Development of the Na/onal Hardship Register Alan Harries CEO Australian Collectors & Debt Buyers Associa/on
May 21, 2015
Development of the Na/onal Hardship Register
Alan Harries
CEO Australian Collectors & Debt Buyers Associa/on
Agenda
• Hardship generally • Different types of hardship • Short term hardship
• Long term hardship
– Na8onal Hardship Register (NHR)
Hardship generally
Hardship is an increasingly prevalent issue for various reasons including:
• Natural disasters / economic condi8ons
• More informed consumers
• Ac8ve consumer advocates
• More regula8on
Benefits of integra/ng hardship into collec/ons process • Reputa8on • Avoidance of bad publicity/genera8on of good publicity
• Reduce the need for regulatory interven8on • Reduce the number, dura8on & cost of complaints
• Facilitate construc8ve interac8on with debtors • Commercial benefits
Different types of hardship
Different types of hardship CAN PAY Short term hardship
MAY PAY CAN’T PAY Long term hardship
Does the debtor have capacity to pay now?
No No No
Does the debtor have assets (or equity in assets)?
Yes or No Yes or No No
Is the consumer’s inability to pay likely to change? (Is there a realis8c plan?)
Yes Unclear No
Examples • Unemployed person with good prospects for future employment • Short term health issue
• Person with serious illness who may recover • Long-‐term unemployed person
• Disability or aged pensioner • Carer / single parent
Creditors Op8ons • Sec8on 72 Hardship Varia8on
• Unclear • Bankruptcy • Debt Waiver • Na8onal Hardship Register
Responding to Hardship
• When is hardship considera8on triggered? – Debtor is late with payments
– Debtor provides some indicator of hardship in a conversa8on with collector
– Debtor proac8vely asks for hardship considera8on • Responding to hardship will depend on the organisa8on’s policies and strategies
Hardship
• Natural disasters • Unemployment • Business failure • Injury • Illness • Bereavement
• Rela8onship breakdown • Domes8c violence /
economic abuse
indicators/triggers are many and varied -‐ • Maternity / paternity
• Over commitment • Alcohol or substance
problems
• Incarcera8on • Gambling
• Mental health issues • Complaint / aggression
How to respond to hardship?
In the event a hardship applica8on trigger is noted, the collectors should: • Tac^ully gather the hardship detail from the debtor, if he is willing to discuss his situa8on
• Complete a statement of posi8on (income and expenditure details) from the debtor or alterna8vely leave a blank statement of posi8on form with the debtor for later comple8on and return
How to respond to hardship?
• ACCC/ASIC Debt Collec8on Guideline – Flexible, fair and realis8c – Flexible approach – meaningful and sustainable arrangements that reasonably take into account the debtor’s ongoing living expenses
• Other codes/hardship policies such as – Telecommunica8ons Consumer Protec8on Guide
– Banking Code of Prac8ce
How to respond to hardship?
• Referral of debtor to a financial counsellor to assist with: – Preparing a budget – Discussing difficult op8ons such as surrender of security, sale of property, bankruptcy
– Iden8fying other issues eg mental health, gambling etc for referral to appropriate support services
– Ac8ng on debtor’s behalf in dealing with specific account/debt
How to respond to hardship?
• Consider referral to a financial counsellor if: – Debtor is in distress or lacks capacity – Hardship is likely to be long term
• Not-‐for-‐Profit Financial Counsellors provide free and independent advice and support to consumers in financial difficulty
• Na8onal Financial Counsellor Hotline – 1800 007 007
Long term hardship – tradi/onal consumer op/ons • In Consumer finance, there is the possibility of a Hardship Varia8on under Na8onal Credit Code
• Bankruptcy/Debt Agreement
• Avoidance • Bulk Debt Project (now finalised) • Approaching each creditor to seek debt waiver • For Profit Debt Mediator /Credit Repairer
Long term hardship – a new op/on
Na/onal Hardship Register – dual purpose
• Protect those consumers who are experiencing long-term and severe
financial hardship from unnecessary debt collection activity
Consumer protec8on
• Act as an efficient and cost-effective mechanism for industry to avoid futile debt collection activity and trading in
debts for this profile of debtors
Business efficiency
How does the NHR work?
1. FC iden8fies consumer in long-‐term hardship 2. FC submits applica8on to NHR 3. Consumer included on NHR (if consumer meets
Eligibility Criteria) 4. NHR distributed to Par8cipa8ng Creditors 5. Debt ‘provisionally finalised’
-‐ No selling or collec8ng (moratorium) -‐ Subject to Right of Challenge by Par8cipa8ng Creditors
6. Debt ‘uncondi8onally finalised’) at earlier of: -‐ Creditor chooses to waive OR 3 years OR Limita8on
period
What the NHR is
• For vulnerable consumers in long-‐term and severe financial hardship – Only income – basic Centrelink (Disability Support Pension/Aged Pension )
– No assets (other than those protected in bankruptcy)
– No prospect for situa8on to improve • ‘Evolu8on of Bulk Debt Project’ -‐ incorpora8ng refinements to that model
What the NHR is
• Joint ini8a8ve between: – Australian Collectors and Debt Buyers Associa8on (ACDBA)
– Financial Counselling Australia (FCA) • Industry-‐funded form of self-‐regula8on • Result of extensive consulta8on – Industry, Financial Counsellors, Consumer Lawyers, Regulators, EDR Schemes etc.
• List of these consumers (not their debts) that is circulated to Par8cipa8ng Creditors – Informed and ongoing privacy consent of consumer
What the NHR is not
• NHR is not a credit repor8ng bureau – Inclusion on NHR will not: • be noted on consumer’s credit file • prevent lis8ng of adverse informa8on on consumer’s credit file • en8tle consumer to removal of adverse informa8on already on credit file
• NHR informa8on not to be used to restrict access to essen8al credit eg. u8li8es
• NHR is not a publicly searchable register
Advantages for all stakeholders & few disadvantages • For Debtor – avoids fu8le and stressful debt collec8on – avoids harshness of bankruptcy – appropriate response by industry to long-‐term hardship
• For Financial Counsellor – no need to find and nego8ate with mul8ple creditors
• saves 8me, effort and cost – consistent applica8on of published Eligibility Criteria
Advantages for all stakeholders & few disadvantages • For Industry – Efficiency – NHR facilitates quick iden8fica8on of unrecoverable debts
– Reputa8on – Fewer complaints and reduced EDR cost
• For Regulators and Government
– Industry is self-‐regula8ng and self-‐funding the solu8on
The NHR opera/ng as a Pilot
• The NHR commenced as a Pilot on 1 January 2014 and will con8nue for 12 months with a view to development as a Business As Usual model
• To date there are 15 persons listed on the NHR – Mainly disability support pensioners – Some have addi8onal hardships eg major health issues
– Typically there are between 1 to 13 debts associated with each applicant
– Slant towards old telco/water/energy debt
The NHR opera/ng as a Pilot
• The Pilot started with 4 Par8cipa8ng Creditors being: – Baycorp (Australia) – Collec8on House/Lions Finance – Dun & Bradstreet – Pioneer Credit
• Further creditors are in the process of joining the list of Par8cipa8ng Creditors
The NHR opera/ng as a Pilot
• Par8cipa8ng Creditors subject to a Right of Challenge agree not to collect or sell debts rela8ng to listed persons on the Na8onal Hardship Register
• Debts are ‘uncondi8onally finalised’) at the earlier of: – Par8cipa8ng Creditor choosing to waive – 3 years – Limita8on period
The NHR opera/ng as a Pilot
• There are just over 60 not for profit Financial Counsellors trained and par8cipa8ng in the Pilot
• The first 12 of 20 Community Lawyers have been trained to join the Pilot
• Debtors can only seek to list on the NHR through the assistance of a par8cipa8ng Financial Counsellor or Community Lawyer
The NHR opera/ng as a Pilot
• The process of applying requires the Financial Counsellor/Community Lawyer to develop a budget with the debtor and to verify the vulnerable debtor in long term financial hardship meets strict eligibility criteria including: – Only income – basic Centrelink (Disability Support Pension/Aged Pension)
– No assets (other than those protected in bankruptcy)
– No prospect for situa8on to improve