6 (found in Schedule 1 of the Family Law (Superannuation) Regulations) and sending it to the superannuation trustee. To protect privacy, the superannuation trustee will not disclose the address of the member to the spouse, and will not notify the member that the spouse has made an application for the information.

AFCCRA UP-DATE

Jan Pentland
(Chairperson of AFCCRA)

Annual General Meeting

AFCCRA, the Australian Financial Counselling and Credit Reform Association, held its Annual General Meeting on the 17 of November by phone link up. Reports were received and will be published in the next edition of the ‘AFCCRA News’, now due in January 2004. Results of the annual elections are:

Chairperson	Jan Pentland	Victoria
Vice chairperson	Paul O’Brien	Queensland
Secretary	Rosemary Warren	South Australia
Treasurer	Phillip Powell	Tasmania
Council member	Jackie Harris	ACT
Council member	John Haywood	NSW
Council member	Tricia Ross	Northern Territory
NT alternate	Cheryl Kuhn	Northern Territory
Council member	Ann Elder	Western Australia

Bankruptcy Reform Consultative Forum

On November 11, as AFCCRA representative, I attended the Forum meeting in Sydney. Thanks to Richard Brading from Wesley Legal Service who attended the meeting with me. Discussion at the meeting included:

Report on the review of Part X
Proposed review of ITSA’s fees and charges

Taskforce proposals relating to family law and bankruptcy

Report on the implementation of the Bankruptcy Legislation Amendment Act including the capacity to reject debtors’ petitions
Discussion Paper on section 271
Regulation of Part IX Debt Agreement Administrators and an undertaking for further ITSA research on Debt Agreements in 2004

Note that complaints about the practices of Debt Agreement Administrators should be sent in writing to Bankruptcy Regulation at the ITSA office in your state/territory – with your client’s permission. Their actual details will enable ITSA to follow through complaints now that they have the capacity to regulate Debt Agreement Administrators. A copy of the complaint should be also be forwarded to Credit Helpline: Email - Penelope.Hill@iinet.net.au

Bankruptcy and the defence services

AFCCRA has written to General Cosgrove raising concerns about policy, practices and attitudes of the Australian Defence Forces to indebtedness and bankruptcy. Often, outdated and negative attitudes impact heavily on defence services personnel. Thanks to Norm Hannelly at Wesley Mission for taking up the running on this issue.

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

Teleconferences

These teleconferences were arranged as part of a program of continuing support to Commonwealth funded financial counsellors.

Australia’s Burgeoning Credit and Charge Card Debt

The credit debt teleconference began with the following preamble which was prepared by Norm Hannelly:

“Today’s topic is ‘Australia’s Burgeoning Credit and Charge Card Debt’.

What are the issues? Why include Charge Card Debt with Credit Card Debt?

Until recently the Reserve Bank of Australia (RBA) published the CO1 Credit Card Statistics — Banks, in which Total advances outstanding were recorded monthly.

The Reserve Bank of Australia has reviewed the bases of its published data and now includes Charge Cards with Credit Cards in the revised CO1 Credit Card and Charge Card Statistics.

Presumably the difference is explained by charge cards other than credit cards. In July of 2003, the RBA explained its new direction in reporting, by publishing a paper entitled The Changing Australian Retail Payments Landscape.

Among other things, the article describes the trend to electronic entry systems and how the use of paper cheques has gone from high volume relatively low value transactions to low volume relatively high value transactions.

Electronic funds transfers have skyrocketed, particularly since the advent of employee payments by that method. The cost of security and insurance of payroll deliveries and risk of robbery and injury to staff were prominent in this development.

Internet banking and purchases have streamlined the system of transaction. Cash need not be used, and is, perhaps, becoming a redundant medium of exchange.

The notion of cash as a measurement of value, perceived in time and relative worth, still persists, but is this changing?

ATM units have increased dramatically in the past decade. EFTPOS usage has experienced a perceived social shift. According to the RBA article as mentioned above, around 20 % of all debit card transactions at the point of sale involve cash-out, with an average value of $60 per transaction.

Does the RBA define and measure debt accurately? Does government need to protect debtors from themselves?

Who is vulnerable in the current debt environment?

What is the current debt balance?

According to the RBA CO1 Credit Card and Charge Card Statistics, Total Balances, as of September, 2003 are $24.798 billion.

Q. What will that be as a result of Christmas trading?

A. The difference between similar figures for September, 2002 and December, 2002 showed an increase of 6.64 %

Even if the present figure is increased by 6.0 %, the December, 003. Total Balances will reach $ 26.286 billion !!.

Where do we go from here?”

Discussion was then opened to all participants and the following is a summary of the discussion:

There was a general case put for legislative or regulatory control of charge and credit cards. It was felt that punitive legislation could protect consumers by enforcement. Some reference was made to relatively new A.C.T. legislation and its efficacy to date. Several callers thought that such legislative reform should be adopted in other states and territories. On a similar note it was rhetorically asked how often the Uniform Consumer Credit Code had been “tested” with regard to unconscionability.

A recurring theme throughout the teleconference was “community education”. The point being that “financial illiteracy” should be addressed by governments as an increasing social problem. Consumers generally, and children in particular, should be offered financial literacy information in easily understood formats. Such education should be presented professionally, not necessarily by economics and commerce teachers, but by those experienced in the pitfalls of financial turmoil, such as financial counsellors.

On the point of “community education” the need for credit providers to be more attuned and empathic to community vulnerability was canvassed. Amoral advertising and unsolicited credit expansion lead to the seduction of the weak in the community. The need for credit providers to educate their employees in responsible contracting and for companies to state their responsibilities in their Mission Statements and Charters could be a way of reinforcing more responsible marketing. It seems that Corporate Australia needs an overhaul with respect to community vulnerability. The philosophy of “market exploitation” should exclude “community exploitation”.

Other matters discussed were:

Some clients who have Centrelink benefits as their sole source of income need credit cards in order to survive.
The Credit Card “Industry” is an artificial industry.
Money is becoming more of an abstract concept.
Commonwealth Bankcard now charges $15 for an additional card on the one account.
Late payment fees are outrageous.

There was further discussion on a range of other issues which were not related to the subject of credit card debt, and these are not reported here.

Norm Hannelly, December 3rd, 2003
CFCP SFCO

Issues Surrounding the Provision of Utilities

This teleconference started with the following preamble, which was prepared by the teleconference host, Norm Hannelly:

Today’s topic is: ‘Issues Surrounding the Provision of Utilities.’

There are many points to consider. For example, what are utilities?

One definition is:-

“Those essential services, requiring massive capitalisation in harnessing natural resources, which governments should ensure are supplied to all citizens and enterprises at affordable prices. ”

Obvious examples would be Electricity, Gas and Water.

Transport, Telecommunications, Currency, Education and Health Care, etc are also essential services which governments should ensure are supplied to citizens. These might well require massive capitalisation as well, but do not require the harnessing of natural resources.

The required “use” or “utility” would be energy as manifested or controlled in “power”. Water may be used as a source of power as well as an essential biological sustenance. Water is also used for the purpose of sewerage. In fact utilities which supply water for consumption by way of piping usually supply additional piping for drainage and sewerage.

Some governments allow the harnessing of Atomic Energy for the sake of social utility. Environmentalists might argue that such cost to the environment is incommensurate to the economic and social benefit.

Other forms of natural resources which could be harnessed for the sake of social utility are Solar Energy, Wind Energy and Wave Energy.

To some extent these forms have been developed but technology has not at this stage reached the required efficiency, which might attract investment.

Traditional resources for the exploitation of energy are coal, oil and gas. Timber was such until recently, but is now more harvested for paper and building products than harnessed for energy.

Utilities are usually corporations or government instrumentalities which harness the natural resource in order to supply the society with affordable energy.

Until recently, most utilities in Australia were government owned and controlled, mainly because of the magnitude of capital investment.

Nowadays, most utilities have been privatised. Corporations control the resources, production, distribution and supply for profit. In the conventional economic theory, such might be efficient. In some cases one corporation will supply the energy to another which in turn will market the product to the community.

Who are the utilities in Australia? Which have been privatised? Which have not been privatised? Are there any restrictive trade practises in the supply of energy to consumers? How should governments ensure that their citizens’ basic energy needs are met? Are Ombudsman and ADR schemes effective, in ensuring consumer rights? Is it ethical for poor households to have their electricity, gas or water cut off? What is the moral responsibility of governments to ensure basic necessities to its citizens?

What can we do?

We had the pleasure of welcoming as a guest participant Natasha Leigh, from the Consumer Law Centre of Victoria. Natasha is the NEM Project Co-ordinator. Natasha explained a few of the utilities’ stakeholders, such as National Electricity Code Administrator (NECA). NECA has funded some of the States’ Councils of Social Services for educational materials and seminars. She also explained The National Electricity Code Management Committee.

The participants raised the following specific issues:

In the Northern Territory, Power and Water Authority (PAWA) supplies Water, Sewerage and Electricity. There is no evidence that despite claims of hardship that old debts are ever forgiven. Average quarterly cost of a four-person household is $700 for power, water and sewerage.

In New South Wales there is some relief by way of Energy Accounts Payment Assistance (EAPA) vouchers to consumers in hardship. These vouchers are usually distributed by charities on a discretionary basis. There is also an Energy and Water Ombudsman in New South Wales (EWON)

In South Australia the electricity charges have increased dramatically. “Staying Connected” as part of the AGL National Hardship Policy is not effective. Some consumers never catch up with their old bills. Origin is a supplier. Egas is an emergency gas payment of $200 and can only be given once. The SA government has sponsored energy audits for the purpose of householder awareness of efficient choices of appliances, etc.

In Western Australia, Western Power treats overdue account holders with disconnection unless they can pay at least half of their bills. Western Power is notoriously hardnosed in negotiating with financial counsellors. Emergency relief is so paltry that it is fully disbursed within six to nine months. We were told of a case where single mother with five children had her supply disconnected for five months. The Water authority restricts supply to account defaulters and charges 11.5% interest on overdue accounts.

Unfortunately we did not have financial counsellor participants from the ACT, Queensland, Tasmania or Victoria to give their valued input. However, some did send their apologies and best wishes.

We see this teleconference as a first step, and intend to hold another teleconference on utilities in 2004. In that teleconference we hope to have maximum representation of consumer interest from all states and territories.

From what was a very interesting teleconference, the following points deserve further consideration:

There are many Offices of Ombudsmen throughout the Commonwealth. In New South Wales and Victoria there are specific energy and water ombudsmen, such as EWON in NSW and the Energy & Water Ombudsman, Victoria. In South Australia there is an Electricity Industry Ombudsman. Tasmania has an Office of the Tasmanian Energy Regulator and an Electricity Ombudsman. Queensland has the Energy Consumer Protection Office (ECPO) and The Queensland Ombudsman. It is expected that an Energy Ombudsman will be appointed in Western Australia in December, 2004. There is also a Commonwealth Ombudsman.

The Australian Competition & Consumer Commission (ACCC) plays a valued role, particularly in enforcing relevant provisions of the Commonwealth Trade Practices Act.

The principal stakeholders in energy are billion dollar corporations, some are multi-national. The household consumers, particularly those in poverty, are often victims and need the protection of governments.

There are various advocacy bodies throughout the Commonwealth. The Australian Council of Social Services (ACOSS) and its state Councils have been prominent in consumer advocacy and policy reform. The Australian Consumers’ Association has contributed greatly as a watchdog on behalf of consumers.

Some advocacy bodies are ‘utilities specific’, such as The Consumer Utilities Advocacy Centre (CUAC) in Victoria and Utilities Consumers’ Advocacy Program (UCAP) within Public Interest Advocacy Centre (PIAC) in New South Wales.

Norm Hannelly, Dec 19th, 2003
SFCO/CFCP

A Post Script

High Court Justice William Gummow has approved an appeal to be heard by The Full Bench of the High Court of Australia regarding NT Power’s claim that the Power and Water Authority denied the company access to its gas and to its power lines. The Federal Court of Australia (FCA) had previously dismissed NT Power’s claim.

A Post Post Script

Justice French of the (FCA) was satisfied with AGL’s proposed acquisition of 35% of Loy Yang (through the Great Energy Alliance Group).

The ACCC opposed this in the FCA on the grounds that it greatly lessened competition and breached the Trade Practices Act.

Round Up

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

Victoria

The Consumer Utilities Advocacy Centre (CUAC) of Victoria have now published the first issue of their newsletter, the CUAC Rural and Regional Network Newsletter. This newsletter focuses on issues related to utilities (there is a heavy emphasis on energy issues in Issue 1), as would be expected given the CUAC Mission Statement:

“To ensure the interests of Victorian consumers, especially low-income, disadvantaged, rural and regional and indigenous consumers, are effectively represented in the policy and regulatory debate on electricity, gas and water.”

Issue 1 has articles on various topics, such as energy-customer aggregations, the Essential Services Commission of Victoria, the Energy and Water Ombudsman of Victoria, the Victorian Department of Human Services’ concessions unit, and the Network Tariff Rebate Scheme in Victoria.

To receive the newsletter, contact CUAC:

CUAC
Level 2, 172 Flinders Street,
Melbourne, VIC, 3000
Phone: 1300 656 767
Email: info@cuac.org.au

South Australia

The former Adelaide Central Mission (ACM) has changed its name to Uniting Care Wesley — Adelaide (UCW). Julie McMahon, a well known financial counsellor with ACM, has moved to a new job within UCW. Julie remains an active member of the South Australian Financial Counsellor’s Association (SAFCA) executive and retains her role as SAFCA’s consultant on energy issues. The new financial counsellor to come under the umbrella of the Commonwealth Financial Counselling Program at UCW, is Charmaine Allison.

Western Australia

This is reproduced from the FCRP News, November, 2003.

The State Government has recently announced the introduction of a number of Bills into Parliament designed to make major changes to the justice system. One change of great potential importance to financial counsellors is the proposed overhaul of the system of enforcement of judgements in the Local Court. The course of action presently envisaged is that the Bills will be introduced shortly, and allowed to lie on the table in Parliament until sittings next year, in order to allow time for the proposed changes to be thoroughly examined and debated. This will be an excellent opportunity for financial counsellors to consider the impact of the proposals on their clients, and to offer informed comment from that point of view. The changes are based on the 1995 Report of the Western Australian Law Reform Commission (WALRC), to which the Project made a submission.

Abolition of Imprisonment for Debt

As counsellors know well, for many years debt collectors have used the threat of seeking orders leading to the imprisonment of a debtor as a means to intimidate debtors. Particularly in the remoter parts of the State, Courts continue to make instalment orders with a default imprisonment period attached. In line with the Government’s policy of abolishing sentences of six months or less for criminal offences, section 130 of the Local Courts Act will be repealed. However, the Law Reform Commission’s report (‘the WALRC Report’) recommends that if a judgement debtor has been ordered to pay instalments of a debt, but fails to do so, a Court may order the debtor to be imprisoned for not more than 40 days if the debtor is present in the Court, has the means to pay the instalment, but wilfully and persistently and without an honest and reasonable excuse has failed to pay. If this recommendation in the WALRC Report is adopted, then much of the value of the reform is lost. Debt collectors will still be able to use the threat of imprisonment to coerce debtors. The Government policy of abolition of short terms of imprisonment would be thwarted. It is incongruous that civil debtors would be treated more harshly than minor criminal offenders. It would be an odd system of law indeed where a debtor is more likely to be imprisoned for failing to pay an instalment of a debt than for going to see the creditor and punching him in the face.

One of the weaknesses in the WALRC Report’s recommendations (no. 70) is that the expression ‘the means to pay’ is imprecise. Does it simply mean that the debtor had access to the relevant amount of money? If so, this takes no account of other commitments of the debtor. As well as the obvious survival expenses of rent, food, utilities and transport, the debtor may have other obligations to dependants, obligations under other parts of the law such as child support, and obligations to other creditors who have been more forbearing. The threat of imprisonment will always have a distorting and disruptive effect.

Attachment of Earnings

The Report advocates that a system of attachment of earnings, otherwise known as garnishment of wages, be introduced. If this occurs, it will be a major change in the financial counselling landscape. The proposal is that a wide range of earnings would be liable to attachment, including wages, salary, fees, bonuses, commission, overtime, annuities, and workers’ compensation payments. However, pensions, benefits and allowances paid by Centrelink or Veterans’ Affairs will be expressly excluded from the range of earnings that may be attached. Similarly, spousal maintenance received by a debtor will be exempt from attachment. The machinery of the proposal is that an attachment of earnings order would normally be made, but suspended while the debtor pays instalments. The attachment order would stay in place until the debt is paid. Whilst an attachment of earnings order is in force, no other type of enforcement process such as a warrant of execution, could be issued. Both judgement creditor and debtor would be able to apply to the Court for variation, suspension or discharge of the attachment of earnings order. The vital issue with attachment of earnings is what portion of the debtor’s pay should be able to be taken. The WALRC Report recommends in this regard that the Victorian system be adopted. The Victorian system is that a Court sets a normal deduction rate and a protected earnings rate. The latter is designed to take into account the needs of the debtor, and the debtor’s dependants.

It is clear that if this proposal is introduced, financial counsellors will have a vital role in assisting debtors to prepare a comprehensive income and expenditure statement. The Victorian rules provide for a form called a Judgement Debtor’s Statement of Financial Position. The general idea is that a Court looks at this form, and examines a debtor, and then sets a protected earnings rate, and a normal deduction rate. If the income is higher than the protected earnings rate, the excess up to the normal deduction rate is withheld, and directed to the creditor.

Warrant of Execution

The Acts Amendment (Equality of Status) Act 2003 amended section 126 of the Local Courts Act. The word ‘wife’ has been replaced with ‘spouse or de facto partner’. Goods protected from seizure by the bailiff are now described as:

“Wearing apparel of such person to the value of $100 and of his spouse or de facto partner to the value of $100 and of his family to the value of $50 for each member thereof dependent on him; household furniture and effects to a value not exceeding in the aggregate $300; implements of trade to the value of $100; all beds and bedding; family photographs and portraits”.

There is something comical about the introduction of the twenty-first century gender and status neutral terms into the nineteenth century picture of the bailiff stripping the household bare of most furniture and belongings of the debtor’s partner and dependants. The proposed changes to the law would greatly increase the range of protected goods. The Victorian model, in which the range of prot-ected household goods is based on the Bankruptcy Act provisions is recommended by the WALRC Report. This would be a major step forward in shielding debtors and their families from the indignity of having a bailiff come into their home and seize goods essential for the family’s daily life, such as washing machine and refrigerator.

The Report also recommends that tools of trade, professional instruments and reference books of the judgement debtor should be protected to an inflation-limited figure set in the light of the Bankruptcy Act. This again is a most commendable idea. Taking a debtor’s means of earning an income is obviously self-defeating for a creditor, and harmful for the debtor’s family, society and other creditors. Another commendable provision is that necessary medical and dental aids will be protected from seizure. At present a bailiff is able to seize wheel-chairs, a grotesque anachronism in an age when active consideration for the needs of the disabled is a community standard.

One drawback with the WALRC Report proposals is that the debtor’s motor vehicle will not be protected. In a spread-out city like Perth, many debtors live in outer suburbs in which public transport is sparse. The position of debtors in country towns is worse. Many debtors find a car is essential to get to work, to shop, or to obtain medical treatment.

The overall picture of the proposal to overhaul the law is generally positive, however debtors faced with a major and long-lasting series of deductions from their pay, or loss of a motor vehicle vital to their daily life, may still find bankruptcy attractive.

Ian Macdonald, Nov. 2003

In the Media

NAB enters ‘Low-Doc’ Loan Market

Original story by Alan Kohler

Late in October, the National Australia Bank (NAB) launched its new ‘Easy-Doc’ housing loan product. This is the latest entrant into an increasingly crowded and fast growing segment of the home loan market, known as ‘Low-Doc’ or ‘Lite’ loans. These are designed to widen the home loans market to people who can’t normally get one.

Most major banks already have low-doc products and the non-bank sector has been flogging them like crazy for a couple of years.

Low-doc loans are roughly what they sound like—the documentation is abbreviated, but, most importantly, the applicant’s income and ability to repay is not verified. Typically, a borrower is simply asked to sign off on his or her assets and income in a one page statement, and that’s it—loan approved, here’s the cash.

Standard and Poor’s says that low-doc loans now represent between 30 and 40% of all new lending generated by mortgage brokers, which in turn makes up between 30 and 40% of all new lending in total.

NAB’s new Easy-Doc product carries an interest rate of 6.95%. The bank will lend up to 80% of the value of the property and up to $700,000.00 with minimal documentation. This is just 0.15% above the NAB’s standard variable rate (currently 6.8%). Other lenders typically price their low-doc products at around 1% above their standard variable rates.

It seems then, that the NAB is discounting a high-risk loan product to claw back market share from mortgage originators. Low-doc loans are mostly sold to self-employed people who either don’t have recent tax returns or don’t want anyone to see them. With all the outsourcing and early retirement going on, this is a fast growing part of the workforce, and these are people who are most interested in investment properties as a way of saving for retirement. That’s why the lenders are still confident—they are making riskier loans to more people who last year wouldn’t qualify.

Sydney Morning Herald, Nov. 12th, 2003

Man pinned to ground by debt collection heavy while car is repossessed.

An extraordinary tale from The West Australian.

A man was pinned to the ground while debt collectors for the Esanda Finance Corporation repossessed his car. The Federal Court declared that Esanda had acted unconscionably, and had used undue harassment to pursue a $2,180.00 debt owed by a West Leederville [WA] man.

In June, 2000, three debt collectors and three tow truck drivers went to Mr McPhee’s home to seize his car after he fell behind in payments. Mr McPhee had earlier lost his job and had tried to negotiate with Esanda to make different payments and to refinance the loan, but had had no success. A notice was issued when he owed $1,800.00.

This was the first time that the prohibition on the use of physical force under s60 of the Act had been considered by the courts.

The West Australian, 13 November, 2003.

Super deal set to assist low income earners

A deal struck between the Federal Government and the Australian Democrats is set to allow low income earners to add up to $45,000.00 to their super over 15 years, for a modest weekly contribution.

Under the new contribution measures, those on incomes of up to $27,500.00 who make contributions to their super will have those contributions matched dollar for dollar by the federal government, to a maximum of $1,000.00 annually.

The contributions would continue for those on higher incomes, phasing out as incomes reach $40,000.00.

The current surcharge rate will be reduced from 15% to 12% over three years.

The West Australian, 8th September, 2003.

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