INSIDE THIS ISSUE

Notes and Notices

Warning About 'Missed Calls' Scheme

Robert Morsillo, Telstra's Group Manager for Consumer Affairs, sent the following warning regarding a recent 'missed calls' scheme that is operating in Australia. In his warning, Robert answers a number of frequently asked questions about the scheme and offers some prudent advice on replying to missed calls (we have underlined this advice because we feel it very important). Sharkwatch would like to thank Robert for keeping consumers 'in the loop' with such issues — it is really appreciated.

" The following is some information regarding the recent "missed calls" scheme running in Australia.

What is it?

The missed call scheme operates by the companies involved deliberately generating an excessive number of short duration outbound calls to mobile telephone numbers and terminating those calls prior to connection. Customers do not have time to pick up the call on their mobile phone, and many then feel compelled to call the 'missed call' number provided. This is, of course, the purpose of the 'missed call' scheme.

Customers who do call back the 'missed call' number will hear a pre-recorded message that directs them to call a premium 1900 number (charged at $2.97 per minute) to collect free content and for their chance to win a prize.

Telstra has referred the matter to the Australian Competition and Consumer Commission for further investigation.

What advice does Telstra offer to people that receive a missed call on their mobile phone?

Telstra's advice is to ignore the missed call unless it's from a number the customer recognises.

According to a viral email, people are charged $100 if they call the 'missed call' number. Is this true?

Telstra understands that the 'missed call' number is a Melbourne or Sydney based number. Calls to these numbers are charged at the customer's applicable call rate. The only way that a customer would be charged a premium rate is if, after listening to the recorded advertisement, the customer then makes a second call to the 190 number.

Where can people go for more information?

Customers should call their telecommunications service provider to register any complaints. Telstra's customer service number is 125 111.

Regards,
Robert Morsillo

Financial Counsellor Appointed to Council of the TIO

Congratulations to Wayne Warburton from Wesley Counselling Services, NSW, who was recently appointed to the Council of the Telecommunications Industry Ombudsman (TIO) to represent the interests of telecommunications users and the public. Wayne is one of 5 consumer representatives, and is keen to bring a financial counsellor's perspective to the Council.

The Council of the TIO comprises an equal number of industry and consumer representatives, and has an independent chairman. The Council is responsible for maintaining the independence of the TIO and overseeing complaint handling and policy matters. For more about the functioning of the TIO, see page 7.

Mackay Conference


The Conference Centre backyard: What a tropical paradise — coconuts literally falling off the trees!	Some of the boys from the bush: From left: Leigh Shacklady (Alice Springs), John O'Mally (Narromine) Kevin Woon and shirt (Coober Pedy) David Bell (Liverpool ??!!?) Steve Ackland (Dubbo)

: Lynda Edwards works for Centacare (Wilcannia-Forbes) in dual positions. One is in the role of Aboriginal Financial Counsellor and the other as an Indigenous Community Support Worker with Communities for Children.
: Susan Cook (Cairns)
: Loretta Andrew (Bendigo)

From May 9–11, a conference for Sugar Industry Reform Program (SIRP) workers and remote workers from the Commonwealth Financial Counselling Program (CFCP) was held in Mackay, a significant sugar-growing region in Queensland. The 22 attendees were from widespread locations including Darwin, Coober Pedy, Alice Springs, Hobart, Bendigo, Narromine, Dubbo and Cairns among others. The venue, the Blue Pacific Resort, was just beautiful, nestled on the beach amongst palm trees and deck chairs.

The keynote speaker, Greg Sutherland from the Mackay Regional Partnerships Program, was greatly entertaining as he gave a down to earth assessment of recent developments for local sugar growers, and described the impact of the coal boom on the sugar industry (coal prices have trebled in recent years, and high wages in mining have caused chronic labour shortages elsewhere).

Later that day, Wayne Warburton spoke about counselling the angry or aggressive client, Aaron Finn (solicitor) gave an update on Family Law and bankruptcy, and Serena Staines and Ken Campbell presented interesting cases at the case conference. Wednesday saw a cool change blow away the humidity and the dawn of an even more perfect Mackay day. Speakers from each represented State and Territory gave reports on financial counselling in their area, and the remote workers then did the same. Ken Campbell and John Maybanks spoke about crisis counselling, Shaun Ansell from ASIC talked about the new ASIC debt collection guidelines and David Bell ran a brainstorming session around funding issues. The day finished on an inspired note, with Lynda Edwards from Centacare at Narromine describing a new financial counselling program for local indigenous communities. On the final day, Annette Howe from Lifeline Mackay presented on the basic principles of narrative therapy and Charmaine Howe, the Deputy Official Receiver from ITSA Townsville, gave a very well-received presentation on current issues in bankruptcy. Overall, it was a terrific conference, and congratulations must go to Jennifer Gracie, Maree Crosbie and Wayne Warburton who worked so hard to make it happen.

ASIC Asks GE to Fix Insurance Practices

In a press release dated March 20, 2006, the Australian Securities and Investments Commission (ASIC) detailed an 'enforceable undertaking' by GE Money to 'change its life insurance practices and compensate affected customers'.

ASIC note that GE Money, "is one of the largest providers of consumer finance in Australia, and its business includes a 114-branch network. GE Money also advises its customers about their insurance needs and provides insurance products including consumer credit insurance (CCI) and term life insurance."

To understand ASIC's ruling, which is mostly relevant to GE's Hallmark businesses, it is helpful at this point to look at the GE structure. ASIC notes that "GE Money is the trading name of a business providing consumer finance and related insurance products. GE Personal Finance Pty Ltd provides loans to consumers. Hallmark Life Insurance Company and Hallmark General Insurance Company provide related insurance products to customers with loans from GE Personal Finance. All three companies are part of the General Electric Group of companies".

In June last year, ASIC reviewed over 150 GE Money customer files as part of an investigation into insurance advice provided by the company. After reviewing the files, ASIC became concerned about a number of their insurance sales practices, including:

"GE Money had a practice of advising customers to take out CCI life cover (which would pay out the GE Money loan on their death) as well as a term life policy (which would pay a lump sum on death to the customer's estate) when it would have been cheaper for the customer to take out one term life policy to achieve the same result;
GE Money routinely advised customers, who were single and had no dependants, to take out life insurance to pay out the loan to GE Money when it was not clear that it was in the customer's interests to do so; and
GE Money might have recommended that customers take out more life insurance than they needed because GE Money:
- routinely did not take into account the level of customers' superannuation savings;
- sometimes did not take into account life insurance cover that was part of customers' superannuation; and
- sometimes recommended a higher level of insurance cover than the customer records suggested they needed.
Where an existing customer sought further credit, GE Money's practice was to provide a new loan package (incorporating the existing loan balance) and replace the existing CCI life policy with a new one. These customers were not told about the potential problems with this approach, including that if a health condition arose before the issue of the replacement policy, they might not be able to make a claim."

It should be noted here that "The Corporations Act requires that a person giving financial product advice, which includes advice about insurance, must have a reasonable basis for providing such advice".

In the light of the findings of the ASIC investigation, GE Money made a number of undertakings. They will:

"Stop recommending that customers take both CCI life and term life policies;
Stop advising single customers with no dependants to take out life insurance to pay the GE Money loan, unless there is a clear benefit to the customer;
Undertake a review, both internally and by an independent compliance expert, of its sales practices; and
Offer compensation to affected consumers"

In its press release, ASIC acknowledged that "these problems occurred in the Hallmark businesses that GE Money acquired from Avco Financial Services in 1999 and that GE Money had, independently of ASIC's investigation, introduced changes to its sales practices which address some of the issues ASIC has raised, and that GE Money cooperated with ASIC's investigation. "

ASIC's Deputy Chairman, Jeremy Cooper, goes on to commend GE Money for dealing with these issues and working quickly to find a solution.

A full copy of the press release can be found on the ASIC website: http://www.asic.gov.au/asic/asic.nsf.

Bankruptcy and Transferring The Home

Richard Brading
Wesley Community Legal Service

Protecting the home from potential creditors has long been a goal for self-employed businesspeople, professionals and families of gamblers. There are a number of ways this may be achieved including the family trust, family company, direct transfers or property settlements.

However, when financial disaster strikes, creditors and bankruptcy trustees take a long hard look at the arrangement to see if it can be set aside.

A most spectacular example of a home transfer has recently been considered by the High Court. John Cummins was no ordinary bankrupt. A Queens Counsel, Cummins had chambers in Sydney and Parramatta and lived in the posh Sydney suburb of Hunters Hill. He became a solicitor in 1957, a barrister in 1961 and a Queens Counsel in 1980.

Cummins married in 1964 and he and his wife had 4 children. He was a man of the turf, well known for his membership of the Australian Jockey Club where he had served on the committee. He spent considerable sums on wagering and the maintenance of race horses. He was a leading member of Sydney society and was reputed to have a fabulous wine cellar.

However, Cummins had a dark secret. He had not lodged a tax return for 45 years. The first time he lodged a tax return was in 2000, and that was only for the period between 1992 and 1999. The Tax Office assessed his tax for those 7 years at just short of $1 million and mushrooming rapidly. The media picked up the story and soon it became apparent that Cummins was not the only barrister who had difficulty filling out a tax return.

Cummins was struck off the Bar Roll and filed a Debtor's Petition. The main creditor was the Tax Office who went after him with a vengence.

In 1970 Cummins and his wife had bought a vacant block of land at Hunters Hill as joint tenants and built a comfortable home. Mrs Cummins had contributed 76.3% of the purchase price and the bankrupt put in the remaining 23.7%. The family lived happily there for many years. In 1987 Cummins transferred his share of the home to his wife. This was not a Family Law property settlement. The marriage continued until 2002. Mrs Cummins paid stamp duty on the transfer when the property was registered in her sole name but did not actually pay anything at all to her husband for his interest in the property.

Cummins trustee in bankruptcy claimed a half share in the house from Mrs Cummins in 2001, some 14 years after the transfer. He based his claim on s.121 Bankruptcy Act which states that a transfer of property is void against the trustee if the transferor's main purpose in making the transfer was to prevent the property being available for creditors.

Mrs Cummins denied that the main purpose of her husband was to defeat creditors. She also denied that he had any significant creditors at the time of the transfer. Cummins himself did not give evidence.

The Trustee argued that Cummins must have had one significant creditor in 1987, namely the Australian Taxation Office. Cummins had worked as a barrister for 30 years and not paid any income tax. However, because Cummins had not lodged a return, the Trustee was unable to say the exact amount of tax owed.

The High Court agreed with the Trustee. Cummins must have been aware that the ATO might one day catch up with him, so he transferred his interest in the house to protect it from being taken in bankruptcy.

The High Court also decided that the Trustee was entitled to 50% of the value of the house at the time of transfer, not the 23.7% that Mr Cummins had contributed to the purchase price of the land. This is because of the legal presumption that arises when married couples purchase property that they intend to own it 50–50. Although Mrs Cummins contributed more to the purchase price, she did not have a registered interest reflecting the proportion she paid. In the case of married couples buying property together, the law will assume they intend to own equal shares unless there is something to rebut the presumption.

The facts in the Cummins case are very unusual. The common situation where transfers are in question is where transfers are made with the intention of defeating possible future creditors. Such transfers are common among professionals businesspeople and families of gamblers. The High Court noted that intention to defeat possible future creditors is a common reason for property transfers. However, the Court did not provide any guidance as to when such transfers could be set aside. The situation under section 121 before 1996 was that a transfer made with the intention of defrauding creditors could be set aside, even if the transferor had no creditors at the moment of transfer. In 1996 the wording of s.121 changed. However it seems likely that the situation remains the same, namely that if the main purpose of the transfer is to defeat possible future creditors, then a court will be able to set the transfer aside.

This means that caution should be exercised prior to bankruptcy in relation to any transfer of substantial property that took place at any time in the past if the full price was not paid for the property transferred.

References:

The Trustees of the Property of John Daniel Cummins, A Bankrupt v Cummins [2006] HCA 6 (7 March 2006)
Ackland, R. "How the Tax Office finally got its man" Sydney Morning Herald 10.3.06

The TIO

Although many financial counsellors are aware of the office of the Telecommunications Industry Ombudsman (TIO), not all are aware of the scope of the service offered by the TIO or about the guidelines regarding the types of cases that they can handle.

The office of the TIO is based in Melbourne, but deals with complaints from every Australian State and Territory. The Ombudsman, John Pinnock, has long been highly regarded by financial counsellors in Australia, and has a reputation for integrity, fairness and approachability. The new Deputy Ombudsman, Simon Cleary, is also well known and respected within our profession, becoming known to financial counsellors during his time as a consumer credit and debt lawyer at Redfern Legal Centre in Sydney, and more recently at Legal Aid Queensland. Simon was also a founding member of the Centre for Consumer and Credit Law at Griffith University in Brisbane.

The TIO has around 100 staff and dealt with 78,915 complaints in the 2004/05 year alone. Their complaint system has four tiers, with around 90% of complaints being settled at Level One (i.e., with minimal TIO input). Complaints not settled at one level are escalated to the next until resolved. Decisions made by the TIO are binding on providers under the Telecommunications (Consumer Protection and Service Standards) Act (1999).

The TIO is fully funded by the Telecommunications industry, with providers making a contribution to the TIO for each complaint received about them.

The following article from the TIO's Phillip Money sets out the TIO's basic functions. (Thanks Phillip).

"If you are a consumer or small business and have been unable to resolve a problem with your telecommunications or internet service provider, you can contact the Telecommunications Industry Ombudsman (TIO).

The TIO is a free and independent service that aims to settle disputes quickly, objectively and non-bureaucratically. The ombudsman's office attempts to resolve complaints by considering not only the law and good industry practice, but also what is fair and reasonable in all the circumstances.

The TIO can investigate complaints about the standard telephone service, mobile services, internet access, pay-phones, delays in telephone connections, printed and electronic White Pages, fault repair, privacy, land access and breaches of the Customer Service Guarantee and industry codes of practice.

The TIO can investigate a complaint, at no cost to the consumer or small business, only if legal proceedings have not commenced and if the:

consumer has given the service provider a reasonable opportunity to address it
complainant lived in Australia when the circumstances surrounding the event occurred
complaint is made in good faith and within a year of the consumer becoming aware of the circumstances surrounding the complaint. This may be extended by a further year in certain cases.

More comprehensive information about the TIO can be found at www.tio.com.au. Complaints to the TIO can be made online or by phone, fax, email, in writing, via TTY or in person." The TIO contact details are as follows::

Telephone:: 1800 062 058
Mail:: PO Box 276; Collins Street West, VIC, 8007.
Fax:: 1800 630 614
Email:: tio@tio.com.au or complain@tio.com.au
TTY:: 1800 675 692
Translator:: 131 450

The Law Matters

Overcommitment: The Rights Of Overcommitted Consumers

Richard Brading
Principal Solicitor Wesley Community Legal Service

At a time when it is pretty easy to borrow over $100,000 unsecured and $500,000 secured on an average wage, it seems appropriate to review the legal rights of someone who is overcommitted.

In short, courts are very reluctant to do anything about overcommitment. They take the view that if people borrow money, they should pay it back, and if you get a judge's salary, that's not too hard. Therefore, to be successful in court when representing someone who is overcommitted, you need a really strong case, ideally someone with a special disability or special disadvantage who didn't have a hope of repaying the debt.

The Consumer Credit Code

The Consumer Credit Code (s.70) provides for consumers to apply for their credit contracts to be "reopened" if the court can be satisfied that the contract was unjust at the time it was entered into. In the event that a court can be convinced that contracts were unjust, the court has the power to rewrite the contract, and discharge or reduce the debt.

A shopping list of factors are provided, such as the relative bargaining power of the parties, the existence of independent legal or other expert advice, what measures the credit provider took to ensure that the person understood the transaction, and whether the credit provider exerted or used unfair pressure or unfair tactics.

When it was introduced, the most controversial factor was s.70(2)(l) which asks the court to consider whether at the time of the loan the credit provider knew, or could have ascertained by reasonable inquiry of the debtor, that the debtor could not pay in accordance with its terms or not without substantial hardship.

In fact, s.70(2)(l) has failed to live up to expectations. The courts have been reluctant to provide relief and in most cases credit providers are keen to settle the more outrageous cases before they get to court.

Other Laws

There are a number of other laws that provide similar relief to debtors, including equitable principles of unconscionability, undue influence, the Trade Practices Act, Australian Securities Investment Commission Act and State laws such as the Fair Trading Acts and Contracts Review Act (NSW). Lawyers have tended towards these other laws in many cases and most of the cases referred to in this article are based on other law similar but not identical to the Code.

Special Disability

The most important factor seems to be whether the debtor is a person with a special disability (sometimes called special disadvantage). The case of Commercial Bank of Australia v Amadio (1983) established the principle that persons with a special disability should be given extra assistance and protection, as they are more vulnerable. In that case, the bank got the elderly migrant parents of the borrower to sign a third party mortgage over their home when the bank knew that the borrower was already in difficulties with his loan. The court held that the mortgagors were persons with a special disability who were more vulnerable than the average Joe, and set aside the mortgage as unconscionable.

Overcommitment cases

A significant overcommitment case was O'Brien v Hooker Homes Pty Ltd (1993) that involved a contract to buy a home where developer, financier, real estate agent and lawyers were all working together. The borrowers had little education, few resources and low income. Their ability to make their mortgage payments depended on their income increasing greatly with no adverse effects such as illness or unemployment. The trial judge held in favour of the O'Briens saying:

"Their position was not hopeless, in the same way as the position of a roulette player is not hopeless, as the ball sometimes drops on the right number. If there were continuing high inflation for many years, and the O'Briens were able to maintain their real income in the face of it they could eventually get to own their house. Otherwise they had no real prospect of ever paying off the mortgage."

However on appeal the N.S.W. Court of Appeal disagreed and found in favour of the bank, saying:

"A contract is not unjust within the meaning of the Act because one party has made a good bargain and believes the other party has made a bad one. To say that, in such a situation, the first party must not enter into the contract is to stifle commerce… Provided the terms of the contract are reasonable and the parties have a real or informed choice to enter into the contract, I do not think the Act should be used by the Court as a means to prevent them from doing so."

Oddly enough, the same court thought differently 3 years later when asked to consider a business loan in the case of Elders Rural Finance Ltd v Smith (1996). A family farming business obtained advice, supplies and finance from the Elders company. Elders encouraged them to borrow $900K to buy and carry on a business. The family members had only a limited appreciation of the risks, whereas Elders had a clear understanding that there was no realistic possibility of the business succeeding. Elders still signed the Smiths up because they wanted the extra business and took mortgages over the Smiths property to secure the debt. The court found in favour of the borrowers, saying:

"The contract was such that, if the projections of cash flow proved wrong, the plaintiffs could not repay the loan and they would be financially ruined. It was probable that the projections were wrong… Elders knew this. It knew that the plaintiffs did not realise it was so. Yet they did not bring home to them sufficiently the risk, what could happen to the plaintiffs and the likelihood of it. The plaintiffs thought that Elders acceptance of the contract gave assurance to them. Elders did not bring home to them the true position."

Credit cards

Credit card lenders are in fierce competition with one another. They rarely bother to check a person's income before they offer a credit card increase. Their computer might consider the person's payment history, but often those who are up to their limit are offered increases. Credit cards are simply too profitable for lenders to worry about a few possible bad debts.

In Godfrey v National Australia Bank Ltd (2001), the borrower had a Mastercard from 1985 to 1996 with a credit limit of $6,000. The bank granted increases in the credit limit to $9000 in 1996 and $12,000 in 1999. The bank did not consider the capacity of the borrower to repay the loan at the time it granted the increases. In fact he was unemployed at the time. The judge did not consider that the contract was unjust, saying:

"In short Mr Godfrey's case boils down to this. Unbeknown to the Bank at the time the credit card contract was changed, he had financial problems. Notwithstanding those financial problems he had reduced the debit balance down to one cent. From the viewpoint of the Bank the history showed he was able to pay in accordance with the terms of the contract and without substantial hardship. The timing and amounts of payments were capable of showing the possibility of some difficulty from time to time. But they fall far short of demonstrating substantial hardship."

You may wonder whether the judge in question had any personal understanding of unemployment or hardship. However, the fact is that the courts are very reluctant to find in favour of consumers in these cases because they fear that the entire commercial world might collapse as a result.

Code of Banking Practice

However, the banks have taken a softer view than the judges. Perhaps they really have a heart; perhaps they are concerned about their public image.

Clause 25.1 of the Code of Banking Practice requires banks "to exercise the care and skill of a diligent and prudent banker in selecting and applying credit assessment methods and in forming its opinion about your capacity to repay."

Banks have a duty under the banker-customer contract "to exercise reasonable care and skill in carrying out the bank's part with regard to operations within its contract with the customer."

The standard of care for a bank is that of "the reasonable competent banker acting in accordance with accepted current practice."

The Banking Ombudsman is of the view that the failure to make enquiry of the borrower to reveal their current income and their level of credit commitment at the time the offer is made may lead to an inappropriate offer of credit (BFSO Bulletin March 2005). Where credit has been provided without proper inquiry, the Banking Ombudsman will direct that the bank waive its claim to interest and fees charged on the amount of credit provided over and above the credit limit that was appropriate in the circumstances. The borrower is still required to pay the principal borrowed in excess of the appropriate credit limit and both principal and interest under the appropriate credit limit.

Of course, many lenders have not subscribed to the Code of Banking Practice. All your client can do with them is suggest that they meet the standard set by the banks, and if that doesn't work, try their luck with the legal system.

AFCCRA Update: National Bankruptcy Issues

Jan Pentlan
Bankruptcy Reform Consultative Forum

The Bankruptcy Reform Consultative Forum met in Melbourne on 12 April. Paul Gillett (from the Victorian Consumer Credit Legal Service) and I attended representing the interests of consumer bankrupts.

Issues discussed included:

The Insolvency Trustee Service of Australia's (ITSA's) fees and charges regime. The proposal for a realisation charge on Part IX Debt Agreements has been dropped.
There will be a review of trustee's remuneration including the liability of bankrupts to pay a minimum fee when the estate administration is outsourced to a private trustee and there is no funds in the estate. Outsourcing to private trustees by ITSA is increasing across Australia due to staffing constraints.
The recent anti-avoidance amendments to the Act which have been passed by Federal Parliament. These amendments and the 2004 amendments to the Family Law Act and Bankruptcy Act will be the focus of a panel discussion at the Australian Financial Counselling and Credit Reform Association (AFCCRA) Conference on 30 June 2006.
The outcome of the Review of Debt Agreements and reform proposals. Responses to the Review are invited to be followed with legislative reform proposals for consideration. AFCCRA has responded to the Review, as have some of the State and Territory Financial Counselling Associations and Networks.
Bankruptcy Act amendment proposals in regard to superannuation and bankruptcy are being progressed and an announcement from the Attorney General is expected.
A proposed review of offences under the Act will be progressed later this year.

ITSA's role as regulator, especially given it's process of internal centralising of functions, was raised including GE's continued selling of debts of bankrupts.

The Bankruptcy statistics for the year to 31 March 2006 were released and they show a substantial rise in bankruptcy numbers which is consistent with the feedback I've been getting from financial counsellors across Australia. Overall there has been a 23.68% rise in bankruptcies nationally in the year to 31 March 2006, and a 21.49% rise in debt agreements reversing a 8.01% fall in debt agreements in the previous 12 months.

The rise in bankruptcies was most marked in Victoria where numbers rose by 37.66%, accompanied by a rise of 34.85% in debt agreements in Victoria. Discussion centred on the increase in sequestration orders from the Tax Office, who are vigorously pursuing those who have neglected their BAS returns and have GST debts (see below). I was also able to comment on feedback from financial counsellors that amounts that debtors are bankrupting on seem to be on the rise with increases in numbers of credit cards and credit cards limits. Feedback nationally is that where we may have seen bankruptcies of $10,000 to $15,000 in the past, they are now often in excess of $40,000.

ITSA will release a Debtor's Profile for 2005 at the Bankruptcy Congress in late July 2006. This is a very useful publication with data of particular relevance to financial counsellors and the community sector involved in policy reform and education initiatives.

Bankruptcy Congress 2006

The 2006 Bankruptcy Congress will be held in Brisbane on 27 and 28 July. For the first time, concurrent streams will be a feature of the Congress, with stream A on Bankruptcy Administration being of particularly interest to Registered Trustees and bankruptcy lawyers; and stream B on Dealing with Debt of particular interest to financial counsellors and debt agreement administrators. The need for this change was lobbied for by AFCCRA after the last Bankruptcy Congress.

ITSA is also to be congratulated on making the Congress affordable (as well as relevant) to financial counsellors. Information on the Congress is available at the ITSA websitte (www.itsa.gov.au) or contact me on 0407 042 483.

Bankruptcy and the Australian Tax Office

I have been talking to Denis Nelthorpe among others about the current spate of sequestration orders by the Australian Tax Office for small amounts and have now raised this twice with the ATO representatives on the Consultative Forum. While their response is that this is a Government initiative relating to small businesses neglecting their GST obligations, and a successful means of the ATO getting these obligations taken seriously and taxes paid, I am also aware of the ATO pursuing individual debtors who have no capacity to pay. In these instances, bankrupting the debtor is a bad commercial decision by the ATO delivering no useful outcome and costing us taxpayers money. In relation to those small businesses not meeting their GST obligations, I spoke at the Forum meeting about the change over the last 5 to 10 years where many workers who should be PAYE taxpayers have been forced by Commonwealth and State Government 'reforms' to become contractors with the resultant obligation to run a small business without any of the skills or funds to do so. Increasingly, our sector is seeing these debtors in a mess with their finances, with unpaid taxes, obligations to regulators not met, and no funds to address this. Denis and I are interested to hear of any particular cases you have, particularly where there isn't a GST liability but the ATO has bankrupted or threatened to bankrupt someone on a small debt with no useful outcome for anyone. You can email these cases to me at: janpentland@hotmail.com or to Denis at: denis.nelthorpe@mpbc.com.au, and we'll see if it's worth meeting with the ATO to talk about potential abuse of process.

Bankruptcy News

Power of Attorney

A question regarding the ability of the Official Receiver to accept a Debtor's Petition under the Power of Attorney was raised with Charmaine Howe (Deputy Official Receiver, ITSA Townsville) during Charmaine's excellent presentation at the SIRP and Remote Workers Conference held at Mackay in May.

Charmaine emailed the following response immediately after the conference.

" I have just received more information about the Official Receiver's ability to accept a Debtor's petition under a "power of attorney".

" Under current law in QLD we cannot accept a Debtors petition under any kind of "power of attorney" — even if the debtor is of an unsound mind. It is thought that this would be the case for other states/territories also, but I have not looked into this.

A "guardianship board order" may be different if the debtor is of an unsound mind but we would be inclined to examine each one on a case by case basis.

Regards

Charmaine Howe
DOR Townsville

Proposed Schedule of ITSA fees and charges

ITSA are planning to introduce a new schedule of fees and charges, beginning on July 1, 2006. We have printed below an excerpt from a letter by Terry Gallagher, the ITSA Chief Executive and Inspector General in Bankruptcy, which outlines some of the significant changes that are proposed for the ITSA fee structure. We have also included the proposed schedule of fees in a separate table.

" ITSA has now completed the review and the government has accepted our recommendation on proposed changes to our fees and charges.

Outlined below are some significant outcomes of the review:

There will not be a filing or administration fee for Debtor's Petitions and Debt Agreement Proposals.

The Realisations Charge will not be extended to Debt Agreements.

The rate of the Realisations Charge for bankruptcy and Personal Insolvency Agreement administrations is to come down from the present 8% to 6% for all realisations on or after 1 July 2006.

The filing fee for Personal Insolvency Agreements will come down from $300 to $200, however, this will now be levied at the proposal stage rather than after an agreement has been reached.

The fees for Bankruptcy Notices will increase from $300 to $400. .

There have been slight increases and/or changes in the way the fees are levied for NPII searches, Official Receiver notices, Trustee registrations, the Official Trustee's fees for administering bankruptcies, Debt Agreements, Section 73 Compositions and Personal Insolvency Agreements.

The new fees and charges will be included in a legislative instrument expected to be introduced by the Attorney-General into the Parliament in May this year. ITSA shall be sending out another reminder on the new fees and charges closer to 1 July 2006 along with the final fees schedule as approved by the Parliament.

Terry Gallagher
Chief Executive and Inspector General in Bankruptcy "

DRAFT SCHEDULE OF FEES AND CHARGES WEF 1 July 2006
Ref. No.	ACTIVITIES	Fees
	Policy and Legislative Reform
1.01	Policy, legislation reform and support to ministers	Government funded
1.02	Funding of trustees - Section 305	Government funded
	Bankruptcy Registry & Compliance
2.01	Processing Debtor Petitions and DA proposals	Government funded
2.02	Processing Personal Insolvency Agreements	$200 per proposal
2.03	Issue of Bankruptcy Notices	$400 per notice
2.04	Extension of Bankruptcy Notices	$100 per extension
2.05	Issue of Official Receiver Notices	$400+ $200/hr if > 2hrs
2.06	NPII searches at ITSA offices	$22 per search
2.07	NPII searches - broker service	$14 per search
2.08	Personal Insolvency Reporting Service	$1.62 per record + maintenance charges
2.09	Inspection of public documents	$20 per inspection + $2 per copy
2.10	Taxation of trustee remuneration & costs	$200 per hour
	Bankruptcy Regulation
3.01	Regulation of Trustees - information & education	Funded through the Realisations Charge
3.02	Regulation of Trustees - monitoring, complaints etc	Funded through the Realisations Charge
3.03	Regulation of Trustees - interviewing applicants	$2000 per application
3.04	Regulation of Trustees - registration	$1200 per registration
3.05	Regulation of Trustees - renewal of registrations	$1200 every 3 yrs
3.06	Inspector General reviews	N/A
	Estate Administration
4.01	Administration of fee paying bankuptcies	$3000 + 20% of realisations *
4.02	Administration of non fee paying bankruptcies	Funded through the Realisations Charge
4.03	Administration of s73 compositions & PIAs	20% of proposal amount *
4.04	Administration of OT administered DAs	20% of proposal amount *
4.05	Administration of special estates (eg Child Support)	$200 per hour *
4.06	Administration of s188 Authorities & s50 orders	$200 per hour *
	Bankruptcy Fraud Investigation
5.01	Investigation of bankruptcy offences	Funded through the Realisations Charge
	Proceeds of Crime
6.01	Proceeds of crime - matters which realise assets	$200 per hour *
6.02	Proceeds of crime - matters with no assets	Government funded
	Levies and Charges
7.01	Realisations Charge	6% of realisations in bankruptcies and PIAs
7.02	Interest Charge	All interest (net of bank charges) on funds held in trust

(All fees for the Official Trustee attract GST and prices listed are GST inclusive. These items are marked with an asterix *)

Round Up

New South Wales

Tony Devlin from the Salvation Army's Moneycare program was elected as the new President of the Financial Counsellors Association of NSW (FCAN) at their Annual General Meeting last May.

Tony is well known to readers of Sharkwatch. Tony worked for some years as a resource worker, facilitator and supervisor for financial counsellors on the Commonwealth Financial Counselling Program (CFCP), and was the principal editor of Sharkwatch (and its predecessor, The Umbrella) during that time.

Tony is the current Vice-Chairperson of AFCCRA and is the NSW AFCCRA representative. Tony has also served for some years on the FCAN executive and has been very active in promoting the interests of financial counsellors in NSW, as well as representing the interests of Australian consumers on various councils and forums.

Sharkwatch wishes Tony well as he takes the FCAN reins for the coming term.

Victoria

Financial Counselling recognised in Victorian Liberal's plan

The Victorian Liberal Party have released a document entitled "A Liberal Plan to Protect Victorian Consumers" as part of their "Policy and Plans for Victoria" campaign in the lead up to the 2006 Victorian State election. In their plan, funding for financial counselling in Victoria will be raised by $8million over 5 years (however in the 2006–2007 tax year the increase will be only $500,000; see table).

The policy cites a government report on poverty that notes the cost-benefit advantages of financial counselling for the community and appears to signal a strong support for financial counselling as a profession, as well as a commitment to finding a solution for some of the problems that financial counsellors have been dealing with for many years.

Promises (and statements) made in the document include:

A Liberal Government will support disadvantaged Victorians in need of financial counselling by improving access to financial counsellors.
Financial counselling services are not broadly promoted to the public. Instead, clients are usually referred to the financial counsellor through community service workers. Even without promotion of the service there is an unmet demand for financial counselling services. Current waiting periods can be as long as five weeks and some services have reported being unable to meet current demand, with many clients denied urgent assistance.
The Commonwealth Government's report on poverty and financial hardship found financial counselling is a cost effective way to alleviate financial crises and deliver strategies to help people in poverty to address their financial problems.
The report also notes that a cost-benefit analysis of financial counselling services found that the ratio of benefits to costs for the community was generally 2:1 — every $1 provided for these services yielded $2 in benefits in terms of costs of bankruptcy avoided; reduced debt recovery costs; reduced demand for social security benefits; reduced absenteeism; and reduced illness and related medical costs.
A Liberal Government will increase funding for financial counselling services by $8 million to reduce the significant waiting time that some Victorians with financial difficulties are being forced to wait to access financial counselling services."
A Liberal Government will work with the Commonwealth, State and Territory governments through the Ministerial Council on Consumer Affairs to:
- Strengthen the Uniform Consumer Credit Code and the Uniform Consumer Credit Regulations to provide adequate protection for all consumers.
- Encourage the introduction of licensing for finance brokers, mortgage brokers and loan introducers as a further step to protect vulnerable consumers.
- Ensure that all credit providers be covered under a consumer protection scheme to make sure external dispute resolutions services are available to all consumers.
A Liberal Government will ensure through its education programs that Victorian consumers are informed of credit traps.

Here is the promised funding increase timetable:

Year	Funding Increase
2005-2006	$500,000.00
2006-2007	$1,500,000.00
2007-2008	$2,000,000.00
2008-2009	$2,000,000.00
2009-2010	$2,000,000.00

FCRC 2006 Conference: October 3 to October 5 at Ballarat

The 2006 Financial and Consumer Rights Council Annual Conference will be held from the 3rd to the 5th of October at Ballarat Lodge (in Ballarat).

The conference is open to both Council members as well as individuals and organizations that share an interest in the work undertaken by the FCRC and its members.

The FCRC have noted that the objectives for this year's conference are:

To provide a participatory and interactive conference event;
To promote knowledge building about the issues confronting low income and vulnerable Victorians;
To provide opportunities for networking
To provide opportunities to enhance case management skills and improve quality service provision;
To create linkages between case work and broader structural advocacy;
To raise the profile of the fee-free financial counselling sector, and;
To celebrate the work of the Victorian fee-free financial counselling sector and its contribution to social justice.

For those who wish to attend, details are as follow:

Venue Details:

Ballarat Lodge
613 Main Road,
Ballarat, Victoria, 3350

Contact details for those who wish to attend:

Phone: FCRC on (03) 9663 2000

Email: FCRC at admin@fcrc.org.au

In The Media

Banks put the squeeze on households

Original Story by Matt Wade

This article notes a growing trend for banks to try to extract fees from ordinary households rather than businesses.

The Reserve Bank's Annual report on bank fees revealed that in 2005, ordinary customers paid 40% of the fees charged by banks (i.e., $3.66 billion our of $9.2 billion), up from 30% just 9 years ago.

"Credit card fee income soared 18% to $900 million as banks sought to recoup revenue lost after the Reserve forced them to cut hidden fees charged to merchants. Banks' fee income from credit cards has now more than tripled since 2000". [Our emphasis]

In addition, credit card penalty fees for late minimum payments and overspending credit limits lifted fee income (both fees averaged $29.00 per penalty), according to the Reserve.

"The largest component of the fee income from households was fees on deposit accounts, which accounted for 40% of the total. Fees from this source grew 5% in 2005."

"Separate resrve bank figures revealed a sharp rise in credit card cash advances in March — one of the most expensive ways to borrow. The number of cash advances jumped 10.3% in March to stand 5.6% higher than a year earlier. Total credit card debt rose to a record $34.74 billion in March.?"

Sydney Morning Herald, May 19, 2006

Crackdown looms for impatient mortgagees

Original story by Jonathon Pearlman

"Banks and lenders will have their home loan policies reviewed amid concerns that borrowers have been evicted after falling behind in their mortgage payments by as little as $200.

The NSW Minister for Fair Trading, Diane Beamer, said she was concerned that some financial institutions were not giving home owners a chance to renegotiate their loans. "I am extremely concerned about the apparent increase in home mortgage foreclosures," she said.

"It would be unfortunate and unfair if consumers are being confronted with Supreme Court action in circumstances where, if given the opportunity and good advice, they may have successfully renegotiated the terms of the contract."

"Ms Beamer has asked lenders to advise customers of their right to renegotiate loans under the Consumer Credit Code. Section 66 of the code, which regulates credit transactions, allows debtors who are sick, unemployed or have fallen into hardship to change their contracts." [Our emphasis]

"The Consumer Credit Legal Centre wrote last month to the Premier, Morris Iemma, to report an increase in calls from home owners being pursued by lenders. About three-quarters involved non-bank lenders, which are not regulated by the Australian Prudential Regulation Authority."

" ' We are becoming increasingly concerned about avoidable dwelling loss by borrowers who have every chance of resolving their difficulties and getting back on track ' the centre wrote."

"The NSW Government currently bears sole responsibility for this group of lenders, many of whom are successfully avoiding the only applicable legislation."

"The centre's principal solicitor, Katherine Lane, told the Herald she was contacted yesterday by a home owner in Blacktown who was thrown out of his house after failing to meet a $200 mortgage payment to a non-bank lender."

Although David Bell from the Australian Bankers Association has protested that most of the problems occur with smaller, unregulated lenders, "Ms Beamer has asked banks and lenders to disclose the number of home loans that have resulted in foreclosures. The number of court repossessions has reportedly increased by as much as a third in the past year."

Sydney Morning Herald, February 28, 2006

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