Photo: 123RF
An organisation representing financial mentors warns unethical debt collectors are harassing people to pay-off loans at their workplaces, homes and on social media.
FinCap charity has released its annual Voices report after collecting data from more than 700 financial mentors.
Its chief executive Fleur Howard said some debt collectors are deliberately panicking debtors and stricter rules are needed.
"Financial mentors tell us they are working with people who are being harassed and coerced by debt collectors at work, at home, and on social media. This can endanger people's employment and embarrass them in front of their communities," she said.
"These tactics force people to agree to repay debts they may not be legally responsible for, and repayment plans they can't afford. This can send people into a spiral of missed repayments, and see small initial debts balloon in size."
The report shows half of those seeking help from a financial mentor are in work, while one in ten have a mortgage.
Financial mentors have seen an 88 percent increase in waged or salaried clients earning over $1000 per week since 2021.
The report states that many households have taken on debt to pay bills and keep food on the table, and a large burden of accumulated household debt has been building, much of which has become unmanageable.
It said some debt collectors were also using coercion or illegitimate threats of legal action and turning up at people's workpaces, homes and sending excessive automated texts and emails.
"This isn't about getting people out of debts that they legitimately owe," Howard said.
"Some debts arise that should never have been issued under today's responsible lending rules. Sometimes, they are debts owed by a relative, which people are pressured into taking responsibility for, or there is actually no legitimate debt at all."
Howard said many households were struggling with the burden of accumulated and unmanageable debt.
"There are debt collection agencies who act responsibly, but the lax legal framework creates a wild west situation, where some unscrupulous debt collectors act unethically. "
The Fair Trading Act governs all private debt collection and in May, Commerce and Consumer Affairs Minister Scott Simpson said he would review the Act later this year with a responsibility to "safeguard the interests of consumers and ensure that their rights are fairly upheld".
Howard said that planned review, alongisde the Financial Services Reforms Bills currently before Parliament were important opportunities to fix the law around debt collection.
"Debt collection reform will enable people to repay money they legitimately owe, without being subject to harassment and bullying," she said.
David Verry from North Harbour Budgeting Services said the report echoed what financial mentors saw on a daily basis.
He said when people believe that they're going to be talked about in social media, or somebody was turning up to their work premises they may feel forced to make some sort of payment that they may not be able to afford.
"They'll feel forced into making some form of payment towards it before they make payments on other things, things like food or petrol for the car," he said.
"When people turn up to people's places and they're in sort of pseudo uniforms that can be very intimidating for clients."
Verry said currently there was no industry body that people could go to and complain about the actions of the debt collectors.
"It's essentially an industry which is just completely unregulated, and what we would like to see is some boundaries put in place there," he said. "We'd like them brought into the Fair Trading Act. We'd like them to be licensed."
Verry said financial mentors just want debt collectors to play the game fairly.
FinCap is proposing three key recommendations for debt collection conduct rules:
- Amend the Fair Trading Act 1986 to better define harassment and ensure there is a sufficient enforcement system to deter, or address, debt collector misconduct.
- Improve regulator monitoring of debt collection conduct by introducing licensing requirements for debt collectors as part of the 'financial services reforms' currently under consultation.
- Improve mechanisms for accountability by clearly including all debt collection activities in s5 of the Financial Service Providers (Registration and Dispute Resolution) Act 2008. This should mean all debt collectors have a free and independent external dispute resolution scheme available, providing a practical mechanism for alleged debtors to assert their rights.
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