Industry Links

Sharkwatch, March 2007

INSIDE THIS ISSUE

For telephone support services
(information, casework discussion, debriefing, general support)
National Financial Counsellors’ Resource Service Participants phone 1800 647 409
All others phone 02 9951 5514

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Notes and Notices

Centrelink appeals

Elizabeth Terry from Wesley Counselling Services in NSW has sent Sharkwatch information regarding two issues, Centrelink appeals and Citizenship information. We would like to note here that Elizabeth is so frequently generous in passing on information to Sharkwatch readers that we are considering offering her a column!

Elizabeth writes that she has been in contact with Lea Fitzpatrick from Centrelink regarding the appeal of Centrelink debts and applications to waive a Centrelink debt.

Elizabeth was advised that the mailing address for appeals related to Centrelink debts and for waivers related to Centrelink debts is Locked Bag 2005, Box Hill, Victoria, 3128.

Citizenship Information

Elizabeth also tells us that she has had several clients who have asked her whether filing for bankruptcy will affect their ability to apply for Australian Citizenship or their ability to sponsor a relative for emigration to Australia.

There is no simple answer to these questions, as a number of factors, including the person’s ‘character’, are taken into account with such decisions.

Elizabeth found the Immigration Rights and Advice Centre (IARC) were very helpful when she made her enquiries. Readers can find information about the service on the IARC website or IARC can be emailed at: iarc@iarc.asn.au

In terms of Citizenship information, Elizabeth found the Australian Citizenship Information Line and website to be most helpful.

Australian Citizenship Information Line: 131 880
Website: www.citizenship.gov.au

FIDO Reverse Mortgage Calculator

The Australian Securities and Investments Commission (ASIC) have put a Reverse Mortgage Calculator on their FIDO website.

The calculator can also be accessed by going to the FIDO website and clicking on the ‘Other calculators’ link at the right of the page.

To interpret the results of the calculator, FIDO have provided a Reverese Mortgage Calculator Guide that can be accessed and downloaded by clicking on the link in the first paragraph.

FIDO also have an excellent web page that provides information about reverse mortgages. The webpage can also be accessed by clicking on the link in the last line of the Reverse Mortgage Calculator page.

FIDO, quite rightly, have asked those who use their reverse mortgage resources to be aware of their limitations. The calculator works only for reverse mortgages and is not suitable for other home equity release products. It cannot take into account future changes to the person’s circumstances, and relies heavily on the inputted information being correct.

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Borrowing After Bankruptcy

Richard Brading
Principal Solicitor
Wesley Community Legal Service

Wayne Warburton
National Financial Counsellors’ Resource Service

As financial counsellors we often advise our clients to destroy their credit cards and live within realistic means. Bankruptcy is seen as a tool of last resort, and is used when a person’s financial situation cannot be repaired using other methods. It is not surprising then, that many financial counsellors advise their insolvent clients that obtaining further credit during bankruptcy, or soon after bankruptcy, would be an inadvisable return to the practices that first led to financial disaster.

Having said this, it is also true that financial counsellors generally endorse the responsible use of money, including the responsible use of credit, where appropriate. Although there is much debate about what sort of credit use is appropriate, it is clear that some credit use is appropriate for most people, including many who have struggled to manage credit previously.

For example, most Australians have their dreams, and some of those dreams, such as home ownership or car ownership, are simply not possible for most people without obtaining and managing credit.

Others like to have the security of knowing they can access credit if they need it, should there be some situation arise that requires money (such as an unexpected medical emergency that requires a costly operation or treatment).

For these reasons, a common concern of clients facing bankruptcy is whether they will be able to borrow money in the future. Given the many factors that will determine this, there is no simple answer. However, it can be valuable to examine this question in four stages.

During bankruptcy

Generally, bankrupts can forget about seeking credit. Mainstream lenders don’t lend to bankrupts. An undischarged bankrupt has a legal duty to disclose their bankruptcy when applying for credit over the amount of $4,374 (current to 20/3/07). This means that the bankrupt could apply for lesser amounts of credit without disclosing their bankruptcy unless the lender asks. However, most lenders do ask whether a person is or has been bankrupt, or do a credit check with Veda Advantage (formerly known as Baycorp Advantage; see story page 6).

Where the bankrupt has an ongoing relationship with a lender, and has fulfilled all obligations to that lender despite bankruptcy, in some cases that lender may be willing to provide a small amount of credit.

There are also fringe lenders who lend to undischarged bankrupts, but their rates are usually extortionate. Such lenders prey on those who struggle to find credit elsewhere (indeed they would not exist if everyone was able to obtain credit at reasonable rates with more reputable institutions). Many is the bankrupt who has dug an even deeper financial hole for themselves by using such lenders when their financial situation has become tight. We believe that it is valuable for financial counsellors to warn clients who are facing bankruptcy about the perils of using such lenders during those years when credit is particularly hard to obtain.

In summary, it is very difficult to obtain any credit during bankruptcy and the bankrupt will definitely not be able to get a large loan, such as a home loan, whilst a bankrupt.. Expensive credit from fringe lenders should be avoided at all costs. Perhaps the best alternative at this stage is to obtain a debit card which allows the bankrupt to access funds from their account, but not obtain credit.

For 2 years after discharge from bankruptcy

Most bankrupts are discharged 3 years after they lodge their Statement of Affairs. After discharge, there is no obligation to disclose bankruptcy unless the question is asked by the lender.

Again, most lenders do ask and in any event the bankruptcy will remain listed on the client’s Veda Advantage file for 7 years.

However, it is possible to obtain credit immediately following discharge from bankruptcy. Generally it is best to start small, by applying for a low-limit credit card. This allows the client to get the hang of making repayments again and will bring home how difficult it can be to repay even a small debt every month.

We believe that financial counsellors (if they are still in contact with bankrupt clients) have a crucial role to play at this stage. They are able to guide their client through the basic principles of applying for credit, responsible credit use, avoiding credit increases, and are able to monitor client progress in managing payments.

Before a recent bankrupt makes an application for credit, they should ask what the lender’s policy is on recently discharged bankrupts. When assessing the loan application, the lender will look at factors such as the person’s employment history as well as the fact that the person has been a bankrupt.

We note here that most mainstream lenders have a ‘tick the boxes’ approach to loans. If set criteria are met, the loan is approved, if not they are declined. However, some reputable lenders, such as some credit unions, will often meet with applicants and take their input into account when assessing for a loan. Of course, people need to be honest with what they say in such interviews, but it can sometimes be helpful to explain the circumstances behind a bankruptcy to a lender.

Although recent bankrupts may be eager to accept unsecured credit if it is offered, it is vital that they consider the rates (which will be higher due to the perceived risk of lending to a recent bankrupt) and only accept the credit if the rates and repayments are easily manageable.

If the person has a good income it may be possible to get secured credit such as a home loan from a “non-conforming lender”, but the rates are usually very high. Again, we believe that people should be very careful before signing up to credit at high rates. Rather, it is preferable to wait at least 2 years following bankruptcy before applying for a large loan like a home loan.

2–4 years after discharge from bankruptcy

It is possible to get a home loan from a non-conforming lender 2 years after discharge from bankruptcy. Again, the rate will be higher than normal, but may be affordable. Clients should be very careful to shop around for the best fees and rates.

At this point, they could work on getting stable employment, saving a deposit, or again, applying for a low limit credit card. As already stated, the credit card could actually improve the person’s credit score, as they indicate that the person has obtained credit and (hopefully!) not got into financial difficulties.

4+ years after discharge from bankruptcy

The bankruptcy listing should be removed from a person’s credit report 7 years after bankruptcy, so it is best to wait for this to happen before applying for a large loan like a home loan. At this point, mainstream lenders will consider lending to a person who no longer has the bankruptcy listing. Many lenders’ application forms ask whether the person has become bankrupt in the past 5 years, so the client should choose to apply to these lenders, rather than those who ask whether the applicant has ever been bankrupt.

Credit scoring

Clients who are keen to rebuild their life after bankruptcy can take positive steps to prepare themselves for a loan application whilst they are still bankrupt. For example, they should consider what would help them achieve a good credit score when they eventually make a loan application. Lenders look at a range of factors in assessing whether or not to lend someone money. Some of these factors are:

• the purpose of the loan;
• the amount of the deposit saved;
• the security offered;
• the person’s
  • assets
  • liabilities
  • income
  • expenditure;
• length of time at current employment and
• length of time at current address.

The answers provided to the questions on the application form may be fed into a computer, which allocates a credit score based on risk factors.

It should be noted that the occupation of the applicant will affect the credit score. Public servants get a much higher score than the self-employed because statistically they are more likely to repay their debts. Applicants who have lived at the same address for a long time are more likely to repay than those who frequently move house, as are those who have been working for the same employer for a long time.

To sum up, credit is hard to obtain during bankruptcy and soon after. Recent bankrupts are well advised to practise good money management during this period, as this will enhance their credit rating and set up patterns that will assist them to manage credit well later. When credit can be obtained, expensive credit should be avoided, even if it is desirable to the recent bankrupt. Small amounts of credit should be obtained first. If this is managed well, clients may then be in a position to pursue the Australian dream of borrowing to own a home. At every stage, the financial counsellor has a role to play, as educator, model and support.

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Poverty, Depression, Wealth and Happiness

Wayne Warburton
National Financial Counsellors Resource Service

When Jennifer and I speak to financial counsellors across Australia, most of them tell us the same thing. “Most of our clients are depressed to some extent, and many seem to be severely depressed”. I suspect that much of this effect is linked to the feelings of helplessness and hopelessness that can develop when a person’s financial situation gets worse and worse despite their best efforts, but clearly this is not the whole story

For many of our clients such a deterioration is simply due to poverty and the person’s inability to get by on a low or very low income. This leads to the question: Does poverty lead to unhappiness? Or, conversely, does wealth lead to happiness?

Ed Diener and Robert Biswas-Diener have studied this phenomenon for some time, and after a review of the research literature made the following conclusions:

1. People are happier in wealthier nations;
2. Those living in poverty are much more likely to be unhappy, particularly in poorer nations;
3. Economic growth in wealthier countries has not been accompanied by a rise in happiness;
4. People who are quite materialistic tend to be substantially less happy than others unless they are quite wealthy by the standards of their country.

Diener and Biswas-Diener concluded that “more money may enhance [happiness] when it means avoiding poverty and living in a developed nation, but income appears to increase [happiness] little over the long-term … [for] well-off individuals whose material desires rise with their incomes”. They further suggest that “income enhances [happiness] only insofar as it helps people meet their basic needs” (p. 119).

In other words, research suggests that poverty reduces happiness, and that reducing a person’s poverty will increase their happiness up to the point where their basic needs are met. Increasing the wealth of those who already have enough but want more tends to have the opposite effect. Clearly, the work of financial counsellors will increase the happiness and reduce the suicide risk of many of our clients.

1. Diener, E., & Biswas-Diener, R. (2002). Will money increase subjective well-being? A literature review and guide to needed research. Social Indicators Research, 57, 119–169.

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Baycorp Advantage Now Veda Advantage

As of November 3rd, 2006, the credit reporting agency, Baycorp Advantage Ltd. has changed its name to Veda Advantage Ltd. Financial counsellors will remember that Baycorp Advantage Ltd. was formerly known as Credit Advantage Limited, and that Credit Advantage Ltd. took over the operations of the Credit Reference Association of Australia. By our calculations, this is the third name change in less than 10 years.

Further details can be found on the Veda/Baycorp website.

It is also relevant that Veda Advantage Ltd., which is a registered public company on the Australian Stock Exchange, has received a buyout proposal from a consortium comprising Pacific Equity Partners and Merrill Lynch Global Private Equity.

In brief, this consortium want to buy out 100% of the company shares, with the aim of fully privatising the company (i.e., Veda Advantage Ltd., once free of public shareholders, would be run purely for the profit of the owning consortium).

The Board of Veda have announced that they believe this proposal has sufficient merit to be considered seriously (see announcement at http://www.baycorpadvantage.com/latest_news/asx_nzx_announcement.aspx) and are working with the consortium to ascertain whether a more definitive proposal can be developed. The Board has announced that it will “facilitate any proposal which it believes is in the best interest of shareholders, having regard to the Company’s current strategic plans”.

One assumes that should this bid be successful, and should Veda be fully privatised, the company would no longer be accountable to public shareholders, and would thus begin to operate in the manner that will bring the highest profits to the new owners, rather than in a manner that balances the desires of its shareholders with the motive to make profit.

Apart from the current issues that many financial counsellors have with the operation of credit reporting agencies (of which Veda is by far the largest and most influential), it should also be noted that Veda is one of the two big players (along with Dun and Bradstreet), in the push towards positive credit reporting. Thus, the fate of Veda is of some interest to financial counsellors, and has significant implications for many of our clients.

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GE Financial Counsellor Relationship Officer

In line with a recent trend for GE Money to be working more closely with the financial counselling profession, GE has employed Carmen Watson in the newly created position of “Financial Counsellor Relationship Officer”. Carmen began her duties mid-January this year. According to a release from Diana Peh (the leader of the GE Money 23-strong hardship team), Carmen is now “the central point of reference and escalation for Financial Counsellors and third party administrators who represent GE Money customers experiencing financial hardship. Carmen will also provide training support for the hardship teams as well as represent the business at Financial Counsellors’ conferences and to continuously build on relationships with Financial Counsellors and Administrators.”

Carmen will be dealing with matters across GE’s card products, personal loan products, and ‘Motor Solution’ products, and is available from Monday to Friday 8am to 4pm. Her contact details are:

Phone: (03) 8807 6825
Email: Carmen.Watson@ge.com

It is likely that many financial counsellors would have already come across Carmen, as she spent 6 years with GE Money as a Dispute Resolution Officer, and has more recently been a Forensic Investigator for Money Direct.

Carmen will report directly to Diana Peh, who also appears keen to strengthen ties between GE Money and the financial counselling sector. She writes that “the increased interaction between GE and the financial counsellor groups over the past months is one which I feel has been very beneficial, particularly in terms of highlighting some of the needs for this area. As such, I’m confident that Carmen’s new role will provide increased opportunities to support this process and to build a more meaningful relationship. I welcome any ideas you may have towards opportunities to work together to assist our hardship customers.”

Diana has also reminded financial counsellors that she is still available as a point of contact for them, and suggests that any financial counsellor with questions regarding Carmen’s appointment should feel free to contact her.

Diana Peh’s contact details are:

Phone: (03) 9921 6683
Mobile: 0412 834 070

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Telstra Policy Change re: Deceased Clients

It was pleasing to hear that Telstra have announced a new set of processes regarding how they will deal with the families of deceased customers.

Financial counsellors often have clients embroiled in the difficult situation where they are trying to sort out the affairs of a deceased family member or friend. In such situations, contacts with creditors of the deceased person are often confusing and difficult to resolve, especially when there is some dispute surrounding the accounts. Although this is all part of the necessary process of finalising an estate, it comes at a time when the person sorting out the affairs is also dealing with their own grief and has many difficult tasks to attend to.

To get an idea of the size of this problem, more than 130,000 Australians pass away each year, and so, at any given moment, there are a great many friends and relatives of deceased persons trying to sort out what to do with unpaid accounts and services that need to be suspended or disconnected. Given the high proportion of Australians with Telstra accounts, it is likely that in a significant percentage of these cases, the person dealing with the estate will also be dealing with Telstra at some point.

Robert Morsillo, Telstra’s Manager of Consumer Affairs, notes that the new processes have been introduced with the aim of better assisting “families of deceased customers to deal with relevant accounts, whether fixed, mobile, Internet or Pay-TV”.

To do this, Telstra has created a new process that is much more centralised and involves better coordination between departments. In addition, Robert notes that “during the process, Telstra’s Credit Management department is notified that the customer is now deceased, and the account is tagged so that it can be dealt with appropriately”. Again, this applies “across Fixed, Mobile, Internet and Pay-TV accounts”.

“The new process will be available for the representatives of deceased customers to make the necessary changes to all service types”.

Robert believes that “the new process will make it easier for Telstra ‘front of house staff’, Telstra shops and Telstra dealers to give appropriate assistance to those who are trying to sort out Telstra accounts and/or arrange for the suspension of Telstra services that had been held by deceased family members or friends.”

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The Law Matters

Richard Brading
Principal Solicitor
Wesley Community Legal Service

The Sale of Secured Personal Property

A growing area of concern for financial counsellors is the consequences for debtors who have sold secured personal property without the consent of the secured creditor, particularly if they later become bankrupt. Questions arise about how to describe the debt in the Statement of Affairs and the possibility of criminal prosecution. In addition, debtors face considerable uncertainty about such situations due to the fact that creditors sometimes take no action to take possession of low value secured property.

Registration of Encumbrances over Vehicles (REVS)

All States and Territories have a REVS scheme to register securities over motor vehicles1 and in some cases, boats. If a motor vehicle is registered with REVS, it need not be also registered with a Bill of Sale in any jurisdiction except in Tasmania. A person who has bought a REVS registered vehicle usually does not get good title. It is liable to be repossessed by the credit provider. The person who bought the secured vehicle then has a right to claim compensation from the debtor. In the event that the debtor becomes bankrupt, the debt to the credit provider remains secured over the vehicle, but the potential claim for compensation by the buyer is a contingent liability.

Bills of Sale

All States and Territories, except Victoria, have laws regulating Bills of Sale2. These provide for the registration of Goods Mortgages and other securities over personal property. They are mostly used for business transactions where the Consumer Credit Code does not apply. Failure to register a Bill of Sale often means that a third party who acquires the personal property gets good title if they don’t know about the Bill of Sale. In most jurisdictions, unregistered Bills of Sale will be legally enforceable against the debtor and will remain enforceable even if the debtor becomes bankrupt.

So where a debtor has sold personal property that is secured by a registered or unregistered bill of sale without the credit provider’s consent, the debt should usually be described as ‘secured’ in the Statement of Affairs. If the debtor anticipates or has received any demand for compensation from a third party purchaser of the property secured by a bill of sale, then the debtor should list the purchaser’s claim as a contingent liability in the Statement of Affairs.

Consumer Credit Code

The Code has largely replaced Bills of Sale legislation in relation to consumer loans secured by furniture and other personal property. A Code loan security may be described as a “goods mortgage”, a “chattel mortgage”, a “bill of sale”, a “consumer lease” or something similar. The loan security may be contained in the loan contract or a separate document. It must be in a document signed by the mortgagor (s.38). The Code (s.40) requires the secured property to be specifically described. A loan security over all the debtors property is void. A loan security is also void to the extent that it secures an amount greater than the total of the debt and reasonable enforcement expenses (s.45).

Disposal of Consumer Credit Code secured personal property

When a debtor disposes of secured personal property without the consent of the credit provider, the debtor can be prosecuted under s.47(1) of the Code. There is a maximum fine of $5,500. However, prosecutions under this section are extremely rare. More importantly, the person who purchases the secured personal property may not get a good title and may find the property seized by the credit provider. Such a purchaser will then not be very kindly disposed towards the debtor.

Sometimes credit providers are very tardy in repossessing mortgaged goods. Typically this happens with accident-damaged motor vehicles. Section 47 of the Code provides for the Court to authorise the disposal of an accident-damaged motor vehicle where the credit provider fails to repossess the accident-damaged motor vehicle within a reasonable time. In practice, it may be easier to let a wrecker take the vehicle away and sort things out with the credit provider.

Bankruptcy

When a debtor becomes bankrupt, the credit provider can still enforce their security against the mortgaged property and the debt should be described as a “secured debt” in the Statement of Affairs. If the mortgaged property is repossessed or surrendered and then sold, any shortfall becomes an unsecured debt in the bankruptcy. A surplus after sale may belong to the Trustee or the debtor, depending on the nature and value of the secured goods.

Consideration should be given to the possibility of prosecution under section 265(4)(e) Bankruptcy Act which makes it an offence within 12 months prior to bankruptcy to dispose of property or give security over property obtained on credit and which he or she has not paid for.

Essential household furniture

When a fringe lender has taken a bill of sale over essential household furniture, it is usually done as a means to frighten the debtor into paying the debt, rather than with any real intention of enforcing the security. We have heard of many cases where debtors have signed a bill of sale over their furniture and subsequently entered bankruptcy. In no case did the credit provider actually try to take the furniture, although threats were made to do so.

The Consumer Credit Code (s.91) states that a credit provider (or agent) must not enter a person’s home to take possession of secured personal property unless, either:

• a) The occupier of the premises has, after being informed in writing of the provisions of section 91, consented in writing to the credit provider coming in to take the secured personal property; or
• b) The Court has authorised the credit provider (or agent) to enter the premises and take the secured personal property.

The Code Regulations requires Form 7 to be used where consent in writing is sought. Requests for entry can only be made in person between the hours of 8am and 8pm on any day other than a Sunday or public holiday.

It is not a crime to refuse to sign a consent form. A debtor who refuses to sign the consent form can then oppose the credit provider’s application for a court order and raise the defence that the taking of security over essential household furniture is unjust (see s.70(7)).

Where the debtor refuses to sign a consent form and the credit provider fails to commence proceedings for a court order, but simply harasses the debtor, then the usual harassment guidelines apply to the credit providers conduct (See Sharkwatch, March 2006).

References

1. Registration of Interests in Goods Act 1986 (NSW), Chattel Securities Act 1987 (Vic), Motor Vehicles and Boats Securities Act 1986 (QLD), Chattel Securities Act 1987 (WA), Goods Securities Act 1986 (WA), Motor Vehicle Securities Act 1984 (Tas), Sale of Motor Vehicles Act 1977 (ACT), Registration of Interests in Motor Vehicles and Other Goods Act 1989 (NT).
2. Security Interests in Goods Act 2005 (NSW), Bills of Sale and Other Instruments Act 1955 (QLD), Bills of Sale Act 1899 (WA), Bills of Sale Act 1899 (WA), Bills of Sale Act 1886 (SA), Bills of Sale Act 1990 (Tas), Registration of Interests in Motor Vehicles and Other Goods Act 1989 (NT).

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AFCCRA Update

Jan Pentland
Victorian representative

Review of the Diploma of Community Services (Financial Counselling)

The Community Services Training Package, of which our Diploma is a small part, is being reviewed (July 2006 to July 2008). AFCCRA has a working group comprised of a representative from all states and territories plus TAFE teachers with relevant experience in delivering the current Diploma. Dina Sayers and I are the Victorian representatives on the working group. Jillian Fletcher from Queensland has been contracted by AFCCRA to co-ordinate the work on AFCCRA’s response to the review.

A workshop was held in Sydney on 13 and 14 February to pull together an AFCCRA submission and this has now been provided to the review process. This regular five year review is an opportunity for the financial counselling sector to review the current competencies and delivery of the Diploma and make suggestions for improvement.

AFCCRA’s submission is available from me and will be posted on the AFCCRA website soon (www.afccra.org).

In summary the submission is suggesting that the Diploma be improved by:

• A greater focus on financial counselling skills and practice including legal and technical knowledge;
• The removal of duplication in the counselling units and the communications units;
• A stronger emphasis on the community development/social justice philosophy which underpins financial counselling;
• Additional electives have also been proposed.

Sydney 2007

AFCCRA will be involved in three forums to be held in Sydney in July. The External Disputes Resolutions Schemes will hold their annual Consumer Representatives Forum on 24 July, followed by the AFCCRA Conference on 25 July, and then the AFCCRA Financial Literacy and Inclusion Forum on 26 July.

These events will be held at the Citigate Sebel Hotel at 28 Albion Street in Sydney. Further information including the forum programs will be provided as it becomes available. Please contact me if you would like further information.

National Indigenous Money Management Agenda.

This national forum has been established by Mal Brough, Minister of Indigenous Affairs and will report to him in July 2007. I represent AFCCRA and have now attended three meetings and developed AFCCRA’s Reconciliation Action Plan which will be posted on the AFCCRA website soon.

Additional to this involvement, I am establishing a group email list for those financial counsellors working with indigenous people and communities. The purpose is to facilitate a sharing of information, resources and experience. Please contact me at: jpentland@each.com.au for further information.

Centrelink and Bankruptcy

David Tennant and I will meet with Centrelink and ITSA in Canberra on 29 March to clarify how Centrelink deals with overpayment debts in bankruptcy. In the interim, Centrelink have provided their current policy and process. Please contact me if you would like me to email this to you.

Conflict of Interest

During 2007 AFCCRA will facilitate a national discussion among financial counsellors on conflict of interest issues. The focus is partnerships and sponsorships with industry. Currently a presentation is being prepared which I will present at the Financial Counsellors Association of Queensland Conference on 28 March. The presentation outline will be provided to financial counsellors nationally in late March.

A discussion paper is also being prepared to facilitate discussion in the financial counselling sector. AFCCRA’s Industry Funding Policy is available on the website. This policy will be reviewed as part of the national discussion on conflict of interest.

Please contact me at jpentland@each.com.au or on 0407 042 483 if you have any queries or comments on AFCCRA and national policy matters.

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AFCCRA Bankruptcy Update

Jan Pentland
AFCCRA representative on the Bankruptcy Reform Consultative Forum

Reform of Part IX of the Bankruptcy Act

Phillip Ruddock, Attorney General, has introduced the Bill to amend Part IX of the Bankruptcy Act to Parliament. It is expected that this Bill will be passed in both Houses in the next few weeks. Information including the media release and the Bill are available at www.itsa.gov.au.

These changes to the Bankruptcy Act are to be implemented on 1 July 2007 and will have a substantial effect on the behaviour of debt agreement administrators. Administrators will be registered by ITSA in the same way as Private Trustees. An initial application fee of $2,000 and a registration fee of $1,200 for three years will apply.

The proposed processing fee of $275 will not now be introduced to lodge a debt agreement proposal and AFCCRA supports this. However, there will be a realisation charge of 4%, the same as in personal insolvency agreements and bankruptcies, which provide a dividend to creditors.

Administrators will be obliged to notify creditors when debtors default on payments and do not remedy the default within three months. The debt agreement will be automatically terminated where the debtor makes no payments for six consecutive months or the agreement has not been completed at the end of six months after the end of the term originally agreed. This will deal with the problem which many of us see where debtors make no payments on their debt agreement for considerable periods of time and nothing happens — the agreement is in limbo.

AFCCRA supports amendments of Part IX of the Bankruptcy Act and lobbied over more that a decade for these changes. Confirmation for me that the reform of Part IX is working after 1 July 2007 will be a reduction in the numbers of Debt Agreements overall and a reduction of administrators as those operating on the margins leave the industry.

There is also pressure on creditors to make commercial decisions and be more prepared to accept realistic offers as the best offer a debtor can make rather than selling debts for as little as 8 cents in the dollar and starting the debt collection hassle again for our clients.

Superannuation

The Bankruptcy Act has been amended in relation to superannuation. These changes should not affect our clients. It is now clear that putting large amounts of funds into superannuation prior to bankruptcy will be reviewed and can be overturned where the intention is to deny payments to creditors. Information on the changes is available at www.itsa.gov.au.

Trustees’ Fees

ITSA will conduct a minor review of the fees of Private Trustees in 2007. As many of you are aware, I am undertaking a research project for my agency, Eastern Access Community Health (EACH). The project is funded by the Consumer Credit Fund. Paul Gillett at Consumer Action is providing legal assistance to the project.

Thank you to those who have provided information to me — much appreciated. I am keen to hear from you about your experiences with private trustees. The themes arising in the research are:

• Problems with the minimal fee which private trustees can charge when ITSA out-sources the administration of a consumer debtor’s bankruptcy administration
• Fees charged by private trustees when there is equity in the property of a bankrupt
• Problems when debtors bankrupt on no advice or poor advice where there is or has been an interest in a property;
• Treatment of bankrupts by private trustees.

If you have had any of these experiences with your clients or if you have any thoughts on the issue and how the review should consider it, please contact me.

If you would like to discuss any of the above, please ring me on 0407 0424 483 or email me at: jpentland@each.com.au

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Teleconference

Current FC issues: Workload and case complexity; increase in older clients and mental health clients.

A teleconference on current issues facing financial counsellors in Australia was held on Friday, March 9th. Participants were Tania Buck, Susan Cook, Lyn Park, Pat Lake and David Lawson from Queensland, Emma Ryan from Tasmania, David Tennant from the ACT, Serena Staines from the NT, John Mumford and Loretta Andrew from Victoria, and Sherrie Wilkins, Jennifer Gracie and Wayne Warburton from NSW.

The discussion centred around three issues:

1. The Productivity Commission’s review of Australia’s Consumer Policy Framework

David Tennant spoke briefly on this. He noted that the Productivity Commission had put out an issues paper regarding a review of consumer policy, with a view to streamlining laws and reducing red tape.

Not surprisingly, David expressed some alarm at the prospect of consumer protection being further eroded, but also noted that some suggestions in the paper had definite merit, including a proposal for a National Consumer Council.

AFCCRA are preparing a brief issues paper regarding the review, which they hope to distribute to financial counsellors in late March. This paper will describe a small number of key themes that the AFCCRA council believes the financial counselling community should bring to discussions. David is hoping that as many financial counsellors as possible will be able to provide input regarding the issues, as well as case examples from the ‘front line’, so that AFCCRA will be able to build a strong case in their submission.

The Productivity Commission will be holding public hearings prior to the deadline for submissions (May 11, 2007).

2. Workload, case complexity and mental health clients

Generally speaking, participants reported significant increases in the number of cases where the clients were in extreme distress or had mental health issues and a significant increase in the complexity of the cases they were dealing with.

Although the trends regarding greater case complexity and increasing numbers of clients with mental health issues have been apparent for a couple of years now (and are continuing), the trend for clients to be in more and more emotional distress is relatively recent.

In terms of increasing case complexity, this was still a strong trend for all but one participant. There were reports that it takes longer and longer to complete the initial interview and collect the relevant facts (Serena; Loretta), and that even when numbers of clients drop off, the counsellor workload still increases due to the complexity of cases (Loretta). John noted that this trend adds to the interest of the job sometimes, but Serena reported that her workload is becoming more exhausting at peak times, and that because there are so few financial counsellors in the NT, any absence (ie sick/annual leave or absences to attend training/conferences) of any one financial counsellor impacts significantly on another financial counselling service.

Emma was the first to report that she was seeing an increasing number of clients in extreme emotional states and that this was adding to the tiredness and stress of financial counsellors in her organisation. Further discussion revealed that Loretta, David Lawson, and others were experiencing a similar trend. David, who is a trained suicide counsellor, said that he was having to make suicide interventions more frequently.

All participants were seeing more and more clients with serious mental health issues. For example, Lyn had a recent week where 6 out of 12 of her clients had bipolar disorder. Most teleconference participants felt that this increase, to some extent, was probably due to increasing awareness of financial counselling amongst other helping professions. However, a number of participants also felt that a reduction in mental health services in their states meant that more and more mental health clients were turning to other community services like financial counselling services for help. Lyn reported that when mental health services in her area ‘become a bit stretched’ there is a corresponding increase in the numbers of mental health clients that come to her service for assistance. David Lawson reported a similar phenomenon at his service, where there had been a sharp increase in the number of mental health clients immediately after the closure of the Mental Health Unit at Bundaberg Hospital.

Susan discussed the demands that helping a mental health client can make on her service, and noted that mental health clients often make very frequent contact with their counsellors and require a much higher level of assistance. Lyn noted that clients with serious mental health issues usually manage to keep up negotiated payments with creditors when using their medication, but that many arrangements fall down if the client stops. Serena made the valuable suggestion that financial counsellors should try to better educate local mental health services about want they can and can’t do.

Emma reported that she was seeing an increasing amount of clients who were expecting unreasonably quick service or who wanted immediate assistance. In a similar vein, Emma is also seeing more clients who are coming in to be assisted with bankruptcy, but who do not want to look at any other financial options. Many such clients have been expecting her to help them rush through their Statement of Affairs and facilitate a rapid bankruptcy. Lyn noted a similar trend amongst clients at her service.

The bottom line in this discussion came back to funding, with many participants feeling that these trends were all adding significantly to the workload and stress of their job, and that CPI increases in funding did not seem to be enough to allow the service to function at an effective level. David Tennant noted that AFCCRA was considering producing a paper on this issue.

3. Increase in aged clients with financial problems

There was a clear trend amongst participants to be seeing a growing number of elderly clients with credit card debts they cannot repay. Jennifer noted the current case of a client in his eighties with more than $100,000 in credit card debt, John has an elderly client with a $23,000 credit card debt, Tania has an 88 year client with a large credit card debt, and Lyn has a 93 year old with a $37,000 credit card debt.

When trying to explain the trend, it was generally agreed that unsolicited credit limit increases were a primary contributing factor, with many clients obtaining their cards during their working life and accepting big increases during retirement to try and make ends meet. Many participants felt that problem gambling was also a significant contributor, with many clients gambling their pension money and then borrowing on the credit card for everyday living expenses.

It was also felt that a number of elderly clients were having problems with reverse mortgages. There is an increasing number of such loans, and an increasing number of less-reputable lenders offering them. Of particular concern was the growth in no-doc, low-doc and time limited reverse mortgages to the elderly, products that have a high potential to cause problems and leave the borrower in significant debt late in life.

Credit Card Scam

Sharkwatch recently received a communication originating from the Department of Communications, Information Technology and the Arts (DCITA) regarding a clever credit card scam. Although we have not received any reports of the scam directly, we are concerned that if such a scam does operate, financial counsellors should be aware of it.

According to the communication we received, the victim is contacted by phone by someone who has already obtained their credit card number and home address, and presents themselves as being from the Security and Fraud Department at VISA or Mastercard. They are told that an irregularity has been flagged on their VISA transaction list and are then asked whether they have recently purchased something (often an anti-telemarketing device) for an amount just less than $500 (the usual ‘flag’ amount for unusual purchases).

Once the victim confirms they made no such order, they are told their account will be credited for that amount. The caller appears authentic because (a) they have the victim’s card details and never ask for the actual card number (b) they give a 6 digit ‘Control Number’ (job number) to refer to in their dealings with VISA, and © they give the actual VISA phone number for the victim to call back should they have any questions (1800 VISA).

Having established their credibility, the caller then tries to extract the real information that they want from the victim. They tell the target that they need to “verify that you are in possession of your card” and ask for the 3 digit pin number on the back of the card. This is the code that allows someone who already has the card details to actually use it for purchases. Once the code is given, the caller responds with “That is correct. I just needed to verify that the card has not been lost or stolen, and that you still have your card. Do you have any other questions?”. When the victim says “No”, the caller thanks them for their cooperation and politely hangs up — and immediately makes a transaction on the victim’s account for an amount just under $500.

This scam is clever because it appears to be authentic and requires the victim to provide very little information.

People who receive such calls should immediately hang up and file a Police report. Above all, people should NEVER provide a stranger with their 3 digit pin. Remember, VISA or Mastercard will never ask for card information because they already have it on file.

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Round Up

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

Queensland

FCAQ Conference

Although the annual conference of the Financial Counsellors Association of Queensland (FCAQ) will be just a fortnight away when this issue of Sharkwatch goes to press, we feel it is important to include details regarding the conference for Sharkwatch readers who may want to attend at short notice.

The official conference will run for two days, but events either side mean that some will be attending for three. In brief, the details are:

Conference dates:
Tuesday March 27 to Wednesday March 28, 2007.

Conference venue:
Virginia Palms International Resort,
Virginia (a northern suburb of Brisbane)

How to register:
Contact FCAQ, PO Box 271,
Fortitude Valley, QLD, 4006.

Program:
Monday: Afternoon meeting of financial counsellors funded under the Sugar Industry Reform Programme.
Tuesday: Conference proper begins with registration at 8.30. Tuesday features speakers on a range of topics, including counselling mental health clients, family law, working under stress and client contracts.
Wednesday: Most of the presentations focus on issues related to the FC Diploma in Queensland.

New South Wales

FCAN Conference

The annual conference of the Financial Counsellors’ Association of NSW (FCAN) will be held from Sunday April 15 to Wednesday April 18 at Charles Sturt University at Bathurst. The theme for this year’s conference is “Australia, a changing country … older and wiser? The effects on financial counselling”.

Conference dates:
Sunday April 15 to Wednesday April 18, 2007.

Conference venue:
Centre for Professional Development,
Charles Sturt University, Bathurst.

How to register:
Contact Kevin Howard,
CreditLine Central West,
PO Box 775, Bathurst, NSW, 2795.
Phone: 02 63 323 456

Program
Sunday: Registration from 12.00 noon, Sessions on Sunday ‘set the scene’ for the conference.
Monday: Official opening; guest speaker Peter Andren, MP; sessions on ‘Supporting an ageing population’, ‘Counselling clients with mental health issues’, and ‘Counselling older clients’. AGM in afternoon.
Tuesday: Sessions include ‘Centrelink issues’, Counselling clients with mental health issues’, and ‘Counselling older clients’ plus a ‘Hot Topics’ session later in the day.
Wednesday: Sessions include ‘Child Support Issues’, Rental Housing Issues’, ‘Community Education’ , and ‘Financial Literacy’. Conference closes after lunch at around 1.00 p.m.

Maps of Charles Sturt university are available online at http://www.csu.edu.au/about/maps/bath-map.html, and tourism information about Bathurst can be found at http://www.bathurst.nsw.gov.au/tourism.html.

Land repossessions in NSW double in 3 years

At Sharkwatch we were disturbed to read a piece by Jessica Irvine in the Sydney Morning Herald (Feb. 8). Jessica wrote that “a record number of NSW families faced repossession proceedings in the NSW Supreme Court last year”, with “the number of claims for possession of land in the state” jumping “10 per cent last year to 5368”. In addition, NSW recorded the biggest jump in loan arrears of all states over the year to June 2006. More disturbingly, .the article notes that “repossession claims have more than doubled over the past three years”.

The article quotes the Federal Opposition Treasury Spokesman, Wayne Swan, who suggests that a central issue is “the burden of interest repayments”, which has been made heavier in recent years by Reserve Bank increases to interest rates.

It is noted in the article that the Reserve Bank is closely monitoring indicators of financial stress in the NSW mortgage belt, and recently received information about the growing number of mortgagee sales in NSW, despite the number of loans overdue by more than 90 days remaining at historically low levels.

“In its latest financial stability review, the Reserve noted that NSW mortgage holders face particularly tough times as house prices decline in outer areas of Sydney”, a factor that would certainly contribute to a rise in mortgagee sales in NSW.

Western Australia

Step UP loans

We were pleased to hear that Step UP loans are now available in WA. These are low interest loans for amounts between $800 and $3,000, that can be borrowed for the purpose of purchasing personal, domestic and household goods and services, but not for other purposes such as paying rent, moving house, or obtaining a bond. Currently Step Up is only available to members of Culturally and Linguistically Diverse (CALD) communities in Perth, but will become available to non-CALD individuals in Perth, Geraldton and Kalgoorlie later.

The contact person is Bev Francis from Step UP loans at Mercy Community Programs (phone 08 9208 4410).

New information on the FCRP website

The Financial Counsellors’ Resource Project (FCRP) in WA has recently updated its website (found at http://www.fcrp.org.au) with a whole swag of valuable information, including new publications on:

• Unjust contracts and the credit code
• Rules and boundaries for workers in the community sector (including significant information on relevant legal frameworks)
• Credit code training materials
• Debt agreements and other alternatives to bankruptcy
• An updated bankruptcy checklist

In recent times, Ian Macdonald (the FCRP solicitor and a terrific bloke), has been particularly productive, putting together many valuable papers for financial counsellors on a wide range of legal topics. Many of these papers are now available on the FCRP website.

We should also mention that a number of informative documents in the FCRP website are password protected, and so financial counsellors who do not yet have access should contact the FCRP (email fcrp@fcrp.org.au) to obtain a username and password.

SIRP News

Sue Barrett from the Department of Families, Community Services and Indigenous Affairs (FaCSIA) has noted that FaCSIA will be contracting an independent evaluator to evaluate the SIRP program. We believe that the evaluation will take place between April and June this year, and more information on who the evaluator will be is expected around late March.

Liz Smith and Sue Barrett from FaCSIA both attended the FCAQ conference last year, and Jan Pentland has indicated to SIRP counsellors that Liz and Sue will probably both attend this year as well. If that is the case, financial counsellors with SIRP funding will be able to find out more directly from either Liz or Sue at the conference.

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In the Media

Duped investors now count as creditors

Original story by Tim Dick

This story follows the precedent set by a High Court ruling that when a company misleads shareholders and is then wound up, the shareholders are entitled to treatment equal to that of the creditors. Previously, the assets of a bankrupt company would first be distributed to creditors and the liquidators. If there was then any money left over, the duped investors could then claim for a percentage of the remainder.

However, after hearing a claim by Luka Margaretic that the Sons of Gwalia gold mining company had not made their precarious financial position known to him (and others) at the time that he purchased his shareholding, the High Court ruled 6–1 that his claim was equal to that of a creditor. This ruling has greatly increased the likelihood that Mr Margaretic and other duped investors who have bought shares in companies that are subsequently wound up, will be able to regain some of their investment back.

Sydney Morning Herald, February 1, 2007

Elderly risk losing homes in reverse mortgage trap

Story by Kelly Burke (Consumer Affairs Reporter)

“Older Australians looking to cushion their retirement with reverse mortgages are at risk of losing their homes, according to an investigation of contracts offered by major lenders.

“The Commonwealth Bank of Australia, Macquarie Bank and WestBank, along with 10 smaller non-bank lenders, were criticised in a report prepared by the consumer watchdog Choice for failing to meet minimum requirements in their contracts.

“The analysis of 23 lenders found “glaring deficiencies in product information and vague default clauses” that could be triggered by minor oversights. “Failure to pay council rates on time, for example, could constitute a default on the loan in some cases, Dr Nick Coates of Choice said.

“Elderly consumers … are by definition a vulnerable group so they need a much higher standard of product information and consumer protection than [the lenders] are currently offering,” Dr Coates said. “They need simple, clear contracts with no hidden clauses or catches.” A reverse mortgage allows older home owners to borrow money against the value of their property. The loan does not have to be repaid until a borrower moves, sells or dies.

“But asset-rich income-poor retirees could find themselves trapped, or even face losing their homes, under contracts that fail to offer a no-negative equity guarantee. [Such a] guarantee means [that] borrowers can never owe more than the value of their properties. Yet Choice found that less than half of the 23 contracts analysed offered such protection.

“The peak industry body for reverse mortgages, the Senior Australians Equity Release Association of Lenders, said yesterday that it supported Choice’s findings. A spokesman for Macquarie Bank said it was overhauling its reverse mortgage loan contracts.”

Sydney Morning Herald, February 28, 2007

Customer Rage

Original story by Ben Cubby

This article centres on recent findings that the incidence of customer rage is increasing because people better know their rights and have less free time to reflect and calm down after unsatisfactory dealings.

Reported stories include:

“A man who was not allowed to return an unused can of paint drilled a hole in it and carried it dripping around the store;

A woman who wanted to exchange baby formula at a chemist became infuriated, returning later to spray the formula over staff;

A man who was told his electricity would be disconnected when his bill was eight weeks overdue threatened to blow up the power company’s headquarters.”

Sydney Morning Herald, January 4, 2007

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