Weak debt collection laws have led power, water and telecommunications companies to establish private regulatory standards that the debt collectors they hire must adhere to when pursuing overdue accounts for them.
Some are even requiring debt collectors to comply with Australia’s debt collection rules, which were introduced earlier this year in an effort to end harassment and intimidation of debtors.
But there is a lack of transparency around debt collection fees, with some of the larger utility companies reluctant to reveal fees and costs added by debt collectors when collecting overdue debts from their customers.
Those who would disclose their collection costs show that they can add up to 25% to customers’ past due debts.
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Critical reports from Christians Against Poverty and Fincap have shed light on electricity and telecommunications debts, which their financial mentors say are the most common debts among struggling families seeking their help.
Neither directly accuses debt collectors used by power and telecommunications companies of wrongdoing in their reports, who claim families in debt face an avalanche of phone calls, emails, texts, unreasonable reimbursement requests and sometimes even intimidating visits from debt collectors.
Auckland single mom, who felt vulnerable and didn’t want her last name used to protect her eldest child from being ridiculed at school, fell into deeper debt as she tried to raise only her two children and found herself subjected to a snowstorm. emails and phone calls.
Debt collectors come under fire for bombarding people who owe money, with phone calls, texts, emails and in-person visits.
On one occasion, Nina was visited at her home by two debt collectors dressed in bulletproof vests that looked like a police uniform with an earpiece and a walkie-talkie.
She said calls from debt collectors were often harsh, patronizing and often followed by unrealistic expense claims.
Nina, who is no longer in debt with the help of a financial mentor from Christians Against Poverty, said debt collectors need to be regulated to demand ethical behavior, including not pressuring people to they make payments they couldn’t afford.
âIf you’re on benefits and you can only afford $ 5 a week, they always say we can’t take less than $ 20 or $ 25 a week,â she said.
Fincap report author Victoria Stace said by far the most common type of debt problem cited was electricity and phone bills, and especially electricity.
âA customer can have a $ 500 electric bill that was incurred years ago, but then it goes to debt collection, and it’s now a debt of $ 1,500,â said a financial mentor. to Stace.
Spark, Vodafone, Watercare, Mercury, Contact Energy, Meridian, Trustpower, and Genesis all said they hired outside debt collectors, but did so only reluctantly, and only after repeated attempts to get people to pay.
All defended the practice of withholding collection costs on their websites and contracts.
Fiona Smith, Trustpower’s managing director for client operations, said disclosure to her debtors was made by letter during the collection process.
âThis letter is approximately the tenth attempt by letter, email, phone call and text message to engage with our client in order to complete a payment plan,â Smith said.
None of the eight companies appeared to have collection fees of more than 25%, although before overdue accounts were sent to collection officers, late fees could have been added.
Spark’s website said it charges a late payment fee of $ 18.40 per month on residential accounts.
Contact Energy said the debt collection agencies it used added a one-time commission of between 12.5% ââand 17.5% to the debts it collected, with no interest or additional fees charged.
Meridian said the added fees are typically 20-25% of the amount owed.
Vodafone said 25% of the debt’s value is typically added as a collection fee.
Spark would only say that his fees were “in line with industry rates.”
Genesis said the fees charged by its collection agent were commercially sensitive.
Trustpower said a referral fee of $ 50 was added when debt was transferred to Baycorp, which received a 10% commission on anything it collected.
Many companies have reported writing off small debts.
The companies have all checked ethical standards with debt collectors.
Debt collection agencies used by the big eight utility companies included Baycorp, Milton Graham, Debtworks and Intercoll.
All of them âalignedâ with Australian rules or had their own codes of practice.
Utilities companies that sometimes sold overdue trade receivables – Spark, Contact and Vodafone – said they only sold to ethical debt collectors.
Genesis and Mercury said they had not sold any debt since 2019, and Watercare, Merdian and Trustpower said they had never sold customer debt.
Covid-19 has forced utility companies to reassess how they treat their debtors.
Spark said the pandemic prompted him to launch a financial hardship policy offering customers tailored repayment plans over periods they could manage.
Vodafone has said it has temporarily suspended debt sales due to the pandemic.
Genesis had revamped its processes over the past two years, including offering tailored repayment plans.
He said he saw a 26% reduction in the amount of customer debt during this period.
The owner of Baycorp, Australia’s listed ASX Credit Corp, which holds more than $ 22 million in debt purchased from New Zealand companies, said debt sales collapsed as companies halt sales of debts as part of their “Covid-19 abstention”.
But self-regulation does not go far enough for Christiand Against Poverty or Fincap, who want Australian-style regulation.
Bruce Cross, Managing Director of Debtworks, expected the lobbying of financial mentors to be successful.
âI see it as obvious, but it will come at a cost to debtors,â he said.
Cross estimated the average margin on debt collection to be around 20%, but powerful companies and government departments could negotiate as low as 12-17%.
Mark Francis, chief executive of Intercoll, said Fincap’s claims of fees amounting to up to 40% of the value of outstanding debts of people billed by some collection agencies need to be investigated.