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What is debt collection?

What is debt collection?

A debt collector could be:

  • A bank
  • Another company acting on behalf of the bank (as an agent or representative) to collect the debt for the bank i.e. the banks employ a debt collection agency to recover unpaid debts from you
  • A company collecting the debt for themselves where the debt has been assigned.

Debt assignment is the sale or assignment of a debt to a third party, such as a debt collection agency. Where a bank sells or assigns the debt, the debt collection agency may:

  • Collect the debt in the banks name (but collect the debt for themselves): or
  • Collect the debt in their own name where the customer has been notified of the assignment and collect the debt in their own name.

Of course, it’s best to resolve outstanding debts before things reach the stage where debt collectors are required. However, if a debt collection agency contacts you, you’ve got certain rights and obligations.

Consumer protection laws prohibit debt collection agencies from undue harassment and coercion. A debt collection agency that breaches these laws risks substantial fines, as well as court orders brought by ASIC or the ACCC.

ASIC and the ACCC have two booklets about debt collection. The first is industry guidelines called ‘Debt collection guideline: for collectors and creditors’. The second is a consumer booklet called ‘Dealing with debt: your rights and responsibilities’.

These booklets set out guidelines on how often you can be contacted by a debt collection agency, and where, when and how you may be contacted. There is also information on the type of conduct that may breach consumer protection laws, including:

  • the use or threat of physical force
  • harassment
  • threats or harassment of third parties, such as family members
  • false or misleading statements about what will happen if you don’t pay a debt.

If you experience any of this behaviour, you should make a complaint to your bank. You may also report it to ASIC, the ACCC, or the consumer protection agency in your State or Territory. If you’re physically threatened, you should go to the police.

If you don’t believe you owe a debt, or you believe the debt is not as large as claimed, you can try to resolve the dispute with your bank.

If you and your bank can’t solve the issue, the next step is to refer the dispute to an external dispute resolution scheme. These schemes are independent and are available free of charge, and members of the scheme must comply with their decisions. For the banking industry, the relevant scheme is the Financial Ombudsman Service (FOS).

For more information about the FOS, click here.

You can get a copy of ‘Dealing with debt: your rights and responsibilities’ by calling ASIC’s Infoline on 1300 300 630 or clicking here. More information about debt collection is available at ASIC’s MoneySmart website: www.moneysmart.gov.au.