Budget advisers want the government to crack down on debt collectors saying they should not be allowed to constantly bombard those who owe money.
A report commissioned by FinCap, formerly the National Building Financial Capability Charitable Trust, detailed Aotearoa’s debt collection practices from the perspective of budget advisers.
FinCap’s policy advisor Jake Lilley said one area of concern was the constant communication from collection agencies.
“People are bombarded with debt collector contacts, especially if they have multiple debts, they can receive multiple text messages in a day, multiple emails, and calls from an automated robocall system.
“It just makes it completely impossible to know where to start.”
The University of Victoria, in partnership with FinCap, invited all financial mentoring services under the FinCap umbrella, as well as other organizations offering free financial mentoring services to participate in the research.
The report found that it was not just the high volume of contact, but the type of contact, that was concerning.
“Contact through social media can be difficult for recipients, or phone calls at night (after 9:00 pm) AND on weekends. Contacts that include threats, for example from recovery, they can also cause a burden. Several mentors mentioned stalking on Facebook. ” the report said.
Lilley said changes were needed to the Fair Trade Law.
“[There needs] to be specific regulation and also appropriate penalties when protections are broken, because without that, there is a real power imbalance between people who are really struggling to make ends meet and someone who demands a lot of money. “
“Putting some guidelines into practice and offenses if they break to say, this is a reasonable amount of contact and if someone tells you that they are in a situation where it just isn’t going to work out, constantly stop contacting that person to the point. where it could stress them out and really affect their mental health. “
Lilley said the changes should also include including debt collection companies in a dispute resolution scheme.
Debt buyers must belong to an independent dispute resolution plan, but debt collection agents do not.
“It would be great to see an approach like the Australian regulators, who have pretty clear guidelines on debt collectors and what they should and shouldn’t do, and a really clear line on which you can identify someone who has crossed.”
He said embargo orders were another issue that needed to be addressed.
“An example could be someone who had an old energy debt from when a floor broke down, say, 10 years ago, and at some point was assigned to a debt collector … he never received any paperwork and never really realized it. that someone was chasing them before it went through a legal process.
“Then that creditor goes ahead and asks for a garnishment order, which is basically an order that says, he can take both from someone’s wages and from someone’s benefit.”
He said those orders disproportionately affected beneficiaries.
“We know that there are about 25,000 that go against the benefit per year and approximately 5000 that go against the wages.”
Where does the debt come from?
Lilley said much of the debt was related to utilities, but providers were improving the way they worked with struggling customers.
The report found that energy bills were “by far” the most common debt problem. Auto loans and credit cards were also problematic.
Researcher Victoria Stace said that buy now pay later was also an emerging debt problem.
“There is no reason why they shouldn’t be treated like a credit agreement and then subject to Responsible Lending rules.”
There was also a widely held view that most of the debt was unaffordable from the start.
“Nine times out of 10 they probably shouldn’t have gotten the money on loan because they failed the affordability test … we see it too often,” said one interviewee.
Lilley said that the upcoming changes to the Consumer Finance and Credit Contracts Law would make a difference.
“Better affordability evaluations will mean that people won’t get into really tough situations in the first place, then move on to debt collection.
If you or someone you know needs further support regarding debt collection, please contact the MoneyTalks helpline at 0800 345 123.