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05-289 ASIC calls for debt collectors to improve practices on old debts
The debt collection industry needs to review its practices in relation to old debts, where the legal limitation period has expired, according to a report released by the Australian Securities and Investments Commission (ASIC) today.
The ASIC report, Collecting statute-barred debts, found that debt collectors making demands for payment of old debts need to do more to avoid the risk of misleading and deceptive conduct, unconscionable conduct and undue harassment.
‘There is room for improvement in the guidance and training given to debt collection staff’, Mr Greg Tanzer, ASIC’s Executive Director, Consumer Protection said.
Statute-barred debts are debts on which the legal limitation period has expired. The limitation period is set under state law and there is some variation across states. The period is usually six years after the debtor defaults on regular payment obligations under the contract, but it can be revived by subsequent payment or acknowledgement of the debt. Where a debt is statute-barred, the debtor can raise that fact as a complete defence in any legal proceedings for recovery.
Mr Tanzer said the effect of this law raised a critical question for creditors and debt collectors in that if legislation confers on a debtor the right to effectively knock out any legal action for a debt that is statute-barred, it raised the question of what type or level of collection activity would be either appropriate or permissible for that debt.
‘We believe the industry needs to address the ability of staff to identify whether a debt is statute-barred and what collection activity can take place if it is statute-barred’, Mr Tanzer said.
‘Some agencies avoid the risk of breaching the law by not collecting these old debts or by having very strict procedures to avoid misleading, or acting unconscionably towards, consumers. However, a number of agencies reviewed by ASIC did not have adequate procedures for checking whether a debt was statute-barred or did not adjust their collection methods where they knew the debt was statute-barred. If these agencies try and collect these debts with their usual practices they are at risk of breaching the law.
‘For example, where a debt is statute-barred it would be misleading to suggest that the consumer must pay it and that its age makes no difference. It might be unconscionable to pressure a consumer to make immediate payments when they are in the process of getting advice as to whether they have to pay’, Mr Tanzer said.
ASIC investigated the conduct of collection agencies following the recent decision of the Supreme Court of Victoria in Collection House v Taylor. The Court found that, in the particular circumstances of the case, attempts by Collection House to convince the debtor to pay the debt were unconscionable.
‘That decision indicates that where a consumer does make payments on a statute-barred debt, that is they make payments that they did not legally have to make, the courts will look carefully at whether they were misled or treated unconscionably, particularly if they are struggling financially or otherwise vulnerable’, Mr Tanzer continued.
ASIC will, jointly with the ACCC, be releasing guidelines for the debt collection industry on 14 October 2005. The guidelines will address the issue of statute-barred debts as well as other compliance issues in the debt collection industry. Concurrent with the guidelines, the agencies will also be releasing tips and advice for consumers facing debt problems. ASIC will work with the industry to assess whether changes have been implemented in light of the report's findings.
ASIC and the ACCC share federal responsibility for enforcing the consumer protection provisions in the ASIC Act and the Trade Practices Act in relation to debt collection. For further information see Complaints about debt collection activity—the responsibilities of Commonwealth agencies (October 2004) available at www.asic.gov.au under ‘Publications’.
A copy of the report is available from the ASIC website at www.asic.gov.au. The decision in Collection House v Taylor can be found at www.austlii.edu.au/au/cases/vic/VSC/2004/49.html and it is also summarised in the report.
End of release
Download a copy of:
- Collecting statute-barred debts, an ASIC report
- Complaints about debt collection activity—the responsibilities of Commonwealth agencies