October 2005

New Debt Collection Guideline, with penalties for non-compliance - Are you complying?

On 14 October 2005 the Australian Competition and Consumer Commission (ACCC) and the Australian Securities and Investment Commission (ASIC) released a joint debt collection guideline. The guideline has been produced for debt collectors, collection agencies, in-house collection departments of private businesses and government bodies and creditors who use outside collection agencies to collect debts or who sell or assign debts to third parties.

The purpose of the guideline is to explain how various pieces of Federal Legislation including the Trade Practices Act 1974 and the Australian Securities and Investment Commission Act 2001, apply to debt collection activities to prevent unacceptable debt collection conduct.

Penalties for Non Compliance

Importantly the guideline highlights possible penalties for a collector or creditor who fails to comply with the relevant legislation. In some circumstances the offender can be liable to a fine of up to:

  • $220,000 (in the case of the individual)

  • $1,100,000 (in the case of corporations)

Creditors can be Liable for their Collection Agents

The guideline confirms that a creditor (as principal) will usually be liable for their collection agent's conduct when that conduct comes within the collection agent's express or implied authority. Creditors are encouraged to use the guidelines to ensure that not only do their in-house collection activities comply, but also to incorporate the guideline into contractual and compliance auditing arrangements with external collection agents and other debt recovery service providers.

Reasonable Conduct

The guideline provides practical guidance in respect of what could be regarded as reasonable conduct in the collection of debts. For example it provides a schedule of reasonable times when a creditor or its agent may contact a debtor. These reasonable times to contact a debtor are restricted to:

  • contact by telephone? Monday to Friday 7:30am to 9:00pm, weekends 9:00am to 9:00pm.

  • face to face contact? Monday to Sunday 9:00am to 9:00pm.

  • workplace contact? normal working hours (9:00am-5:00pm)

  • national public holidays? no contact recommended

Reasonable Purpose

The guideline asserts that a debtor should only be contacted for a reasonable purpose. Examples of a reasonable purpose include:

  • to give information about the debtor's account

  • to convey a demand for payment

  • to accurately explain the consequences of non payment, including any legal remedies available to the collector/creditor and any service restrictions that may apply in the case of utilities (for example electricity)

  • to make arrangements for repayment of a debt

  • to put a settlement proposal to the debtor

  • to review existing arrangements after an agreed period

  • to ascertain why earlier attempts to contact the debtor have not been responded to within a reasonable period

  • to ascertain why an agreed payment arrangement has not been met.

What is not Reasonable Contact

The guideline states it is not reasonable to contact a debtor to:

  • frighten or intimidate the debtor

  • demoralise, tire or exhaust the debtor

  • embarrass the debtor in front of other people.

Representations Regarding the Legal Status of a Debt

The guideline specifically states that creditors and collectors should not make misrepresentations about potential legal action, including:

  • representing that legal action will be taken when a debtor's debt is actually statute barred

  • misrepresenting the nature or process or purpose of correspondence (often done by sending letters of demand that create the impression that they are in fact court documents)

  • suggesting that telephone calls are recorded for "training purposes" when those calls may also be used as evidence against debtors

  • misrepresenting that failure to pay a debt is a criminal or police matter

  • stating or implying that instructions have been given to start legal proceedings when this is not intended or no such instructions have been given

  • stating or implying that legal action has already been commenced or that judgment has been entered when this is not the case.

What Should You Do?

The publication of the guideline indicates that ASIC and ACCC will monitor compliance with Federal law in this area with renewed vigour. It is important that your in-house debt recovery team is made aware of and complies with all of its obligations under the law and that any external debt recovery service that your business engages demonstrates to you that it is familiar with the guidelines and contracts with you to comply with the law.