14. Repayment negotiations
- We encourage you to work with a debtor and to adopt a flexible and realistic approach to repayment arrangements, which includes:
- making reasonable allowances for a debtor’s ongoing living expenses
- considering if a debtor is on a fixed low income (for example a disability pension or other welfare payments) and there are no prospects of their income increasing in the future
- recognising that debtors experiencing financial difficulties will often have a number of debts owing to different creditors, and
- ensuring that payment arrangements are meaningful and sustainable.
- In some circumstances, a prolonged period of negotiation about a debt may not be in the interests of the debtor. This may be the case, for instance, when a debtor’s equity in their home or other security is reducing rapidly because they can no longer maintain minimum or meaningful loan repayments. It is appropriate for you to take this kind of circumstance into account when negotiating with a debtor.
- Debtors experiencing financial hardship in relation to credit contracts regulated by the NCCP have the benefit of a formal process under the NCC.52 In such cases, the credit provider must notify the debtor within the timeframes specified in the NCC whether the credit provider agrees to change the credit contract. You should not contact the debtor for the purpose of collection until such decision has been communicated. Financial hardship policies are also available to consumers for particular goods or services, such as energy and financial products or services.53 There may also be other circumstances where consumers are entitled to apply for a particular repayment program due to financial hardship.
- You should also be aware that the law may offer some protections to debtors receiving certain types of income, for example, where a debtor’s income is derived only from a pension or a government benefit.54
- In addition, some industry codes may oblige subscribers to help debtors overcome their financial difficulties and advise them of any rights they may have under the NCCP or other relevant legislation.55
- You must not mislead the debtor in the context of repayment negotiations. For instance, you must not:
- advise a debtor that you do not, or are unable to, enter into repayment arrangements when this is not the case
- mislead a debtor about their rights, for example, a right to seek a repayment variation
- mislead a debtor about the consequences of non-payment (see part 2, section 19, Representations about the consequences of non-payment)
- mislead a debtor about the legal status of a debt (see part 2, section 20, Representations about the legal status of a debt—including statute-barred debt).
- It is also unacceptable to pressure a debtor to:
- pay in full or in unreasonably large instalments, or to increase payments when you are aware they are unable to do so
- pay a large upfront amount and state that only afterwards will you consider payment arrangements
- get further into debt to pay out an existing debt
- show proof of unsuccessful alternative credit applications before a repayment plan will be negotiated
- borrow from family or friends to pay out a debt
- access their superannuation early.
- Under no circumstances should you provide debtors with financial advice.
- Any repayment arrangement reached with a debtor should be fully and accurately documented.
- A written copy of the agreed repayment arrangement should be provided to the debtor on request. If the debtor does not agree with the way the repayment arrangement has been recorded, they have an opportunity to clarify the arrangement with the debt collector or creditor.56
Example: Confirm renegotiated repayment arrangements in writing
At the end of a phone conversation with the debtor, where you have renegotiated a repayment arrangement, you may consider sending an email or letter to the debtor to confirm the terms of the agreed arrangement. This will minimise any ambiguities or misunderstandings, and will give the debtor the opportunity to contact you in case they disagree or are unclear about any aspect of the agreement or the way you have recorded it.
- Once finalised, the debtor should be given a reasonable opportunity for the repayments to be made under the arrangements.
52 If a debtor considers that they are or will be unable to meet their obligations under a credit contract, the debtor may give the credit provider notice, orally or in writing, of their inability to meet these obligations: s. 72 of the NCC. If the credit provider does not agree to the variation proposed, the debtor can apply to your approved external dispute resolution scheme.
53 For example, the National Energy Retail Law (NERL) requires energy retailers to develop, maintain and implement a customer hardship policy for residential customers and the AER oversees this process. Energy retailers have an obligation to develop processes to identify consumers experiencing hardship and provide flexible payment options. The AER collects data to monitor retailers’ compliance and performance in these areas. See AER publication Energy bills, hardship programs and disconnection—your rights.
54 For example, s. 60(1) of the Social Security (Administration) Act 1999 (Cth) which provides that a social security payment is absolutely inalienable. Other protections include s. 12 of the Judgment Debt Recovery Act 1984 (Vic), which states that an instalment order shall not without the consent of the judgment debtor be made if the income of the judgment debtor is derived solely for a pension or other government benefits.
55 Clause 28.2 of the Code of Banking Practice states in part: ‘With your agreement and cooperation, we will try to help you overcome your financial difficulties with any credit facility you have with us. We could, for example, work with you to develop a repayment plan’.
56 If you are regulated under the NCCP, you may have an obligation to provide debtors with certain information and/or documents upon request, see for example, s. 185 of the NCC.