Sharkwatch August 2004

Notes & Notices

Congratulations to Margaret Kilby

Margaret Kilby, a well known and well loved financial counsellor from NSW, has been awarded an Order of Australia Medal (OAM) in the General Division in the Queen’s Birthday Honours List. Margaret’s citation reads ‘for service to the community as a financial counsellor, particularly through the Ryde Eastwood Financial Counselling Service and the Christian Community Aid Service’.

Congratulations Margaret on this well-deserved honour!

Green PC

Green PC is a not-for-profit organisation that is trying to provide access to information technology to those on lower incomes in Australia. Green PC refurbishes used computers received from government and business organisations and makes them available at low prices to those who might not usually be able to afford a new computer system. Green PC also offers computer systems and IT services at affordable rates to registered charities and community groups. Green PC is not a charity itself, and does not provide free computers, but rather tries to make them as affordable as possible, relying on any monies received through sales to pay staff and maintain their operation.

Green PC employs a workshop of trained technicians who completely rebuild and test each computer system. All Green PC computers come with a three-month parts and service warranty.

To be eligible to purchase a Green PC, customers must be holders of a current Health Care Card, Aged Pension Card, Disability Card or have some other form of documentation relating to low-income or disadvantage.

Orders can be placed through their website at: http://www.greenpc.com.au/ (no payment is required at the time of order) or by phone on (03) 9486 9355 [Melbourne], (07) 3407 2054 [Brisbane] or (08) 9434 0530 [Perth]. Green PC is happy to offer advice to all callers on what computer systems might suit their needs, and offers an Australia-wide delivery service on most of their systems (although customers may have to pick certain items such as large monitors). Visit the Green PC website for more details.

ACCC Prosecution of Fox Symes

Most of you will be aware that the ACCC has launched a prosecution against Fox Symes and its related company, Debt Relief Services. The allegations are that between 2000 and 2002, Fox Symes made false or misleading statements when it advertised its services; and that it acted unconscionably in targeting customers who were likely to be financially or socially vulnerable.

Myfanwy Tilley of the ACCC is seeking information on whether Fox Symes continued this conduct into 2003 and 2004. Please contact Jan Pentland on 0407 042 483 if you have any instances of these alleged actions by Fox Symes after 2002. This is an important case and financial counsellors across Australia should assist the ACCC in whatever way we can.

Jan Pentland

Website provides money saving hints

Annabel Mayo from NSW has written in to recommend a new Australian website which provides some good, common sense ideas for saving money, and will send a free weekly newsletter to email subscribers. It can be accessed at http://www.simplesavings.com.au

As an example of the helpful hints available, I was particularly impressed with a hint from Sharon Cable from Ballajura, WA, a mum of 6 with more than 20 years experience of washing clothes for her family. She suggests that the best and cheapest way to remove stains is to buy a bottle of generic brand eucalyptus wool wash (around $2.60), place a few capfuls in a spray bottle and fill it with water. To remove the stains, simply spray the liquid onto the clothing item and leave for a few minutes before washing.

Third Party Authorities

A number of financial counsellors from across Australia have reported increasing trouble in having creditors accept their Third Party authorities from clients, and this issue was also raised by a number of counsellors during our last two teleconferences. It seems timely then to look at this growing problem. Here at Wesley Counselling Services, the Credit Helpline solicitor, Emilie Sutton, has had some success in dealing with requests from GE that counsellors use their Letter of Authority, which asks for a number of personal details that most counsellors would be reluctant to give (and rightly so). Emilie is happy for counsellors to use her letter in their own dealings, and a copy that can be adapted to suit different creditors is reproduced on the following page. Jan Pentland has also just sent us details of her own discussions with GE and the Banking and Financial Services Ombudsman’s office, with whom she has just put forward a draft privacy authority. Jan’s comments and draft authority are reproduced below.

Jan Pentland’s Draft Privacy Authority

I [Jan] recently raised issues about frustrations with third party authorities with GE, and am currently in on-going discussion with them to try to sort this out. Carolyn Bond and I also spoke about this matter with Diane Carmody and Jill Brewer of the Banking and Financial Services Ombudsman’s office. Jill is the Privacy Officer for BFSO and has been helpful in amending the current authority used by my agency. The following is a draft authority which I discussed with GE on July 12. and have sent to the BFSO and the major banks:

Draft Privacy Authority

To: (name of financial counselling service)
To: (name of credit provider)

Account/s:

I/we (full name/s of account holders)

Authorise Jan Pentland of Eastern Access Community Health to act as my/our agent and to seek personal information about me from the credit provider, including consumer and/or commercial credit information under section 18N of the Privacy Act 1988;
Authorise the credit provider to disclose to my/our agent personal information about me/us, including consumer and/or commercial credit information under section 18N of the Privacy Act 1988;
Authorise my/our agent and the credit provider to exchange information in order to assist in resolving my/our financial difficulties;
Request the credit provider to deal solely with my/our agent and not to contact me/us directly in relation to the accounts.

I/we understand that this authority will remain in force until revoked by me/us or until the matter which is the subject of this authority is resolved (whichever is sooner).

Signed:	Date:
Signed:	Date:

** PERSONAL IDENTIFIER of Jan Pentland: (word or number)

** GE have suggested the use by financial counsellors of a personal identifier. It could be a word, e.g., your computer password, grandson’s name, own second name or any other word you will remember OR a number of your choosing similar to your PIN for bank accounts and the like.

GE are happy with the draft authority. They would prefer it on the agency’s letterhead but if not, then accompanied by a letter on the agency’s letterhead. They would prefer us to provide a Personal Identifier (numbers or a word) so that they can record that on their database and there would be no problem when we ring them about a client. They would like us to write to them when we have stopped acting for a client so they can adjust their database – I think this is a reasonable request and professional practice. At present, the authority can be pretty open ended.

Until we can formally adopt a third party authority process that both sectors are happy with, GE have instructed all their staff to accept authorities which have the following:

Customer’s first name and surname
Account number/s
Our first name and surname
Customer’s signature
Date customer signed form
Scope of the authorisation, i.e. access to account information or maintain customer’s account

When they receive your authority by mail or fax, this would be logged onto their computer system with your name and your agency’s name and should then enable you to ring and talk to them or respond to their calls when they call you. The reason they have made this suggestion is that when we ring them about a client, as distinct from when they ring us, they need to be absolutely sure that we are who we say we are so that they don’t breach the Privacy Act and principles.

I understand that some of you may be agreeable to this and others may not. After thinking about it, I am OK with it, if it means I can choose a personal identifier for myself, and that this will facilitate discussions/negotiations with credit providers rather than getting the run around that sometimes currently occurs. Please give this some thought and give me a call on 0407 042 483 or email me at jpentland@each.com.au if you are unsure or would like to explore it further.

Please note that any third party authority we use should be on our agency’s letterhead, should contain the client’s name and signature, and all the account numbers on which you are representing your client. Unfortunately, some of the authorities financial counsellors have provided to creditors which have subsequently been shown to me do not meet these basic requirements. Any further comments are welcome — just give me a call or email me using the contact details above.

Date:

Our Reference:

RE: GE Letter of Authority

Dear

I refer to your letter dated in which you informed me that the authority I sent you was inadequate and requested that I complete the Letter of Authority developed by GE CreditLine (“GE”). The Letter of Authority you requested that I complete, required me to disclose my residential address and date of birth.

As you are aware, GE is an organisation bound by the National Privacy Principles (“NPPS”) in the Privacy Amendment (Private Sector) Act 2000. GE’s requirement that Financial Counsellors must disclose their residential address and date of birth before GE is prepared to disclose information to us about our clients breaches Principle 1 of the NPPs. Specifically, the requirement breaches NPPs 1.1 and 1.3. NPPs 1.1 and 1.3 provide:

1. Collection

1.1 An organisation must not collect personal information unless the information is necessary for one or more of its functions or activities.

1.3 At or before the time (or, if that is not practicable, as soon as practicable after) an organisation collects personal information about an individual from an individual, the organisation must take reasonable steps to ensure that the individual is aware of:

the identity of the organisation and how to contact it: and

the fact that he or she is able to gain access to the information; and

the purposes for which the information is collected; and

the organisations (or the types of organisations) to which the organisation usually discloses information of that kind; and

any law that requires the particular information to be collected; and

the main consequences (if any) for the individual if all or part of the information is not provided.

The collection of details about my residential address and date of birth is in no way necessary for any one or more of the functions or activities performed by GE. Moreover, GE has failed, contrary to NPP 1.3(3), to disclose to me the purposes for which information about my date of birth and residential address is collected.

I therefore request that GE modifies the “Letter of Authority” it requires financial counsellors to complete so that it conforms with the Privacy Amendment (Private Sector) Act 2000. I look forward to receiving your prompt response to this complaint.

Yours sincerely

Financial Counsellor

Round Up

News, views and information on what’s happening in financial counselling around Australia.

Australia-wide

The Australian Financial Counselling and Credit Reform Association (AFCCRA) regularly publish a list of details for key financial counselling referrals in each state. This list has been a very helpful resource in the past, and so we have reprinted the latest version below.

AFCCRA Financial Counselling Key Referrals

This resource is provided by AFCCRA (Australian Financial Counselling and Credit reform Association). It lists the key referral points for Financial Counselling in Australia.

These services are FREE and CONFIDENTIAL.

The contacts below in each state/territory will be able to either provide a financial counselling service to you, or refer you to the appropriate service. State and Federal Government funding for financial counselling varies across the states and territories and is very inadequate. Therefore, the capacity to meet your request for financial counselling will vary depending on which state or territory you live in.

Victoria

Financial and Consumer Rights Council (03) 9663 2000
Credit Helpline (03) 9602 3800
or Toll Free for regional Victoria 1800 803 800

News South Wales

Credit Helpline 1800 808 488

Australian Capital Territory

Care Financial Counselling Service (02) 6257 1788

South Australia

Uniting Wesley Mission Adelaide (08) 8202 5180

Western Australia

Financial Counsellors Resource Project (08) 9221 9411

Tasmania

Anglicare Financial Counselling Service 1800 243 232

Queensland

Financial Counselling Association of Queensland (07) 3321 3192

Northern Territory

Anglicare Northern Territory (08) 8985 0000 or 1800 898 500

Queensland

A number of new Queensland services have now been opened with funding the Commonwealth Financial Counselling Program.

Caboolture and Redcliffe

Both services are staffed by Ken Campbell, a financial counsellor from Lifeline Sunshine Coast/Gympie.

Lifeline Caboolture and Redcliffe will have the same contact information, and appointments for Redcliffe will be made through the Caboolture office.

Here are the contact details for the new services.

Caboolture: 15 Morayfield Road,; Caboolture, Qld, 4510.

Redcliffe: B J Lister Centre,; 4 McNaughton Street,; Redcliffe, Qld, 4020.

Mail for both Caboolture and Redcliffe should go to:: PO Box 1734; Caboolture, Qld, 4510.

Contact data for both Caboolture and Redcliffe: Phone: (07) 5495 1700; Fax: (07) 5498 9211; Email: ken.campbell@lccq.org.au

Here is the press release that accompanied the opening of these two services:

“In response to a growing need within the community for assistance with the management of financial crisis, Lifeline Caboolture has moved to provide a Financial Counselling service at both Caboolture and Redcliffe. The service offered by Lifeline will help people deal with the stress brought on by worries about stretching the dollar through providing assistance with budgeting and money management for low-income earners. The service also offers information on ways of dealing with harassment from creditors and explaining bankruptcy and its alternatives. There is no charge for this service and people can come to Lifeline knowing they are coming to someone who will keep their problems confidential.”

Hervey Bay and Maryborough

These services are staffed by Ross Elgar. Ross will be at three different locations on three different days as follows:

Lifeline Maryborough: Available on Mondays; Cnr. Alice and Bazaar Streets,; Maryborough, Qld, 4650; Phone: (07) 4122 2144; Fax: (07) 4121 2598

Lifeline Hervey Bay: Available on Tuesdays; 114 Torquay Road,; Hervey Bay, Qld, 4655; Phone: (07) 4124 3839; Fax: (07) 4124 5844

Hervey Bay Neighbourhood Centre: Available on Wednesdays; 57 Taylor Street,; Hervey Bay, Qld, 4655; Phone: (07) 4124 3544; Fax: (07) 4124 1620

Bundaberg

The new service at Bundaberg is staffed by David Lawson.

The contact details for the service are as follows:

Lifeline Bundaberg: PO Box 1473; Bundaberg, Qld, 4670; Phone: (07) 4153 2000; Fax: (07) 4153 4949

New South Wales

Credit Helpline changes hands

In the latest Office of Fair Trading funding round in NSW, the Consumer Credit Legal Centre in Sydney became the successful tenderer for the contract to run the NSW Credit Helpline, which has been under the auspices of Wesley Mission’s Counselling Services for nearly a decade. The official changeover date will be August 31, 2004.

Farewell to Narelle Brown

Narelle Brown has been a very active figure in financial counselling in NSW for nearly 15 years, but has recently left financial counselling to take a position in industry. Based at Ryde Eastwood Financial Counselling Services, Narelle has been a past president and vice president of the Financial Counsellors Association of NSW (FCAN), has been involved in various consumer consultative committees, and has been recognised for her consumer advocacy work at the NSW Office of Fair Trading Consumer Protection Awards. Narelle has also been involved in numerous projects, both as a representative of FCAN and within her local community, and her contribution will be greatly missed.

Victoria

The Financial and Consumer Rights Council of Victoria (FCRC) will be holding their 2004 annual conference from Sunday October 17 to Tuesday October the 19th at “The Cumberland”, in Marysville, Victoria. The theme for the conference will be “Poverty in the lucky country—Reflecting and creating a new agenda”. Those interested in attending should direct registration enquiries to:

FCRC: First Floor, Ross House; 247–251 Flinders Lane; Melbourne, Victoria, 3000; Phone: (03) 9663 2000; Fax: (03) 9663 7677; Email: fcrc@vicnet.net.au

The Law Matters

by Betty Weule
Financial Counsellor

A New Deal In Employment For Bankrupts?

Financial counsellors throughout Australia have long been concerned about the effects of bankruptcy on the employment of their clients. Although the employment issues vary between states, the trend is that state and federal governments are making it increasingly difficult for current or former bankrupts to obtain employment.

Unfortunately, even in this day and age, bankruptcy, when business is involved, is still regarded in some ways as a crime. In isolated cases fraud or a scam is involved, but in most cases the bankrupt has fought as hard as he or she can to avoid bankruptcy. These bankrupts are sometimes penalised for a long period of time, even for life, by not being able to obtain a licence to continue to work.

The prohibition on employment, or types of employment, does not come from the Bankruptcy legislation. For example, it is the Corporations Law (NSW) (s. 229) that disqualifies a bankrupt from managing a corporation or being a director of a company. It is the Aged Care Amendment Act 2000 (Cth), introduced in September 2000 by the Federal Minister for Aged Care, Bronwyn Bishop, that resulted in the disqualification of any individual who is an “insolvent under administration” from working as a key person in the aged care industry. This applied to both new staff and anyone already working in the area from 19th January 2001. “Key personnel” included administrators, finance managers, supervisors and consultants but also hands on staff such as ward sisters, care givers and unpaid board members.

The logic in passing legislation such as this is hard to follow. A worker who is in financial difficulties may understandably become stressed and unable to provide the best possible services or may even be tempted towards fraud. A worker who becomes bankrupt or enters into a Part 9 or Part 10 arrangement will have had the financial pressure lifted and will almost certainly be able to perform more effectively and be less likely to be tempted to embezzle. It seems the real motivation is to punish the worker for entering into bankruptcy.

In NSW, prior to 1981, all railway workers who went bankrupt lost their jobs. This was a strange practice, as their counterparts on the buses or ferries were not affected. In 1981 the Inner City Legal Centre filed a discrimination action against the railways and at the same time Credit Line approached the Unions for assistance. The matter was settled and the prohibition on employment was lifted.

An interesting and groundbreaking decision regarding bankruptcy and employment was handed down in the General Division of NSW Administrative Decisions Tribunal on 22nd June, 2004. Anthony McDonald appealed against a decision by the Commissioner for Fair Trading to refuse to grant the application of a certificate of registration under s10 of the Property, Stock and Business Agents Act, 2002 (NSW) so that he could be a real estate agent sales person. The Commissioner refused to grant the licence on the ground that Mr. McDonald was an undischarged bankrupt in the three years preceding his application and was thus a “disqualified person”. However, s.16(1)(d) of the 2002 Act also contains an exception that the license could be issued if “the Commissioner is satisfied that the person took all reasonable steps to avoid bankruptcy”.

Queensland has similar legislation in section 56AC of the Queensland Building Services Authority Act 1991 although the test is a little tougher. The authority has to be satisfied that “the individual took all reasonable steps to avoid the coming into existence of circumstances that resulted in becoming bankrupt”.

Mr. McDonald became a director of Deesa Pty Ltd in 1992. In January 1993 Deesa purchased the goodwill in a hotel in Taree for $160,000. Mr. McDonald and another director ran the hotel while a third director maintained the financial records. In 1995 Deesa had accumulated losses of $93,900. It made a profit of $48,500 in 1995/96. The situation deteriorated from then on. Additional competition, poor poker machine returns and council road works outside the hotel led to further losses. Mr. McDonald drew no wages but lived in the hotel with all expenses paid by the business. The relationship with his co-directors soured and Mr. McDonald bought out their shareholding for $20,000 and became the sole director of Deesa. Deesa had problems meeting its debts and borrowed $30,000 from the National Bank on a personal guarantee from Mr. McDonald and a fixed and floating charge over the assets of the business.

In January 1999 Deesa could not pay its rent in full. The landlord told Mr. McDonald that he should look at his financial situation and introduced a prospective buyer for the hotel. The business was sold for $50,000 plus stock. $30,000 was paid to the landlord and $20,000 to various creditors. Several months later Mr. McDonald received $20,000 for hotel stock. Mr. McDonald requested that this sum be held in his solicitor’s trust account in order to pay debts still owed.

After selling the business in early 1999, Mr. McDonald returned to Sydney and obtained employment. He realized Deesa was still unable to pay all its outstanding debts. He went to the Parramatta office of the Insolvency Trustee Service of Australia (ITSA) to seek their advice. They referred him to a financial counsellor.

The counsellor put a proposal to the bank requesting release of the charge over the Solicitor’s trust fund allowing creditors to be offered 70c in the dollar and the maintenance of full contractual payments of $1417.76 on the bank debt. The bank rejected this offer and seized the $20,000. Following the bank’s refusal, Mr. McDonald entered voluntary bankruptcy.

In terms of seeking a decision from the tribunal to grant him a certificate of registration despite his bankruptcy, Mr. McDonald’s case centred on the meaning of the phrase “took all reasonable steps to avoid bankruptcy”. This was the first time these words in the Act have been interpreted by any NSW court or tribunal.

Despite strong argument from the legal representatives for the Commissioner, the Tribunal decided that the key to the case lay in the question “What steps did Mr. McDonald take and were they reasonable?” Mr. McDonald had little experience in financial management when Deesa bought the hotel. His expertise and experience had been in sales. One of the other directors maintained the financial records. After January 1999, Mr. McDonald took the following steps to avoid bankruptcy:

He sold the business when he was having difficulty in paying the rent.
He used the proceeds of the sale to pay debts.
He placed the proceeds from the sale of stock into his solicitor’s trust account so it could be used to pay creditors.
He sought advice from ITSA.
He followed ITSA’s advice and went to see a financial counsellor in June 2003.
He took the advice of that counsellor and made an offer to the bank that would potentially have resolved his financial situation without going into bankruptcy.

The Tribunal stated in its decision:

“Mr. McDonald is not required to take all possible steps to avoid bankruptcy, but rather all reasonable steps to do so. In my view the steps he took were consistent with the steps a reasonable person, endowed with Mr. McDonald’s limited knowledge and experience, would have taken to avoid bankruptcy. A decision is made to grant the applicant a certificate of registration under s10 of Property, Stock and Business Agents Act 2002.”

This case has established an important precedent and may be the start of a different attitude to the employment of bankrupts. The decision and reasons for decision can be found at www.lawlink.nsw.gov.au/adtjudgments

Betty has been a practicing financial counsellor for almost 30 years. She has a PhD. in law in consumer bankruptcy and is a part-time member of the Administrative Decisions Tribunal.

AFCCRA Update and Bankruptcy Update

Jan Pentland

BLAB 2004

The House of Representative Standing Committee on Legal and Constitutional Affairs has released its report on the Bankruptcy Legislation Amendment (Anti-Avoidance and Other Measures) Bill 2004 and it is available on the Parliament website www.aph.gov.au as are the submissions, Committee proceedings and Hansard. A 23 July media release from the Attorney General Philip Ruddock stated that the Government has decided to withdraw and revise its exposure draft.

While he indicated that the Government remains determined to address the issues arising from the ability of some high income earners using bankruptcy to avoid paying debts while maintaining their lifestyle through assets held by others, he has taken on board the criticisms contained in the large number of submissions to the Committee (currently over 170 submissions and rising!) Changes to be addressed by the Government include:

The provisions which reverse onus of proof that the bankrupt had a ‘tainted purpose’ in making the original transfer of assets;
Introducing realistic time limits to determine how far back bankruptcy trustees could look in seeking to recover transferred property; and
Ensuring the provisions do not have unintended consequences in cases where bankruptcy results from business or professional failure.

On 6 July Richard Brading and I accepted the Committee’s invitation to address them in relation to AFCCRA’s submission. We had 45 minutes to add to our submission and I provided 4 gambling case studies which illustrated our concerns. It was an interesting experience! The Chair of the Committee, Bronwyn Bishop did not seem to think much of the Bill, which is evidenced by the Committee’s report and the outcome.

The Insolvency Trustee Service of Australia (ITSA), represented by Terry Gallagher and David Bergman, and the Attorney General’s Department, were on before us and they were given a very difficult time by Bishop. Given that the Attorney General Phillip Ruddock was gung ho at lunch at the Bankruptcy Congress in May about getting the Bill through and Bishop’s obvious antipathy, it’ll be interesting to see what happens! So far, it seems to be Bishop 1, Ruddock 0.

The 170+ submissions all had problems with the exposure draft. AFCCRA’s submission was probably one of the more positive ones in that we strongly support the intention of the Bill but have some concerns about unintended implications for our clients. Almost all the other submissions seem to be against the reforms and trying to protect the status quo, i.e. those with money being best able to protect their assets.

It is likely that this Bill will be overtaken by the calling of the Federal election, but, whoever forms the next Government, I expect this issue to be pursued, although probably not with the current draft legislation. Please contact me at jpentland@each.com.au or at 0407 042 483 if you have any comments.

[Editors’ note: The BLAB has now been introduced into Parliament, but without the controversial clauses dot pointed earlier. ITSA has been asked to redraft these clauses, and it is expected that the redrafted clauses will be reviewed after the election].

Bankruptcy Congress

The 5th National Bankruptcy Congress was held in Melbourne on 13 and 14 May 2004. The full attendance fee of $1000 was well beyond the capacity of most financial counsellors. Concessions to fees were made for financial counsellors and despite the still exorbitant fee of $495, there were thirteen financial counsellors in attendance which was great. Penelope Hill and myself were the Victorian participants.

The focus of the content at the Congress was on registered trustees and bankruptcy lawyers, which is disappointing given that ITSA’s own research shows that the primary source of information on bankruptcy is financial counsellors – 40% for voluntary bankrupts and 17% for debt agreements.

ITSA’s Profile of Debtors 2003 was launched at the Congress and is an extremely interesting and useful source of information for our sector, so get your copy from ITSA or their website. The profile of debtors clearly indicates that the majority of bankrupts continues to be our client base – 78% had an income of less than $30,000; 50% owed less than $20,000 to unsecured creditors; 87.3% had no realisable assets. Interestingly, the number of voluntary bankruptcies is lower than last year and even with the continuing worrying growth in Part IX debt agreements, the total of administrations under the Bankruptcy Act is slightly lower.

I found the Bankruptcy Congress very worthwhile and am grateful that I was able to attend. However, in my feedback to ITSA, I have indicated disappointment at the lack of input from our sector in the content of this Congress, the need for greater focus on our sector and our clients in planning of future Congresses, and the need for the Congress to be made much more affordable for financial counsellors.

Bankruptcy and the Defence Services

The formal response to the AFCCRA letter to General Cosgrove in October 2003, which we expected to address the issues raised, was recently received. In my view, it is an inadequate response and will be followed up by AFCCRA. I am grateful to Tricia Ross, AFCCRA Council member representing the Northern Territory, for agreeing to take on this issue for AFCCRA. Tricia has considerable experience with working with the defence services in Darwin, both senior staff and personnel who come to her as clients. There is a particular concern at present with activities of Debt Agreement Administrators. Please let me know if you have a particular interest in this and I’ll include you in the group email for up-dated information and Tricia will keep you in the loop of work she is undertaking for AFCCRA on this important issue.

Part IX Review

During 2002, ITSA commissioned an independent research study into the experience of debtors who had proposed a debt agreement within the previous 4 month period. A copy of that report released last year is available on ITSA’s website.

ITSA is currently implementing further independent research from debtors about their experiences with the administration of debt agreements over 2 to 3 years after having an agreement accepted by creditors. ITSA has invited financial counselling input into the design and drafting of proposed research questions and we are currently responding to this. Financial counsellors at the Bankruptcy Congress took the opportunity to meet briefly with ITSA officers on 13 May to give feedback on the project process and draft telephone survey. I shall compile this feedback together with other feedback received and formally respond to ITSA by 19 May as requested. Part of the feedback will draw attention to the inadequate timelines for comment.

Our sector in Victoria has been recommended for Consumer Credit Fund funding to undertake our own research on debtors’ and financial counsellors’ experience of Part IX Debt Agreements. We await the Minister’s final decision and are hopeful of making a start on this important area of research soon. Please keep track of any clients you have with Part IXs.

Issues Update for ASIC Consumer Advisory Panel, 9–2–2004—Unsolicited credit card increases

There is strong resistance from the banking sector to the ACT legislation which requires an assessment of capacity to pay before approving credit card increases. However, when such increases are approved without such an assessment and subsequently challenged, banks are waiving significant debt incurred.

I recently had a major bank agree to reduce a debt on a Mastercard from more than $30,000 to $3,000. The debtor had initially been assessed and approved for the Mastercard with a $1,000 limit. The limit had been raised to $3,000 after a further application by the debtor. Subsequent increases to the credit limit over a period of about 6 years had raised the limit to $25,000 without further assessment of capacity to pay. The balance is now more than $30,000 but the bank has now agreed to reduce the debt to $3,000.

Colleagues have had similar agreements to reduce credit card debts owing for unsolicited credit. The reductions have been less – eg $10,000 to $500, $5,000 to $3,000 – and the matter has sometimes needed to be referred to the ABFSO to achieve this outcome.

Proposed changes to AFCCRA Constitution

Background

AFCCRA’s Constitution was last amended in 1996 and reflected its position at that time as a funded national organisation with paid staff and an office in Canberra. Funding was withdrawn soon afterwards and AFCCRA’s resources significantly diminished. AFCCRA now operates on the volunteer time of Council members, minimal membership fees from states and territories consistent with its federated structure, and sponsorship by Telstra of its bi-monthly telephone link ups.

AFCCRA Council decided in September 2002 to amend the Constitution to better reflect its current resource base and operation. Rosemary Warren and myself have subsequently reviewed the current Constitution and drafted a proposed amended Constitution. AFCCRA Council considered this amended Constitution in June 2004 and have decided to make it available to AFCCRA members for comment. We hope to be able to formally adopt an amended Constitution for AFCCRA by the end of 2004.

Proposed changes:

The proposed amended Constitution is ‘slimmed down’ to 6 pages from 15, but we believe it maintains the fundamental premises on which AFCCRA operates and better reflects AFCCRA’s current and future organisational structure and operation.
Membership categories have been reduced to one category: 5.1 of the proposed Constitution states that “Membership of the Association shall be open to no more than one organisation or association from each State or Territory of Australia meeting the following criteria: That the organisation or association represents and accepts as members, individuals or organisations who are involved in financial services issues from the consumer perspective or who provide support or supervision to persons so engaged, and who act
1. in the paramount interest of consumers;
2. free of any conflict of interest; and
3. free of any commercial benefit.”
Associate Membership, Affiliated Organisation Membership and Sponsor Membership are not a part of the proposed Constitution. This streamlines the organisational structure and removes the current obligations to provide written notice to all of these membership groups about such issues as AGMs, etc. It better reflects what our current practice is (i.e. that the AFCCRA Council representative from each state and territory is the conduit of information to and from AFCCRA Council).
The objective at 3.6 “To develop appropriate minimum professional standards for financial counsellors” has been removed, as has 5.1(b) “It is a requirement of eligibility for membership that a member adopts accreditation criteria for its own financial counsellor membership which meet the accreditation standard of the Association as determined by the Council from time to time.” We believe that these issues are more properly addressed by each state and territory. Even if we wanted to put these obligations on state and territory members, AFCCRA could not and probably should not be able to enforce them. You may remember that there was quite a split in AFCCRA’s ranks soon after the adoption of this Constitution due to some states objecting to AFCCRA putting obligations on them in relation to membership criteria.

Most of the other changes in the proposed Constitution remove anomalies, and reflect the more major changes outlined above. A copy of the current and proposed AFCCRA Constitutions are available from your AFCCRA Council member or from me at jpentland@each.com.au or janpentland@hotmail.com

Involvement in Sugar Industry Reform Package

AFCCRA was invited by the Commonwealth Department of Family and Children’s Services (FaCS) to be involved in the implementation of this package which includes $2.5 million over 4 years for Commonwealth Financial Counselling Program services in the sugar growing areas. I am meeting with FaCS staff in Canberra on 13 August and several AFCCRA Council members will be participating in a two day workshop in Brisbane on 23 and 24 August. AFCCRA’s involvement will be discussed at our next Council meeting on 16 August. Watch this space for further information.

If you would like to discuss any of the above please contact me on 0407 042 483.

Power of Attorney

A financial counsellor in Queensland has advised us of an issue that arose with a client who was considering bankruptcy. The client held a Financial Enduring Power of Attorney for a relative. The financial counsellor became aware that this Financial Enduring Power of Attorney would be revoked if the client became bankrupt.

This is not an issue a financial counsellor would see often, but it is important to be aware that it could be a problem in a small number of cases.

The Powers of Attorney legislation comes under the jurisdiction of the various Attorneys General Departments in each state. In most states, the Attorney General’s Department has an easily accessible website, (this can usually be accessed via the state government home page), and we would advise any financial counsellors facing issues that relate to powers of attorney, to use that website as a starting point to gather the specific information they might need.

In terms of the case in point (the Financial Enduring Power of Attorney), we are led to understand that this type of power of attorney would last until:

you cancel it (you must be mentally competent to do this);
you die;
you become bankrupt; or
it is cancelled by an appropriate Court/Tribunal.

June 11 Teleconference Report

Dealing with difficult creditors and increases in case complexity and workload

This teleconference extended the discussion from the April 16 2004 teleconference, and looked at the following issues:

Growing workloads for financial counsellors
Increasing case work complexity in financial counselling
An increasing para-legal component in our case work
A recent trend suggesting that creditors are becoming increasingly intransigent and unwilling to negotiate informal agreements
Issues surrounding an unwillingness by some creditors to accept financial counsellors’ third party authorities
How these changes affect financial counsellors in the day to day running of their services
Strategies to cope with these changes

In this teleconference, the 10 participants looked more closely at the effect of these issues on the day to day running of their services than had been the case in the April teleconference. Personal strategies that each of us had used to combat these trends were also discussed in some detail.

Growing workload; increased case work complexity

The numbers of clients contacting agencies is growing and many financial counsellors have appointments booked for a month or more in advance.

Cases are also becoming more complex. It was suggested that this might, in part, be due to the fact that the area of credit provision is becoming more complex, with the number of credit providers increasing constantly and the laws, both Federal and State, constantly changing. Many of the participants were finding it difficult to keep up to date with changes in legislation and important information, and, because of increased workload, were finding that they had to do this outside their normal work hours.

For example, some of the participants have been taking home their complex files, so that they could do the necessary research or follow up work needed in those cases where their clients had been subjected to unjust contracts or unconscionable conduct. They had also been taking home contracts that might be presented to the Telecommunications Industry Ombudsman (TIO) or Banking and Financial Services Ombudsman (BFSO).

Another complex area discussed was that of short-term lenders. Some lenders have been setting up complicated schemes to operate in the grey areas of the legislation. For example, one pay day lender operates two companies. One company brokers the loan and charges a large fee (for example, a $300 fee was charged for a $700 loan). The loan is then provided by the second company, which charges no interest or fees. In this way they appear to be collecting huge returns for their loans, whilst not operating in a way that would bring their arrangements within the auspices of Credit Code requirements.

This difficult situation is further complicated for the counsellor by the fact that many clients see the lender as their friend. A number of such customers are receiving Privilege Cards or Gold Cards from their pay day lender. These cards supposedly give the clients benefits that are not available to other people. This is very attractive to people who may find it impossible to borrow from a more reputable lender, or who may have been bankrupt or have defaults on their credit files.

Increase in para-legal component of case work

Discussion was held on City Cash and Finance Solutions (City Finance) who take security over all the clients’ possessions for their loans. One financial counsellor said that the Consumer Affairs Department in Victoria is currently taking action against this company.

Another area of discussion was the growing wave of debt being passed on to collection agents (e.g., companies like GE, Telstra and Optus) and the large additional fees and charges that are often added by the mercantile agents. It was also noted that Centrelink are beginning to pass on their client overpayment debts to Dunn and Bradstreet (D&B). It is unknown if these debts have been factored or if D&B are merely collecting for Centrelink.

Wayne advised us that Telstra, one of the first to sell large parcels of debt, is doing a lot of work on its policies in regard to credit management procedures, and is currently looking at ‘front of house’ failures in those instances where clients with credit problems call for assistance.

Creditors are increasingly difficult to negotiate with

If the experiences of the teleconference participants is indicative, then credit providers are certainly becoming tougher and harder to deal with. One financial counsellor told us that she had been personally contacted by City Finance when her client went bankrupt. Their employee had phoned and angrily demanded to know why she had ‘let the client go bankrupt’.

Interestingly, it was a common experience that many intransigent collection agents don’t know the credit laws and appear to hope that clients don’t know the law either. Mercantile agents will often tell clients to approach their families, friends or neighbours for loans, and there were many stories of horrendous threats that were clearly well outside the current credit laws (e.g., after not replying to a first letter of demand for a $600.00 debt, a single mum in the country was told by the mercantile agent that “if you don’t pay by tomorrow, we will have your house for sale by the end of the week”). One counsellor, who has worked with a mercantile agent, told us that the level of ignorance among some operators in the various collection agents is often appalling. This however can work to our advantage. Often, if the bluff is called (for example, if the client responds to the agent with the correct information from the relevant Codes), the agents will quickly back off and negotiate.

In another case, the client was told that the bank was going to sell her house in a week, so she moved out immediately and then contacted the bank to let them know that she was gone. Clearly, if the clients don’t know the law, they are more likely to believe what they are told and can experience severe and adverse consequences as a result.

Inconsistency is another problem faced by financial counsellors. One day a creditor will accept a lump sum offer of, maybe, 60c in the dollar and the next day the same creditor won’t accept 70c in the dollar from another client in almost identical circumstances. Another creditor will list a settlement on the credit file for one client, but won’t do it for another.

Some financial counsellors are finding that many creditors (particularly banks) would prefer the clients to go straight to bankruptcy rather than negotiate payments or even reduced lump sum offers. According to one participant who has recently been a bank employee, a bank worker who has resolved a bad debt with a bankruptcy is seen as having made a better resolution to the case than an employee who negotiates some sort of informal agreement. It appears that an immediate tax benefit and file closure is more valued by banks than retrieval of owed monies over the long term.

In terms of the problems some counsellors are having with third party authorities, it was discussed that GE are still demanding to know the home address and date of birth of financial counsellors and Westpac are still insisting that their own Authority is used instead of the authority normally used by the financial counsellor. Concern was expressed that if we agree to use the Authorities required by the various organisations, we will end up with dozens of different Authorities that we have to use to appease the different creditors. This presents particular problems for Quality Assured agencies whose documents are all ‘controlled’.

It was nice to hear that not all of the news on this front was bad. Some workers have been finding that Esanda are much more co-operative now that they have a new manager. Esanda attended the Queensland Conference and addressed the financial counsellors there, advising them that they are now trying to help clients keep their cars rather than repossess them.

It was also noted that an increasing amount of creditors have been willing to list defaults in recent years, making credit difficult to obtain for many clients. It was suggested that the financial counsellor tell their clients that if they are looking for further credit they should be ‘up front’ with the lender and say, “When you look at my credit file you will see that there was a default. This is because … happened. It has now been resolved and I am repaying/have repaid the debt.”

Strategies to cope with the changes

When GE demanded to know the home address and date of birth of one NSW financial counsellor, the Credit Helpline NSW Solicitor drafted a letter for the financial counsellor to send to them. This letter was faxed through to GE with an URGENT stamp attached. Within half an hour the financial counsellor received a call from GE agreeing to accept the Authority provided in the first place. A copy of this letter is included in the “Third Party Authorities” article appearing earlier in Sharkwatch.

Repcol, which is a collection agency based in WA, has been refusing to provide a statement of payments print-out to some financial counsellors. One suggestion about how to tackle this was to go back to the original creditor and make a complaint. Another suggestion was to phone the original creditor’s Compliance Manager and say, “The banking ombudsman has suggested I contact you direct…” This strategy seems to have brought a remarkable change in co-operation when used in the past.

Another participant has taken the strategy with creditors that if they do not respond to his letters within a reasonable time (say, a few weeks), then he takes the matter directly to those who oversee the Dispute Resolution system. He has found that this strategy has been particularly successful. He has usually had quick and helpful action follow shortly after notifying the DR section that his letters have been ignored or that there has been an unreasonable response to his enquiries. Financial counsellors should go directly to either Internal Dispute Resolution sources, or contact the appropriate numbers provided on the Banking and Financial Services Ombudsman’s (BFSO) contact list. If neither of these are appropriate, then search for the Customer Relations Officer, Compliance Manager, General Manager or CEO of the creditor or collection agency.

(If anyone has any good contact names & phone numbers they would like to share with Sharkwatch, we would really appreciate having them.)

In summary, it has been suggested that in response to the ‘hard ball’ tactics being used by creditors, financial counsellors should respond in kind. Take slack service directly to dispute resolution. Be prepared to invoke the BFSO. Question a creditor’s unwillingness to accept an authority. Don’t always accept what front of house operators tell you, and be willing to take a matter to a higher authority within the creditor’s organisation. Financial counsellors do face increasingly difficult tasks at the moment, but as always, I suspect we will rise to meet these challenges by being strong, committed, flexible and creative.

Sugar Industry Reform Package Funding

The Federal Government will be providing around $2.5 million from the Sugar Industry Reform Package to financial counsellors on the Commonwealth Financial Counselling Program (CFCP). The money will basically be provided to financial counselling services in sugar growing areas, so that they can assist in dealing with the expected financial impact of changes to the sugar industry on people living in those communities.

We have received a lot of calls from CFCP counsellors who are currently involved in the process of tendering for that money. The sorts of questions we are getting are very varied and it is clear that the suddenness of this funding becoming available is leading to a certain amount of confusion and anxiety for some counsellors in sugar growing areas. Jennifer and Wayne (see front page for contact numbers) are happy to talk to any CFCP counsellors about any issues they may have.

Case Studies Wanted!

In recent Sharkwatch appraisals, a number of readers suggested that they would really like to read about interesting cases that other counsellors have dealt with. If you have dealt with any interesting cases that you think might be suitable, we would encourage you to send them in to us by email, letter or fax (our contact details are on page 2). The case studies should provide details about the client’s situation, the problems addressed and solutions used, and case outcomes, but, to preserve the anonymity of clients, no information by which a client could be identified should be included.

ITSA’s Draft s. 271 Policy

The Insolvency Trustee Service of Australia have released a draft policy for dealing with s. 271 of the Bankruptcy Act 1966, which deals with “rash and hazardous gambling leading to insolvency”. We believe that the draft policy will be discussed at an ITSA Forum due to be held at some time in September.

Section 271 has been an area of controversy (not to mention consternation) for financial counsellors for many years, because of the potential within s. 271 for criminal proceedings to be laid against clients who become bankrupt with gambling debts. What has kept many clients from prosecution has been ITSA’s interpretation of s. 271, and their policy in deciding when it should be invoked. ITSA’s ongoing interpretation of s. 271 is thus of great interest to financial counsellors, and it is with this in mind that we have reproduced their draft policy for Sharkwatch readers to evaluate and comment upon. The full draft policy appears on the next page (page 16).

If you have comments on the policy or would like your views represented to ITSA, there are a number of people you can contact. For all financial counsellors across Australia, Jan Pentland, the Chairperson of the Australian Financial Counselling and Credit Reform Association (AFCCRA), would be happy to hear your feedback and will be making representations on behalf of financial counsellors. For counsellors in NSW, Tony Devlin is also happy to do the same. Their details are as follows:

Jan Pentland: Email Addresses: jpentland@each.com.au or janpentland@hotmail.com; Mobile Phone: 0407 042 483

Tony Devlin: Email: tony.devlin@aue.salvationarmy.org; Address: PO Box A435, Sydney South, 1232; Phone: (02) 9266 9587 Mobile: 0412 4400 60

I would just like to add here how much we appreciate the work of Jan and Tony (and many others) in representing the views and interests of financial counsellors to the many faces of government and industry. Despite the fact that much of this work is done in their own time, people like Jan and Tony consistently approach their work with great enthusiasm and provide representation of the highest quality. Thanks to you all.

Referral Of Offences Under Section 271 Of The Bankruptcy Act 1966 (Rash And Hazardous Gambling) — Policy Statement (.pdf, 36kb)

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