Australian Credit Law Bulletin - Vol 6, No 4, July 2005
A free, plain English review of recent law and items of interest for creditors, produced by Hattaway & Associates Ltd, Credit Consultants. To subscribe send a blank email to: aus-bulletin-join@mailman.hattaways.com
Plain language disclaimer:
This bulletin is not legal advice. Do not make decisions on legal matters based on a brief commentary. Instead, get professional legal advice.
In this issue:
- Credit provider lists business default on consumer credit information file
... as well as doing various other things they shouldn't have done - A default is purged from a credit reporting database after 5 years - can a buyer of the debt relist it?
And what if it's statute-barred? - Lodging a "clearout" as a serious credit infringement
Would a ‘reasonable person’ have concluded that the debtor didn’t intend to meet his/her obligations? - 9 lessons on asking hard questions of overdue customers
Lots of credit staff believe they either don't have the right, or are doomed to failure, if they ask overdue customers about their finances. This article, which appeared in MG Business in July 2005, refutes that.
1. Credit provider lists business default on consumer credit information file
S v Credit Provider [2005] PrivCmrA 18
S borrowed money for a business loan. S couldn’t keep up the payments, but an agreement was reached with the lender on how to repay the remaining amount. S understood that the lender had agreed not to list a payment default with a credit reporter on the S’s consumer credit information file. However, that’s what the lender did.
S made the payments he (or possibly she) had agreed to, and asked the lender to update the credit information file to reflect this. The lender refused to do so until additional charges, such as legal fees and late fees, were paid. So S went directly to the credit reporter, showed proof of payment of the amount on the file, and the file was updated to show that it was paid in full.
The lender had also added the arrangement on the complainant’s credit file as an enquiry, believing that a default could not be listed without a corresponding enquiry listed. S believed that the amount listed as an enquiry was greater than the amount of the arrangement. S also alleged that the amount owed was less than 60 days overdue and therefore could not be listed as a payment default.
The lender was under the misunderstanding that a default listing could be placed on an individual’s consumer credit information file, if that individual had acted as a personal guarantor for a commercial loan. Because the loan wasn’t “a loan that is intended to be used wholly or primarily for domestic, family or household purposes”, this wasn’t “credit” under section 6 of the Privacy Act. So the lender had breached the Privacy Act (section 18E(8)(a)) of by listing the payment default on the complainant’s consumer credit file. Having reached this conclusion, the Commissioner didn’t investigate the fact that the debt may have been less than 60 days overdue.
It breached the same section by listing an enquiry – telling the credit reporting agency of a credit application when no such application had been made at the time or in the amount specified.
The matter proceeded to conciliation. The provider gave written evidence that its staff were provided with training, and a written apology to S. S also wanted compensation for the breaches of the Act. The Commissioner asked S to substantiate this claim. The complainant did not respond so the Commissioner closed the file.
Back to top
Information on our current seminars
2. A default is purged from a credit reporting database after 5 years - can a buyer of the debt relist it?
Q v Credit Provider B [2005] PrivCmrA 16
Credit provider A listed an overdue account on the Q’s consumer credit information file (credit file) with a credit reporter. Five years from the original date of the listing the overdue account notation was purged from the credit file in accordance with section 18F of the Privacy Act.
The debt was then sold and assigned to credit provider B, which re-listed the debt on the complainant’s credit file.
There were two problems with this. First, section 2.8 of the Credit Reporting Code of Conduct prohibits the listing of statute-barred debts. The law on limitation in Q’s state gave creditors six years to bring a debt before the Courts. More than six years had passed since the cause of action arose, so it was out of time. It could not now be listed on the Q’s credit file, even if it had never been listed before.
Second, the information could only be retained on the credit reporting database for 5 years, and paragraph 55A of the Explanatory Notes to the Code says that this includes the re-listing of information beyond the time allowed. Again, the relisting was in breach of the Code.
Credit provider B acknowledged that it had made an error, contacted the credit reporting agency and told it credit reporting agency to remove the listing immediately. Credit provider B apologised to Q who accepted the resolution. And that was the end of the matter.
Back to top
Information on our current seminars
3. Lodging a "clearout" as a serious credit infringement
K v Credit Provider [2005] PrivCmrA 8
K leased a vehicle under a contract with the credit provider. When the lease ended, K was given the option of either purchasing or returning the vehicle.
K did neither so a notice was sent to the complainant giving a seven day deadline for payment or the return of the vehicle. The complainant applied to refinance the residual amount but the application was refused and a further deadline was set.
The deadline again passed without payment or return of the vehicle. The credit provider called K and K said s/he would pay the full amount owed in four days time. The credit provider demanded the immediate return of the vehicle but K refused. The credit provider visited K’s recorded place of residence that day and claimed that an individual at that address said K no longer lived there.
The credit provider then listed the debt on the complainant’s consumer credit information file as a ‘clearout’ (an example of a serious credit infringement). This was done fifty-four days after the date the lease agreement ended. The complainant paid the debt in full eight days after the clearout was recorded.
Section 18E(1)(b)(x) of the Act allows a credit reporting agency to record a serious credit infringement on an individual’s consumer credit information file. The definition of a serious credit infringement in section 6(1) of the Privacy Act includes:
c) an act done by a person... that a reasonable person would consider indicates an intention, on the part of the first-mentioned person, no longer to comply with the first-mentioned person’s obligations in relation to credit.
An example is included in the explanatory notes to the Credit Reporting Code of Conduct. It is where the individual has stopped making payments and the credit provider has made reasonable efforts to contact him/her but has been unsuccessful.
In this case, K’s contact details had not changed since entering the lease agreement with the credit provider. This isn’t what the credit provider was told when at the property, but the parties were in phone contact and payment was promised in four days and actually received in eight days.
The Commissioner decided that a ‘reasonable person’ would not have concluded that K didn’t intend to meet his/her obligations, so it didn’t satisfy the definition of ‘serious credit infringement’ under the Privacy Act.
The credit provider agreed to have the default listing removed and the Commissioner closed the complaint.
Back to top
Information on our current seminars
4. 9 lessons on asking hard questions of overdue customers
Some credit staff are very resistant to the idea of asking customers for “private” financial information. In a recent seminar we were talking about asking customers about their financial situation in the course of collecting debts – asking for financial statements or asking questions such as “how much do you earn?” and “what other debts do you have?” and “what payments are you expecting from your customers?” Someone said, as someone often does, “I couldn’t ask my customers that!” Here are 9 points to consider on this issue.
The first point, and I think it’s an obvious one, is that we’re not talking about asking these sorts of questions in every collection situation. You would only consider asking them if you think it will help for you to know more about the situation. For example, if the customer has already broken a promise to pay and acknowledges financial problems, why wouldn’t you want to ask some questions about their situation? The further along the collection process you are and the more money they owe, the more you can justify. But if you know your customer is a huge, wealthy multinational which can afford to pay your $500 account, you don’t need to ask about their financial situation. If your customer is two days past due and has promised a bank transfer of the full $20 this afternoon, you don’t bother. If the unpaid account appears to be just an oversight, you don’t bother.
A second point to note is that these questions are not impossible to ask. Some people do ask their customers this sort of thing. They find that it’s useful information and they find ways that work for them to ask these questions or variations of them. If they didn’t work regularly enough, they wouldn’t ask them.
Thirdly, you are bound to offend someone, sometime, when asking hard questions, so there is always the risk of losing customers. No-one ever said credit management was always going to be easy. The easy option, certainly, is just not to ask them at all, but in credit management you need the ability to say all sorts of difficult things in situations which are often stressful and delicate. You need the courage to face up to doing so.
These “difficult things” are not necessarily just questions. I know of people who have been successful at persuading debtors to borrow from a finance company, cut down on their cigarette expenditure, or borrow from family. The trick is to be able to say these hard things without having all your customers swear at you and slam the phone down. If you can’t say those hard things well, you either don’t make the calls, or you take a soft line on your customers, or you offend everyone.
Fourthly, you will be able to judge most of the customers from whom you have no chance of getting an answer to one of these hard questions. If your customer is someone who is in a prickly state because of embarrassment or guilt, you don’t bother. If you can tell that the customer hates you for calling them about their account and is on the verge of exploding, you don’t bother.
Fifth, you don’t necessarily just jump straight in with your toughest question. A lot of the “secret” of successful telephone collection lies in your ability to build rapport. You have a customer who has a problem so you ask a series of questions that are clearly designed to help you understand the problem so you can help to find a solution. The first questions are easy and non-threatening. (What day do you get paid? Do you have other accounts that you have to pay ahead of ours?) Remember that many consumer and small business debtors are in a very difficult position. They want to pay their debts but they can’t, and they have lots of creditors ringing them and saying simply, “you have to pay me or else.” If you appear to be trying to help them find a plausible way out of their problems, many of them will play ball.
(Another approach is to be an authority figure, something like a stern headmaster. Some people can pull this off; most can’t. It’s not an approach that works with all debtors.)
Sixth, even when customers do object to answering questions, these objections may be able to be overcome. After all, when someone has breached their contract and failed to pay the money they owe – and especially if they then break further payment arrangements or acknowledge that they are in trouble – why shouldn’t the creditor have some more information about the situation? That’s not an unreasonable argument and will overcome some objections. The other obvious argument is that you’re trying to help and in order to help you need some information.
Seventh, your tone is vital. Find a tone and an approach that works for you. As a broad rule, sincere and non-threatening are adjectives to keep in mind.
Eighth, it’s unlikely that your customers are a special breed who simply can’t be asked hard questions. Let’s take the example of a credit manager who’s dealing with senior managers, say financial controllers, in big corporations, over very large accounts? I’ve had people in seminars tell me that you couldn’t ask hard questions of these sorts of people because you don’t want to lose their business. I disagree. See my first point: if they owe you enough money and the debt’s old enough, you (or someone in your business) must ask the hard questions that need to be asked. Their bankers will be.
The last point, of course, is that you may be right. Let’s say you’re 18 and your customers are all experienced businesspeople, most of them 20 to 40 years older than you. Or perhaps you just don’t have the personality or people skills to build rapport with people over the phone. In such a case, perhaps you’re right – you shouldn’t try to say these things to your customers. But perhaps you should consider that you might be in the wrong job.
Peter Hattaway has been writing a monthly credit management column for the New Zealand magazine, MG Business (previously the Mercantile Gazette) since 1995. This article was published in July 2005.
