19. Representations about the consequences of non-payment
- This section should be read in conjunction with part 2, section 20, Representations about the legal status of debt, including statute-barred debt and section 21, Legal action and procedures.
- You are entitled to accurately explain the consequences of non-payment of a debt, but must not misrepresent those consequences.66 Misrepresentation may increase the risk of breaching laws against unconscionable conduct when the debtor is in a position of special disadvantage or vulnerability.67
- You must not threaten legal action if the start of proceedings is not possible, not intended, or not under consideration, or you do not have instructions to start proceedings.
A company represented to a debtor that it was commencing proceedings to bankrupt the debtor, which would involve his house being repossessed, when this was not true. The company also represented to a debtor that it would cause Sheriff’s officers to attend the debtor’s home to serve documents when this was not possible.
The court found that the operators were told to make references to legal proceedings and lawyers as a means of achieving debt recoveries.
- Conversely, you must not state or imply that action will not be taken when the start of proceedings is intended or under consideration.
A company sent a debtor a letter implying that they would not or could not lawfully repossess a car without a court order, but then proceeded to repossess the car without this order. The court found this to be a contributing factor towards a finding of unconscionable conduct.
- Do not state or imply to a debtor or their representative that:
- immediate possession will be taken of a debtor’s home or other property when the debt is not secured by that property, or you have not obtained judgment for the debt
- you obtained judgment for the debt, if this is not the case
- unsecured goods may be seized and sold without further legal action
- unsecured basic household items can be seized if the debtor is made bankrupt68
- additional fees or charges will be added to the debt if payment is not made, if such fees or charges are not permitted by law69
- additional fees or charges will be added to the debt where there is no contractual right to add these
- non-payment will have consequences relating to the person’s employment or ability to earn an income
- the debtor is obligated to make repayments from their social security entitlements if they are not obligated to do so.70
A company was found to have engaged in unconscionable conduct by making false representations to debtors about the company’s rights and remedies in the event that legal proceedings were commenced to recover the alleged debts.
The company falsely represented to debtors that a court would make certain orders that the debtor would be required to pay an additional charge of 20 per cent of the original debt as a remedy for failure to pay on time; and that all assets of value would be repossessed, including children’s toys.
A company threatened to issue a warrant for the debtor’s arrest and take action that would result in his taxi licence being revoked. The company also threatened to take action that would result in the debtor being unable to travel overseas (implying that his passport may be at risk).
The court found that the threats relating to the debtor’s passport and taxi licence were ‘calculated to intimidate’ and amounted to undue harassment.
- Do not state or imply that:
- failure to pay a debt is a criminal matter when no fraud or other criminal offence is involved
- a matter will be referred to the police when there is no intention or reasonable basis to make such a referral
- criminal proceedings may be commenced by you or other private persons.71
- Under the NERL, an energy retailer must not commence proceedings for debt recovery if the customer continues to adhere to the terms of an agreed payment arrangement or if the energy retailer has failed to comply with requirements in the NERL regarding payment plans and assistance to hardship customers or residential customers experiencing payment difficulties.
- Do not state or imply that you intend to list a debt with a credit reporting service when:
- you do not have a genuine belief that the debtor is liable for the debt
- you have no instructions to list the debt, and/or it is not your intention to do so
- listing is not permitted by law or under a mandatory code
- the debt has already been listed.
- Equally, while it is appropriate to point out the possible consequences of a credit listing, you must not make misleading representations about those consequences.
Example: Misleading representations about adverse credit listings
You should not state to a debtor that once default is listed, the debtor will ‘never be able to apply for a loan’ or will ‘be lucky to get a loan at a good rate again’.
- Generally, it is not appropriate to make an adverse credit listing:
- when you are in the process of investigating a debtor’s claim that a debt is not owed
- if you are aware that the debtor has filed process with a tribunal or court, or lodged a complaint with an external dispute resolution scheme, disputing liability for the debt.
- For more general information on credit reporting obligations, see part 2, section 8, Privacy obligations to the debtor and third parties.
66 Apart from constituting misleading or deceptive conduct under the consumer protection laws, misrepresenting the consequences of non-payment of a debt may also be prohibited under the Australian Consumer Law and Fair Trading Act 2012 (Vic).
67 See part 3, Commonwealth consumer protection laws.
68 Section 116 of the Bankruptcy Act 1966 (Cth) excludes these items from seizure by creditors.
69 For example, s. 347 of the Property Agents and Motor Dealers Act 2000 (Qld) prohibits the recovery of a commercial agent’s fees or charges (besides stamp duty and costs fixed by or payable under the rules of a court or a court order) in the absence of an agreement with the debtor allowing such recovery, and subject to the NCC.
70 Some state laws provide additional protection to debtors whose sole source of income is a social security benefit and the debtor has no other assets.
71 Such conduct will also breach s. 43(2)(a) of the Fair Trading Act 1987 (SA).