DebtManagers believe that regulations surrounding the arrears management industry should be strengthened for greater guidance in what is a critical part of the economic cycle.
Any new set of regulations should be comprehensive and provide more consistency across both private and public sectors, and be in line with global best practice.
The current situation is confusing for both companies and customers alike with a regulatory vacuum across overdue debts as a whole. And while we believe that bad conduct isn’t widespread, in a policy vacuum, there’s a lack of understanding from both customers and companies as to what’s best practice.
Right now, different types of debt have different governing regulations. Between owing the government money to owing banks, non-bank lenders, retailers or utilities – consumers find themselves dealing with a variety of different arrears management practices.
Some methods automatically impose fees and very high interest, some send increasingly threatening letters, some bombard customers with escalating and automated electronic communiques, many use robots to call incessantly, while others, including government departments, remove sums from your salary without consultation or a fair and easy process to identify hardship.
There is simply no consistency, and when confusion like this exists, it often leads to anger and frustration. Apart from DebtManagers, few offer customers empathy, guidance, more time to repay the amount or advice around receiving independent, financial mentorship.
At a minimum, the following areas need more focus:
Fees/interestThe practice of adding punitive fees and default interest directly impacts on the quality of life of families, children, and all those in lower socio-economic circumstances across all ethnicities. And these communities are already struggling to provide or enjoy a basic standard of living – especially in the current cost of living crisis. So, we think it’s time to turn things around and ensure the debt cycle is fairer for everyone involved.
Clearer guidance around hardship testing/debt arrears managementNew Zealand often leads the way in protecting vulnerable people, but Australia and the UK have set the standard in terms of guidelines that cover all aspects of best practice debt management.
Here in NZ, there’s inconsistency between debt types and collections approaches. For example, Government can use their statutory powers to deduct debt from an individual’s wages without any consideration to affordability, hardship or vulnerability.
In contrast, consumer finance debt has strict rules for hardship and vulnerability testing at both the origination stage and when the debt ‘turns bad’. Those who breach these obligations are subject to personal liability. Further, if these private companies wanted to enforce the collection of debts where customers refuse to pay, they require the court to decide on the fairness of the legal claim against the debt. A hurdle that Government does not require. It’s this type of inconsistency that needs addressing.
Contact conductSpecifically, and in line with what’s working well in Australia and Britain, regulations should cover contact conduct – specifically:
- Contact definition, frequency limits, methods and times;
- Appropriate conduct towards debtors (or their representatives) regarding information disclosure, harassment, misleading conduct and representations and conduct during negotiations;
- Role of financial mentors and debtor representatives, their obligations to both debtors and creditors including standards of training, conduct and potentially licensing;
- Privacy obligations regarding individuals and businesses involved in the debt management industry, specifically processes and procedures for disputing debts.
Use of attachment orders
- Attachment orders and legal escalation are tricky subjects and deserve further discussion as a standalone topic;
- That said, customers who refuse to pay when they can pay are simply driving up costs for those who do respect their obligations.
Attachment orders are a necessary function and deterrent for poor customer behaviours and are used typically as a last resort.
Any regulation in this area should consider minimum standards for moving to legal recovery processes, affordability assessments, where possible, for attachment orders. What’s more, certain classes of citizens shouldn’t be protected from attachment orders otherwise, we put at risk the provision of goods and services (including finance) to these groups.
In addition to guidelines for the industry, the legal framework surrounding debt management should be strengthened to protect debtors from harassment and escalating financial hardship.
- Amending the Fair-Trading Act 1986 to provide for a criminal offence of “undue” harassment (to align with Australia’s approach), in addition to the current civil claim of harassment;
- Require any interest charged to be “reasonable” similar to the current restriction on the
reasonableness of fees under the Credit Contracts and Consumer Finance Act 2003;
- Limiting debt collection fees to a cost basis, with the ability to suspend them when hardship is demonstrated;
- Requiring the licensing of persons engaged in debt management similar to Australia;
- Creating a debt respite scheme similar to Britain’s where eligible debtors are protected from creditor action for up to 60 days, including freezing most interest and charges on their debts.
Aggressive and sustained debt collection conduct always hurts the most vulnerable.
Having said that, we don’t want to give people a free pass and believe that those in debt should repay what they owe for goods and services provided.
But we do want to help those in difficulty climb out of debt and regain financial control for the good of society and the economy as a whole.
Comprehensive, consistent, and enforceable guidelines that apply to the government and private sector alike will help achieve this.
In the meantime, we’re redrafting our own long-form code of conduct for the arrears management industry.
Please contact us if you’d like more information, but our intention is to ensure the sector is more equitable and contributes to a fairer financial world where everyone thrives.