If you want to put a fire out, you don’t throw gasoline on it. It’s pretty obvious it’ll make the fire bigger and burn out of control. So when people are already struggling with paying off debts, layering significant fees and penalties on those who actually choose to pay isn’t fair. These practices add undue emotional stress on top of existing debts.
What’s more, these approaches often target those on the lowest incomes making their ability to pay the debt back worse, if not impossible. Unfortunately it’s more commonplace than you think with all levels of government and some of NZ’s largest companies engaged in the practices of adding significant fees to overdue debts.
While the function of credit is critical to the economy, new CCCFA regulations were devised to crackdown on irresponsible lending that adds to or creates financial hardship. To stop banks, retailers and loan sharks alike saying: borrow some more money or buy this on credit, when clearly those people wanting to borrow can’t comfortably service the debt.
Now, with the rules tighter, every lender, including multinational banks, are taking a conservative approach to loan approvals. And when you look at the fines it’s no wonder. Hefty Civil Pecuniary Penalties (of up to $600,000) are in line for who those deemed to have breached the rules.
For the first time too, the Courts can now enforce ‘affordable repayments’ and companies need to disclose every ‘debt collection step’ as well as advise the Commerce Commission of their dispute resolution schemes including offering financial mentors and details around policies for hardship applications.
Which means scrutiny won’t only be applied to whether the loan itself breached due diligence, but also to the methodology and practices of those engaged to recover the unpaid monies. So, doesn’t adding all these additional fees to a debtor already in hardship directly cause additional hardship? The answer is yes.
And that means managing people in hardship, via socially responsible debt recovery, where no fees or other charges are added, is a much fairer way. It also helps ensure responsible lending provisions are met, something we at DebtManagers believe is absolutely the right approach. Of course, when it’s not genuine hardship but a customer who just won’t pay it is reasonable that they pay an additional ‘cost based fee’, as recommended by the MBIE in 2018.
Meanwhile, a whopping 41% of Kiwis have credit card debt and 17% incite it as their leading cause of financial stress. With so many consumers utilising credit, a percentage of bad debt is unavoidable, it’s just life. People lose jobs, get injured, relationships break up, there are any number of mitigating circumstances that can cause sudden financial hardship. Getting these customers out of hardship is DebtManagers’ specialty. And in the process, we ensure our company clients comply with CCCFA recovery methodology by identifying hardship and then managing the situation fairly.
So how do we identify hardship? Well, unlike the lawyers who draft regulations, we’re on the ground and in the communities where our first-hand experience enables us to recognise real need and understand that hardship should be based on individual circumstances, not a one size fits all. By getting to know our customers, we can better appreciate the tough times they might be facing.
We work with nationwide financial mentor networks to link those struggling with repayments to independent advice and representation.
We work with customers to create tailor-made, affordable repayment plans and never add fees or apply excessively high interest. With time and guidance, we help manage those who have struggled with their finances out of debt and teach them valuable financial literacy along the way.
Meaning you can rest assured that our approach to recovering your unpaid debt is well within the new CCCFA regulations, ensuring both compliance for your company and empowerment for your customers. Customers who can then return back to your business, often singing your brand’s praises to become loyal advocates for life.
So, if your company is rightfully concerned about the CCCFA rules, and simply being fairer, why not have a chat with us at DebtManagers? With our team onboard, you’ll have built in strategy to responsibly deal with the changing circumstances of your customers, and make sure your company’s compliance and reputation is assured.