Unlike in Hollywood movies, in real life, sometimes it’s hard to tell the good guys from the bad guys. When there are banks involved, it is usually the big, wealthy financial institution that is the evil character, using its market power to generate billions of dollars of profits for greedy shareholders and their fat-cat executives. In some cases, this characterisation is entirely accurate, for example, the banking industries use of penalty fees for a decade was an abuse of market power directed largely toward unsophisticated and powerless customers.
But sometimes, the Goliath isn’t always totally wrong, and David isn’t always completely innocent. This however, wasn’t the view taken by Fairfax’s Walkley-award winning, crack investigative duo of Nick McKenzie and Richard Baker who continued their investigation into the practices of ANZ Bank, claiming that the bank had been “illegally by harassing debtors and seizing money from their accounts in breach of consumer laws”.
Baker and McKenzie also stated that ANZ had breached consumer laws and its own guidelines through instances of “phone harassment and the inappropriate issuing of legal threats and default notices to debtors who had already agreed to make a repayment or faced financial hardship”.
The article then noted that “the breaches may be systemic and fuelled by a relentless drive to maximise debtor repayments”.
Funnily enough — maximising debtor repayments is exactly what banks do. If they didn’t, they would be out of business pretty soon, along with billions of dollars of shareholders, depositors and taxpayer monies.
So the “villain” in the story isn’t always the bank employee, but rather, the debtor who has borrowed money and refused to pay it back. In simple terms, when someone takes out credit on an unsecured basis (for example, through a credit card or personal loan), they agree to make repayments based on a contract — a legally enforceable promise. Had they not made such a promise, the lender would not have lent them the money in the first place — instead, they would have lent the money to someone else or invested it in a less risky investment.
While the circumstances of individual debtor may no doubt change (in many instances, through bad luck (illness) or bad management) this doesn’t change the fact that the borrower made a legally enforceable promise to repay the debt at a certain time.
ANZ (or any bank) undertakes a set process for debts. An initial polite reminder, followed by a written letter — eventually, if the debtor continues to ignore their obligations, the lender is forced to take harsher action — possibly undertaking bankruptcy proceedings.
Given the volume of transactions undertaken, there would no doubt be instances in which the banks (or their debt-collectors) have over-stepped the boundaries of what is ethical or legal in some instances. And undue coercion or harassment of debtors, especially for relatively trifling sums, is not only unnecessarily harsh and unethical, but is also unlikely to serve a substantial benefit to the lender in any case.
But too often borrowers (be it individuals or even business) consider credit to be some sort of divine right. It is this attitude that has led to Australian leveraging itself into a housing bubble (mortgage debt has risen from 30% to 90% of GDP in a little more than a decade) and why Australia has one of the highest levels of private debt globally (higher than even the United States).
Debt, like capital or labour, is a scarce resource — it is the role of banks to ensure that debt is allocated efficiently. Banks unfortunately get it wrong and when they do, have a responsibility to shareholders and the community as a whole to rectify their errors and minimise bad debts. While banks must undertake this process in a fair and ethical manner, they are not solely responsible for borrowers breaching their legal and moral obligation to repay a debt that is legally owing.
What is most distasteful however is when the bank sells its interest in the debt – for cents in the dollar – to a purchaser of defaulted ledgers after the most cursory attempts to make some form of settlement with their former client .
I have defaulted on 7 credit cards with aggregate debts of $80000. ANZ and AMEX have been the most supportive whilst Westpac has been a disappointment after acquiring what was originally a defaulting Virgin Credit debt of $22000. Maybe they worked out who they were contending with but their failure to even contact me was a surprise.
So it was no surprise to find after receiving the notice of assignment that the purchaser started asking for the $22000 . This is a debt that has cost them probably 6 cents in the dollar . So they can agistate freely and aggressively ..and so they have despite my purported notice of rescission in accordance with section 925 of the Corporations Act . What constitutes a financial services business being a moot question …of which I have special and painful experience.
In one week I received 5 calls to my place of employment and mobile from this fresh assignee …and this despite well established ACCC conventions about what constitutes harassment.
We need fresh legislation to curb the rights of the assignee in these circumstances.
Debt collectors in the form of the lender itself or in the form of an assignment of debt to a debt collector must comply with the ASIC Regulatory Guide 96 “Debt Collection Guideline: for Collectors and Creditors” which in turn references Section 60 of the Trade Practices Act and Section 12DJ ASIC Act.
These guidelines includes behaviour restrictions such as harassment or coercion.
Much consumer debt is unsolicited with no independent requirement for financial data to prove that the approved client can service the debt. It is approved on a scoring system such as stability of address, stability of employment, clean credit etc. It is essentially either pre-approved credit or self-assessment on behalf of the applicant.
Much of this debt is also insured against default by the lender and some types of such credit include insurance premiums paid by the client to insure against the eventuality of default.
Because the structure of this debt is formulaic according to the requirements of the securitization of the debt there is little scope to re-negotiate the debt. It is also a numbers game where the majority pay, the minority default and the price of the default is factored into the price of the debt.
Debt collectors are often paid on a commission basis so the more they collect the more they get paid.
All this does not excuse idiot debt collectors harassing people and driving them crazy with worry when debts can be easily restructured.
The interest rates applicable to much of this debt in the case of default is predatory and rapacious. It is also possible that such rates and penalties are not enforceable. Unsolicited debt offerings should be outlawed.
In addition, ddid you know that: when a lender assigns a debt to a debt collector it is for a lesser amount. In other words if it is a credit card debt for $10,000 it is sold or assigned to the debt collector for $5,000. The debt collector then gets to work to collect the full $10,000. How the bank recovers the other $5,000 is another very interesting issue.
Schwab’s piece is confused.
Of course creditors may pursue their legal remedies against debtors. No one is criticising the ANZ Bank for that. Neither is anyone suggesting that debtors who breach their legal obligations are ‘innocent’.
The suggestion is that the ANZ broke the law when trying to collect some of its debts. Neither it nor any other body should seek to enforce a legal right by using illegal means. Simple.
Crikey – I hope you have not given Stephen Matthews credit. They should bring back debtors prison for people like this.
Borrowers do think that they have a “divine right” to credit and as a result we have a housing price bubble as well as a massive foreign debt of over 1 trillion dollars. A great article that states the facts rather than spin