Protecting Debtors
The other day I was talking to a gentleman who used to work as a repo agent. He’s a very softly-spoken, charming person, and when I say in seminars that the most effective credit managers and collectors I’ve known were those with the best people skills, he’s one of the people I’m thinking of. He was telling me that of all the hundreds of repossessions he did, many of them repossessing furniture in South Auckland, there was only one situation where he thought he was going to die. This was when a debtor in Christchurch pointed a spear gun at him. Fortunately, his colleague came up behind the man and removed the gun.
Parliament usually has more focus on protecting debtors from creditors, rather than creditors from debtors. What I actually wanted to talk about in this article is New Zealand’s debtor protection legislation. Consumer protection legislation is rampant in societies like ours. Governments see cases of rapacious lenders and consumer retailers and enact more and more laws to protect the innocent consumer/voter.
New Zealand hasn’t gone as far as some countries in protecting consumers from debt collectors. In the USA they have the Fair Debt Collection Practices Act which includes a "mini-Miranda" clause. You may be familiar with American cop shows where the suspect is read his rights. ("You have right to remain silent," etc.) The US case which said that this was required was called Miranda.
The FDCPA says that debt collectors are forbidden from calling consumer debtors who ask them not to call again. More than that, there is a requirement, at least in some states, that the collector tells the debtor that they can ask them not to call again.
In New Zealand, the problem area has been perceived to be repossession. It’s usual for a hire purchase agreement to contain a provision allowing the creditor to enter the defaulting debtor’s premises to repossess the goods. This is no small thing, and legislators see it as necessary to protect debtors from abuses. Under the Credit (Repossession) Act 1997, strict rules set out the notices which must be served on the debtor.
The prepossession notice requires the debtor to remedy the default (ie. pay the arrears) within 15 days of the service of the notice. This notice is not necessary if the creditor has reasonable grounds to believe that the goods have been or will be destroyed, damaged, endangered, disassembled, removed or concealed. If this issue ever gets to court, the onus is on the vendor to prove the existence of these "reasonable grounds". This is not that easy to do.
A major change under the Credit (Repossession) Act was that creditors are now unable to repossess goods on Sundays or holidays, or outside the hours of 6am to 9pm. These constraints apply only to residential premises, not to commercial premises.
You may repossess in the prohibited times if, at a time that is not prohibited, you can get the debtor’s permission in writing, after the default. Say on a Tuesday, you get written permission from the debtor to repossess on the next Sunday. We’ve never heard of a creditor getting such permission.
Anyone who has been convicted of a crime of violence or dishonesty within the preceding 5 years is unable to work as a repossession agent. The same applies to people who have been released from prison within the preceding year, or have ever been sentenced to 10 years or more in prison.
The good news for convicted criminals is that they can still work as debt collectors. New Zealand has little in the way of constraints against debt collectors, outside of standard criminal law. The Fair Trading Act 1986 prevents businesses engaging in misleading and deceptive conduct. Collectors and credit managers have been known to be misleading and deceptive in order to collect debts, and could be in breach of the Act. We’re not aware of any prosecutions.
Much of the Fair Trading Act parallels the Trade Practices Act in Australia. Section 23 of our Fair Trading Act prohibits the use of physical force or harassment or coercion in connection with, among other things, the payment for goods or services.
In Australia s60 of the Trade Practices Act prohibits "undue" harassment etc, which may make the behaviour threshold there higher. Although there are no reported court decisions on harassment of debtors in Australia yet, one case is pending, and it is a hot topic there. The Australian Competition and Consumer Commission has issued guidelines on what it considers may be harassment, and both Australian Capital Territories and Victoria have put examples of harassment into their own local legislation. The guidelines and examples include things like:
- frequency of calls (not more than 3 a week or 10 a month)
- times for calling (between 7.30am and 9pm)
- that other steps should be taken before personal visits made
- calls to work should be avoided if requested, and limited messages left
- legal action should not be threatened unless it is being contemplated and is authorised.
Although there are no reported cases in New Zealand and no regulatory bodies seem to be producing guidelines at the moment, our pick is that the developments in Australia may well be followed here before too long. It may be worth reviewing your internal practices, and those of your agents, to ensure that you are comfortable with them
Chartered Accountants Journal of New Zealand