Australian Credit Management Trends
When looking a future trends in credit management one only needs to look across the ditch to Australia. Here’s what’s happening in credit management in Australia.One area where we are likely to see some future legislative initiative is consumer credit. Australia has dealt with this through the Consumer Credit Code that applies in all Australian states. The code is very large and very dry even for those with an interest in credit.
The major features of the code include:
- Civil penalties for breach of the Code of up to $500,000 plus compensation for any loss suffered by the debtor or guarantor;
- Stringent requirements for keeping the debtor and guarantor informed.
- The fact that if a debtor experiences any personal hardship caused by circumstances such as illness or unemployment, she may ask you to change the terms of the contract so to allow her to meet her obligations. If you decide to refuse any changes where the debtor’s commitment is $125,000 or less, she may apply to the Credit Tribunal/Court to have the contract changed.
In regard to debt collection creditors must issue a default notice giving the debtor 30 days before repossessing any property. The creditor can’t repossess if less than $10,000 or <25% of the original loan still owed, except with Court approval. Nor can the creditor repossess from a residential property without a Court Order or written consent of all occupiers.
The code is typical of moves by western countries to a more debtor-centred approach to credit law. The code imposes substantial obligations on the creditor to ‘get it right’. In New Zealand we are likely to see this sort of protection for consumers. In the Personal Properties Securities Act 1999 buyers of consumer goods with a value not exceeding $2000 at the time of purchase take the goods free of any registered security unless they had knowledge of the security interest. Purchasers of consumer goods are not required to check to see if there is a security registered over the goods that they are purchasing. So although the Personal Property Securities Act is in general a good thing financial institution staff at a recent seminar gasped in horror at the thought of their security being able to be disregarded so easily.
Bankruptcy is another area where New Zealand typically follows the trends in Australia, albeit a few years behind. In Australia the trend is for increasing numbers of consumers to go bankrupt on their own petition. Of 24,408 people who went bankrupt in Australia last year 93.5% went voluntarily.
Source - Annual Reports by the Inspector-General in bankruptcy on the Operation of the Bankruptcy Act 1966
The effective period of bankruptcy is shorter than it is in New Zealand because of the large number of early discharges. In the last year, 5518 bankrupts where discharged early. The reasons for early discharge are threefold:
- There is no likelihood of any money for creditors and
- The bankrupt has not committed any of the standard offences against the Act (failing to disclose assets, managing a corporation, etc) and
- There seems, therefore, little point in keeping the person in bankruptcy.
Australia has also dealt with the issue of harassment of consumers, which covers things like ringing debtors in the middle of the night. Section 60 of the Trade Practices Act 1974 prohibits corporations from engaging in: physical force, undue harassment or coercion in connection with the supply of goods or services to a consumer, or in connection with the payment for goods or services by a consumer. Based on this the Australian Competition and Consumer Commission has set up guidelines relating to issues such as:
- Time of calls and visits (7.30am-9.00pm)
- Place of contact (ie. particularly, work)
- Frequency of communications (ie. not calling them every 10 minutes)
- Language, violence, and physical force.
In New Zealand the equivalent section is section 23 of the Fair Trading Act 1986 and the guidelines suggested in Australia would no doubt be considered if the matter ever came to court. In Australia the prohibition is only on undue harassment while in New Zealand the prohibition is absolute. You can download a copy of the commissions report and recommendations from http://www.accc.gov.au/pubs/sect60/sec60dis.html.
Another recent development in New South Wales is the passing of industry-specific legislation to deal with industry-specific problems. The Building and Construction Industry Security of Payment Bill 1999 provides for a method under which a person who carries out construction work (or who provides related goods and services) can get progress payments, and a method of dealing with disputes. Major features of the bill include:
- The right to progress payments as stated in a contract or 4 weeks after a previous payment or 4 weeks after the construction work is carried out.
- The progress payments are due and payable either when the contract states or 2 weeks after a payment claim is made.
- "Pay when paid" provisions are of no effect (ie you cannot have a term in a contract saying "I’ll pay you when I get paid").
While the current government’s attitude to industry-specific measures would mean that this type of legislation is not likely to get passed it is still of note that other governments around the world are taking steps to deal with the problem of getting paid.
The United Kingdom last year passed the Late Payment of Commercial Debts (Interest) Act 1998. This Act gives suppliers a statutory right to claim interest on late-paid debts. The Act shifts the cost of late payment to the customer who can of course pay on time and thus not face the cost of interest.
So in summary, there are two major trends around the world. The first is that governments are restricting more and more what creditors can and cannot do when dealing with consumers. The second is that there is increasing recognition of the cost, both to businesses and the economy, of businesses who do not pay their debts. This is resulting in legislation to strengthen the position of trade creditors.