Debt collectors add to poverty stresses

Weak debt collection laws have led power, water and telecoms companies to set private regulatory standards the debt collectors they hire must stick to when chasing overdue accounts for them.

Some are even requiring debt collectors to abide by Australia’s debt collection rules, which were introduced earlier this year in a bid to stop harassment and intimidation of debtors.

But there is a lack of transparency around debt collection costs, with some of the largest utility companies reluctant to reveal the fees and costs added by debt collectors when collecting overdue debts from their customers.

Those that would reveal their debt collection fees show they can add up to 25 per cent to customers’ overdue debts.

Critical reports from Christians Against Poverty and Fincap have put the spotlight on power and telecoms debts, which their financial mentors say are the most common debts among families which seek their help.

Neither directly accuses debt collectors used by power and telecoms companies of wrongdoing in their reports, which claim indebted families face a barrage of phone calls, email, texts, unreasonable repayment demands, and sometimes even intimidating visits from debt collectors.

One Auckland single mother, who felt vulnerable and did not want her surname used to protect her eldest child from ridicule at school, slipped deeper into debt as she tried to raise two children on her own, and found herself being subjected to continual emails and phone calls.

On one occasion Nina was visited at home by a pair of debt collectors dressed in bullet-proof vests that resembled a police

uniform with earpieces and walkie-talkies.

She said calls from debt collectors were frequently harsh, condescending and often followed by unrealistic demands for repayments.

Nina, who is now clear of debt with the help of a Christians Against Poverty financial mentor, said debt collectors needed to be regulated to require ethical behaviour, including not pressuring people to make payments they could not afford.

‘‘If you are on the benefit, and can only afford $5 a week, they still say we can’t take below $20 or $25 a week,’’ she said.

Fincap report author Victoria Stace said by far the most common type of problem debt cited was power and phone bills, and especially power..

‘‘A client might have a $500 power bill that was incurred years ago, but then it goes to debt collection, and it’s now a $1500 debt,’’ one financial mentor told Stace.

Spark, Vodafone, Watercare,

Mercury, Contact Energy, Meridian, Trustpower and Genesis all said they reluctantly hired external debt collectors, after repeated attempts to get people to pay.

All defended the practice of not revealing debt collection fees on their websites, and in their contracts.

Fiona Smith, Trustpower general manager for customer operations, said disclosure to its debtors was done by letter during the collection process.

‘‘This letter is circa the tenth attempt via letter, email, phone call, and text to engage with our customer to enter into a payment plan,’’ Smith said.

None of the eight companies appeared to have debt collection fees of more than 25 per cent, though before overdue accounts were sent to debt collectors, late fees could have been added.

Many of the companies said they wrote off small debts. They all vetted debt collectors for ethical standards.

The debt collection agencies used by the big eight utility companies included Baycorp, Milton Graham, Debtworks and Intercoll. All either ‘‘aligned’’ themselves with the Australian rules or had their own codes of practice.

The utility companies which sometimes sold overdue customer debt – Spark, Contact and Vodafone – said they only sold to ethical debt collectors.

Genesis and Mercury said they had not sold any debts since 2019, and Watercare, Meridian and Trustpower said they never sold customer debts.

Covid-19 has made utility companies reassess the way they deal with their debtors.

Spark said the pandemic prompted it to start a financial hardship policy giving customers tailored repayment plans over manageable time frames.

Vodafone said it had temporarily suspended debt sales because of the pandemic.

Genesis had overhauled its processes over the past two years, including offering tailored repayment plans.

It said it had seen a 26 per cent reduction in customer debt levels during that time.

The owner of Baycorp, Australian ASX sharemarketlisted Credit Corp, which owns more than $22 million of debt bought from New Zealand companies, said debt sales had slumped as companies suspended them as part of their ‘‘Covid-19 forbearance’’.

But self-regulation does not go far enough for Christians Against Poverty or Fincap, which want Australian-style regulation.

Mark Francis, general manager of Intercoll, said Fincap’s claims about the fees of as much as 40 per cent of the value of people’s overdue debts being charged by some debt collection agencies needed investigating.

One solo mother had a visit from debt collectors kitted out with bulletproof vests, walkie-talkies and earpieces.