Seeing red: How to handle debt collectors
Are you being hounded by a debt collector? Are the phone calls and texts never ending? Perhaps the debt collector is constantly calling or texting family members or friends to try to get hold of you.
No one wants to be chased for money, especially at a time they are feeling vulnerable and under considerable financial stress. But what exactly is a debt collector? And how are they supposed to behave?
While businesses are entitled to expect payment for a product or service you bought, there are rules and regulations around debt collection. There are also places you can go to get help dealing with them, so don’t feel backed into a corner.
What are my rights when it comes to debt collectors?
Understanding your rights when dealing with debt collectors can make the process less intimidating and ensure that you're treated fairly.
Who hires debt collectors?
Debt collectors, such as Slater Byrne Recoveries, Marshall Freeman and Brodie Collection Services, are typically hired by companies to which you owe money. These range from banks and credit card companies to service providers such as telecom or utility providers. If you've defaulted on a loan, missed credit card payments or have unpaid bills, these companies may hire a debt collector to recover the money owed.
What kinds of debt can be referred to a debt collector?
Various types of debt can be referred to a debt collector. These include:
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- Credit card debt
- Personal loans
- Car loans
- Mortgages
- Unpaid utility bills
- Healthcare bills
- Parking fines or tolls
Essentially, any debt that remains unpaid for a significant period can be sent to a debt collection agency.
Can I be responsible for someone else's debt?
Generally, you are only responsible for someone else's debts if you've co-signed a loan agreement or are a guarantor. A co-signer agrees to be responsible for the debt if the primary debtor defaults, while a guarantor promises to repay a loan if the borrower can't.
However, you should not be held accountable for someone else's debt if you are neither a co-signer nor a guarantor.
Rules about debt collection
The Australian Competition and Consumer Commission (ACCC) has set guidelines about when and how a debt collector can contact you. These are designed to prevent undue harassment and unreasonable intrusion into your life.
For instance, they:
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- Can only contact you between 7.30am to 9pm on weekdays and 9am to 9pm on weekends
- Must respect your request if you ask them to contact you only in writing or through your lawyer
They must not:
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- Contact you on national public holidays
- Invade your private property without permission
- Use aggressive methods or offensive language
- Contact you at inconvenient times or excessively
- Provide you with false or deceptive information, such as saying “you’ll go to jail if you don’t pay”
- Exploit your situation due to illness, disability, age, illiteracy, or lack of legal knowledge
- Share information about your debt with third parties without your consent
How should I respond to a debt collector?
It can be an intimidating experience, but it's essential to stay calm and understand your rights. Here are some steps you can follow:
Be honest
Be upfront about your financial situation. If you genuinely cannot pay, let the debt collector know. They may be willing to work with you to create a realistic repayment plan.
Respond promptly
Ignoring debt collector calls and letters won't make the debt go away. In fact, it can make the situation worse. If you respond promptly to any communication from a debt collector, it shows you're taking the case seriously and are willing to address the issue.
Keep contact details updated
If you change your address or phone number, update your creditors with the new information. This ensures that you receive all communications regarding your debt and prevents any misunderstanding about whether you were notified about the debt.
Consult a financial counsellor
If you're unsure what to do or need advice on handling the situation, consider contacting a financial counsellor. These professionals can provide free, independent, and confidential advice about your financial situation.
Confirm the debt
When a debt collector contacts you, ask for detailed information about the debt. This should include who the original creditor was, the amount of the debt, and any fees or charges. Double-check this information to ensure the debt is genuine and, indeed, your responsibility. You can dispute the debt if you're unsure whether it is yours.
Negotiate a payment plan
If you can't pay the total amount immediately because of financial hardship, try to negotiate a payment plan with the debt collector. This could involve making smaller payments over a longer period. It's crucial to ensure the plan is realistic and affordable, or you will end up missing payments again.
Keep records
Keep a record of all communications with debt collectors. This includes letters, emails, and notes from phone calls. This can be helpful if there's a dispute about what was said or agreed upon.
Get free legal help
If you feel overwhelmed or unsure about your rights, seek free legal help. Community legal centres and Legal Aid agencies around Australia can provide free advice and assistance.
Should you challenge a debt collector?
It’s not uncommon for debt collection services or the companies hiring them to make mistakes.
In Queensland, some people were pursued by debt collectors for Covid-19 test costs that they believed were fully subsidised by the government. One family was asked to pay $360 for three tests without any prior indication of charges. The invoices arrived a week later, and attempts to dispute the charges were unsuccessful.
In July 2022, messages from debt collectors started to arrive, causing significant stress. Other individuals also reported similar experiences with the same testing company, 4Cyte Pathology.
Another example is the controversial Robodebt scheme, a debt recovery program implemented by the Morrison Government. The system used income averaging to identify potential overpayments of welfare benefits, leading to automated debt notices being sent to individuals.
The scheme faced substantial criticism for its inaccuracy and the distress it caused vulnerable recipients. One young man took his own life after he was hounded by debt collectors on behalf of Centrelink. The Federal Labor Government ended the practice of hiring external debt collectors earlier this year.
Common mistakes of debt collectors
Here are other common mistakes debt collectors might make:
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- Trying to collect a debt you don't owe - This could occur due to errors in paperwork or mistaken identity. This is why it's crucial to request proof of the debt.
- Chasing old debt - The age at which a debt is considered "old" or "statute barred" varies by jurisdiction. In most states and territories, a debt becomes statute-barred after six years, although in the Northern Territory, it's three years. In the Australian Capital Territory, it's six years for simple contracts but 12 years for deeds. This is the period after which legal action cannot be initiated to recover debt.
- Harassment or abusive practices - There are laws to protect consumers from harassing behaviour by debt collectors.
- Failure to provide written notice - Debt collectors are legally required to provide you with a written statement that contains information about the debt, if you request it.
- Attempting to collect fees or interest not included in the original contract - This is only allowed if your original contract includes such charges or your state law permits it.
- Threatening legal action they can't or don't intend to take - It's against the law for a debt collector to do this.
Can you dispute a debt collection?
If you believe you do not owe the debt or the claimed amount needs to be corrected, you can challenge it. The process may vary depending on your location, but here are some tips:
Get full details
When contacted by a debt collector, ask for a full breakdown of the debt. This includes the original amount, fees or interest, the date the debt was incurred, and information about the original creditor. This information can help you verify the debt and identify any potential errors.
Don’t rush to pay
Before you pay anything, ensure that the debt is legitimate and the amount is correct. This can help protect you from scams or paying something you don’t owe.
Contact the original supplier
If you have doubts about the debt, contact the original creditor or supplier directly. They should be able to provide you with more information about the debt and may even resolve the issue without involving the debt collector.
Seek external dispute assistance
If you cannot resolve the dispute directly with the debt collector or the original creditor, consider contacting an external dispute resolution (EDR) scheme. These independent organisations help resolve disputes between consumers and businesses, and their services are usually free.
Different schemes may be available depending on your location, so it's worth researching what's available in your area. The ACCC has a list of EDR schemes you can contact.
What happens if you ignore debt collectors?
Not responding to debt collectors might seem like the easiest option, especially if you're under financial stress, but it can lead to further complications. Below are a few of the potential consequences.
Continued contact
If you choose to ignore debt collectors, this doesn't necessarily mean they will go away. In fact, they'll likely increase their efforts to contact you. This can include continuous letters, phone calls, emails, or even text messages. Keep in mind that there are laws in place in some jurisdictions about when and how often a debt collector can contact you.
Legal action
Debt collectors are persistent; if they can't recover the debt through regular contact, they might escalate the situation by taking legal action. This could result in them taking you to court to obtain a judgement for the debt.
If the court rules in their favour, they could be granted permission to recover the debt in several ways, such as garnishing your wages, placing a lien on your property, or seizing your assets. This process can lead to additional costs, such as court fees and legal expenses.
Impact on your credit rating
One of the significant consequences of ignoring debt collectors is the negative impact it can have on your credit rating. Unpaid debts and collection accounts can show up on your credit report and considerably lower your credit score. If a judgment is obtained against you in court, this can also appear on your credit report and further damage your credit rating.
Where do I complain about a debt collection agency?
If you believe a debt collection agency is not following the law or is mistreating you, there are two main regulatory bodies you can reach out to: the ACCC and the Australian Securities and Investments Commission (ASIC).
ASIC can take action if it finds that a debt collector is breaching the law. However, ASIC does not resolve individual complaints.
Like ASIC, the ACCC can take action if a debt collection agency is found to be in breach of the law. The ACCC also does not resolve individual complaints, but your complaint can help them identify and address issues in the industry.
There’s no denying it’s unpleasant to be contacted by a debt collector, but don’t panic. Be open and honest and follow the advice above. And if you feel that you are being unduly harassed or pursued for a debt you don’t owe, please lodge a complaint with us, and we’ll help you handle it.
