19 November 2019
New guidelines to be applied by Australia’s banks to debt collection agencies have been released today, providing a major step up in safeguards to ensure vulnerable customers are protected.
The new guidelines outline the process banks must follow before they sell any debt and also what happens once that debt is sold. This includes:
- Proactively contacting a customer to find other solutions before a debt is sold (this can include restructuring, consolidation and hardship support
- Not selling any debt that is in the process of being disputed by a customer
- Only contracting debt collectors that follow all regulatory codes and a bank’s own policies for supporting customers in hardship
- Regular auditing of all contracted debt collectors to ensure they meet the high standard set by the new guidelines
- The bank will require a debt collector to consult with a bank before bankruptcy is initiated, giving the bank an opportunity to repurchase the debt if a vulnerability is identified
- As an interim before a government review, each bank will assess the bankruptcy threshold and determine an appropriate level (for competition reasons the industry as a whole cannot set its own level)
- If a customer has an ongoing vulnerability and there is no reasonable prospect of the debt being repaid a bank will not sell this debt.
As part of the new guidelines the Australian Banking Association, along with consumer groups the Consumer Action Law Centre, Financial Counselling Australia and the Financial Rights Legal Centre, have written to Federal Attorney General Christian Porter requesting a review of the $5,000 threshold for forced bankruptcy.
CEO of the Australian Banking Association Anna Bligh said the new guidelines contained a wide range of new measures which would increase protections for customers with unsecured debt.
“Banks are stepping up to the plate to ensure vulnerable customers are protected and supported when struggling with unsecured debt such as credit cards and personal loans,” Ms Bligh said.
“Under the new guidelines banks will rigorously audit debt collectors to ensure customers are being treated fairly and with appropriate care, they’ll have the option to buy back debt before any bankruptcy proceedings begin and other significant increases in customer protections,” she said.
Fiona Guthrie, CEO of Financial Counselling Australia said “”Financial counsellors appreciate the speed with which the banking industry has responded to concerns about the mis-use of forced bankruptcy.
“This new guide includes some really important protections, including that even if a bank sells a debt, the debt purchaser cannot move to forced bankruptcy without the permission of the bank,” she said.
Gerard Brody, CEO of the Consumer Action Law Centre said “We applaud banks taking practical action to ensure forced bankruptcy is the last resort possible.”
“It is so important that debt buyers understand customer circumstances and explain why bankruptcy is appropriate before taking this sort of harsh debt collection action.
“No one should risk losing their home because they’ve found themselves in a vulnerable financial position,” he said.
CEO of Financial Rights Legal Centre Karen Cox said they appreciated the banks’ swift response on this important issue.
“This Guideline should mean that small bank debts do not easily lead to homelessness and disproportionate financial loss,” Ms Cox said.
We also appreciate the support of the banks in calling for an increase in the bankruptcy threshold so that people are no longer subject to similar risks from other types of small debt,” she said.
For a copy of the guidelines click here.
Contact: Rory Grant 0475 741 007
“…banks can go back to their normal processes and that is working out what’s right for every single customer, on an individual tailored basis with a proper assessment. That is the best thing for the customer.”
Access to credit opens up opportunities and fulfills aspirations. Getting it right requires the right balance between consumer protections and the flow of credit.
Interviewed by AM’s Peter Ryan, ABA CEO Anna Bligh talked about the substantial drop in loan deferrals since their peak during the pandemic, falling from 900,000 to 300,000.