Debt collection guideline: for collectors and creditors

Prohibition of misleading and deceptive conduct

Section 18 of the ACL

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

Section 12DA(1) of the ASIC Act

A person must not, in trade or commerce, engage in conduct in relation to financial services that is misleading or deceptive or is likely to mislead or deceive in trade or commerce.

These provisions apply to conduct towards a person or persons in the course of activities which, by their nature, contain a trading or commercial element. Generally, most debt collection activities performed by a collector will be considered to be conduct in trade or commerce; however, the precise limits of whether conduct is in trade or commerce cannot be definitively stated and is a matter to be determined on a case‑by-case basis.

Engage in ‘conduct’

Conduct includes doing or refusing to do any act and can refer to actions such as:

  • silence (for example, not disclosing certain information)
  • oral or written statements
  • pictorial advertisements
  • promotions
  • quotations
  • product labelling
  • representations or impersonations made by a person.

CASE STUDY

A company was found to have engaged in misleading and deceptive conduct when it attempted to obtain payment for services.

The court found the company misled and deceived debtors to believe their complaints and disputes were being considered by an independent third party when this was not that case. The court also found the company misled and deceived debtors by demanding payment under the false pretences of a fictitious debt collection agency. The company also made misrepresentations as to the nature of the orders a court would make if proceedings were commenced to recover late payment.

The court also found the company acted unconscionably and ordered the company pay penalties of $550 000 and its two directors $55 000 and $45 000. The court disqualified the directors from managing a corporation for a period of three years and two and a half years respectively. An employee who was involved in the conduct was also ordered to pay a penalty of $3500.

ACCC v Excite Mobile Pty Ltd [2013] FCA 350

‘Misleading or deceptive or likely to mislead or deceive’

The ACL does not define the terms ‘misleading’ and ‘deceptive’. The court applies an objective test to assess whether conduct is misleading or deceptive and it considers the overall impression created by the conduct to determine whether it induces or is capable of inducing a person into error.

The conduct must be viewed in context and not in isolation. The most important factor in determining whether conduct may be misleading is the overall impression conveyed to a reasonable class of consumers who are likely to be affected by the conduct.

Intention is not an element of misleading or deceptive conduct, so a debt collector may breach this prohibition even though they do not mean to mislead anyone. It is enough that the representation is likely to mislead or deceive a reasonable member of the class of persons to whom the conduct is directed.

In some circumstances, a debt collector may need to disclose information to avoid creating a misleading impression.

CASE STUDY

A collector was found to have breached the misleading and deceptive conduct provisions by representing to the debtor that:

  • the agent was about to take immediate steps to sell a debtor’s residence to obtain payment of a debt owed when no legal proceedings to recover the debt had been started at the time
  • the agent would arrange to have the debtor arrested by the police or the fraud squad if the debtor did not make immediate payment of the debt, when there was no reasonable basis on which the collector could have taken that action.

ACCC v McCaskey [2000] FCA 1037

For further examples of misleading or deceptive representations about the consequences of non-payment of debt, the legal status of a debt and legal action and procedures, refer part 2, sections 19 to 21.

CASE STUDY

A number of representations made by a lawyer, who intended to collect small debts on behalf of video rental stores, were found to be misleading or deceptive. The representations included that:

  • the customer would incur legal expenses and solicitor’s costs, in addition to the debts that were already owed. However, in reality legal costs may not be recovered except in certain circumstances such as when a creditor is successful in legal proceedings and when the court makes orders for the payment of costs
  • the law firm could obtain a judgment against the debtor without going to court, and could enforce any judgment itself, including a warrant, or an attachment of earnings order, when in reality, this can only be enforced by a court.

The court made orders restraining the lawyer from engaging in similar conduct in the future and ordered her to publish corrective notices in a number of national newspapers and industry publications. The court also ordered that the lawyer implement a trade practices compliance program and contribute $30 000 to the ACCC’s costs. The court’s findings established prima facie evidence for later proceedings for damages or compensation orders.

ACCC v Sampson [2011] FCA 1165

CASE STUDY

Collection staff were given a training manual, which suggested various scripts that may be used in collection. One of the scripts was as follows (at paragraph 24):

‘Mr/Mrs/Ms. (Surname), the reason for my call to you today is a courtesy call due to the fact that I have received your physical file this morning from our solicitors. I have unfortunately been requested by our solicitors to put forward a final recommendation in reference to the outstanding amount of $(Balance) and will need to finalise my recommendation by no later than (Note down the exact time on paper to refer back to in later part of conversation)… As I was looking through your file (give time) I have noticed here in your file is a Statement of Liquidated Claims which has been drawn and it is set for issuance at the local court in Sydney on (Give exact date) at (Give exact time). (Pause) Mr/Mrs/Ms. (Debtors Surname), Do you understand what a Statement of Liquidated claims is? (If the debtor answers YES, Ask the debtor to explain, so that you can confirm). (If the debtor answers NO, Explain by saying… it is a series of document basically called summons).’

(Emphasis in original.)

The manual encouraged collections officers to make the strong suggestion that lawyers had already been involved in the account with phrases such as:

  • I have received strict instructions from my solicitor, to proceed with litigation…
  • I don’t even know where your matter is up to as our solicitors have you…
  • I have just come out of a meeting with the solicitor with respect to three matters unfortunately one was yours…
  • By tomorrow 3 pm this account will accumulate $350.00 worth of legal fees…
  • Your account has been brought from the solicitor’s office and they are expecting a response from me as to proceed with litigation at 2.30 pm this afternoon…
  • Just a reminder that our solicitors have given you one last chance to settle this account…

It was found that, while the company did have a legal section, it was not in any sense a common part of its business to refer debtors to this section. It was also found that referrals to the legal section were done on the recommendation of the section manager and not by individual collection officers. In no way were collections officers in a position to threaten to commence litigation. It was held that the manual encouraged collection staff to engage in misleading conduct (at paragraphs 25-31).

The court declared that the company had engaged in misleading or deceptive conduct and undue harassment and coercion. The court also ordered an injunction restraining the company from engaging in similar conduct in the future and ordered the company to pay ASIC’s costs.

ASIC v Accounts Control Management Services Pty Ltd [2012] FCA 1164

For further information on misleading and deceptive conduct refer to the ACCC’s publication, Advertising and selling and the ACL publication, Avoiding unfair business practices: A guide for businesses and legal practitioners.

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