Debt Collection and Defaults

Debt Collection Guidelines

The Guidelines

When collecting monies from customers you must take into consideration the Debt Collection Guidelines. These guidelines have been put in place by the ACCC and ASIC to outline the responsibilities of Creditors and Collectors as well as the responsibilities of debtors, in line with the Australian Consumer Protection Law.

The Guidelines state a debtor’s responsibility as:

“Debtors are legally responsible for paying the debts they legitimately owe. Where they owe the debt in question, debtors should:

not attempt to avoid the obligation to satisfy debts they have incurred

promptly contact creditors and debt collectors when they are experiencing financial difficulties and attempt to negotiate a variation in payments or other arrangement

be candid about their financial position, including their other debts.”

There are however rules that we need to adhere to as collectors when trying to recoup funds from our customers. Payment arrangements should be fair and flexible and take into account the customer’s capacity to pay.

Reasonable Contact with Debtors.

Communication with the debtor must be for a reasonable purpose only, so if a customer has made an arrangement to pay the only reason to contact the customer after this is if they do not meet their commitments.

Contact with the debtor is described as communication via phone, communication in writing or communication in person. If you call a debtor and leave a voice message, then email the debtor this is seen as two separate contacts with the debtor.

The guidelines state that these are the timeframes for when debtors can be contacted.

The guidelines recommend that a debtor is not contacted via phone, email or mail more than three times a week or 10 times per month, and face-to-face only once per month. If the customer requests a face-to-face contact this is okay as it is initiated by the debtor and not yourself. Of course if a debtor asks you to leave their property you must do so immediately.

A visit to their workplace should be done as a last resort as it can be a risk to breaching the privacy obligations to the debtor. Especially if you need to sign in and state why you are making the visit.

Breaking the recommended contact time frames will be seen as undue harassment to the debtor.


When contacting a customer in regards to debt we need to ensure that we are only speaking to an authorised person, it is fine to disclose where you are calling from if you are leaving a phone message however it is not acceptable to advise that the customer is in debt.

If you are using social media to contact the customer you need to ensure that no third party will be able to access the information used.

If a customer is being represented by a third party (such as; financial counsellor, financial advisor, community worker or solicitor) you must deal with that third party to come to an arrangement for the debtor. The third party will provide documentation called a ‘Letter of Authority’ (LOA) that will be signed by the debtor so you know that you will not be in breach of the customers Privacy.

A fine can be imposed for breach of the Privacy Act.

Types of Debtors

Types of debtors.


An individual debtor is a person who has entered into a debt on their own behalf for their own benefit. They are solely responsible for the debt.


Often a co-signer or second person is required to sign with the customer, both the customer and the co-signer are committing to the agreement.

Both debtors are jointly and separately liable for the debt. We can seek to recover funds from either party, so if the customer is not making payment towards the account the co-signer can be contacted to make payment.


A guarantor is not a debtor, they are a third party that agrees to pay the debt if the debtor is unable to. They cannot be contacted until the debtor has defaulted.

The guarantor must be issued all defaulting notices that are sent to the debtor.

Negotiating Payments

Before contacting the debtor make sure that you are prepared for the call by reading through the customers file on the database. Have pen and paper handy for note taking during the call.

Make sure you have a positive tone when talking to the customer and try to show some empathy for the debtor’s situation. Most important keep control of the conversation, try asking closed questions (Yes/No questions) to gain basic information from the debtor before moving onto open questions.

If a customer advises that they are not able to afford to repay the debt you are entitled to make reasonable enquiries into their financial position to try and work out a suitable repayment plan for the customer, or perhaps even suggest that the customer seek the advice of a financial counsellor.

If a customer advises that there are in Hardship, then all collections activity must cease and the customer is required to provide documentation to support their application. Once the documentation has been received an agreement can be made based on customer’s capacity to pay.  In some cases, a roll over contract may be offered to the customer in order to bring down the fortnightly instalment to something that is more manageable for them. If we believe that this is a false claim, it can be rejected and the customer can then be pursued for the debt again.

You must not mislead the debtor or give false threats against the debtor. The debt collection guidelines state:

“You must not mislead the debtor in the context of repayment negotiations. For instance, you must not:

  •  Advise the debtor that you do not, or are unable to, enter into repayments arrangements when this is not the case.
  • Mislead a debtor about their rights, for example, a right to seek a payment variation.
  • Mislead a debtor about the consequences of non-payment.
  • Mislead a debtor about the legal status of a debt

It is also unacceptable to pressure a debtor to:

  • Pay in full or in unreasonably large instalments, or to increase payments when you are aware they are unable to do so.
  • Pay a large upfront amount and state that only afterwards will you consider payments arrangements.
  • Get into further debt to pay out an existing debt
  • Show proof of unsuccessful alternative credit applications before a repayment plan will be negotiated.”

When an arrangement has been entered into with the customer a follow up email should be sent detailing the arrangement and the payment options discussed. This gives the customer a chance to read through the arrangement to ensure that they understand what they have agreed to. It also means that terms cannot be disputed after the fact.

Defaulting a customer

Defaulting a customer.

Before a default can be listed with VEDA the customer must have a debt over $150, be more than 60 days outstanding and must have had default notices sent to them via email and mail advising of the impending default.

A customer on Direct Debit must be sent a Direct Debit default notice within 14 days of the default occurring, this is the first step to the default process.  An email is also sent when a customer’s Centrelink payments have been terminated.

Default notices; a short explanation.

When a customer becomes more than 14 days overdue a Default notice (or Section 6Q) must be provided to the customer; as per Section 88 of the National Credit Code, before a default can be lodged with a Credit reporting agency (like VEDA). 30 days (plus five days for postage) must be given for the debtor to remedy the default or to contact the Creditor (DAR) to make arrangement for payment.

The 1st Default notice includes the amount of the arrears to be paid, information regarding the ombudsman, the expiry date of the notice and that if the arrears are not paid a default may be lodged with a Credit Reporting Agency.

If the 1st default notice is ignored default proceedings can continue and we can move to accelerate the contract. This means that full payment of the contract can be enforced and the whole amount of the contract can be listed when lodging the default.

After the 35 day period a 2nd Default notice (Section 21D) is sent to the customer. This notice is the intent to lodge a default against the customer. 30 days after this notice has been sent a final call is made to the debtor if no contact is made the default is lodged with the Credit Reporting Agency.

At this point we send the account to State Mercantile for further skip tracing and collections.

If a customer is not paying the correct fortnightly instalment, say they should be paying $50 f/n but are paying $10 f/n we can follow through with the default process as they are in breach of their contract. In these cases we would hold the account while the customer is still paying. If they stop paying then we can forward the account onto State Mercantile at that point.

Variation Notices

Variation Notice

A variation notice must be sent to a customer when they call through for an arrangement that will change the ‘end date’ or ‘terms’ of their lease agreement. It details the new end date for the lease and what the ‘changes’ or the ‘arrangement’ that has been entered into with the customer.

Usually a Variation notice will be sent to the customer via email and there is an email template found in templates folder in the Accounts Inbox in Outlook.

The Variation notice should be completed before completing a time shift on the customer’s account, to ensure that the original contract end date is accurate.

A Customer communication needs to be added to the database to advise that the notice of variation has been sent to the customer, I also write a short note as to why it was completed and what the arrangement details are.

Time Shifts

Time shifts.

A time shift will be made to a customer’s account when a variation notice is sent to the customer.  Also if the customer has missed a few random payments to bring their end date in line with how many instalments they have made to their contract.There are seven steps to take when completing a time shift, all the information is located under the instalments section on the Product Contracts page.

You need to find out then the last payment was made in the schedule, in the example the last payment was made on 05th July 2016

We then take this date and add a week or so to get the date we will use to time shift ‘from’, the‘to’ section is always left blank.

Next we need to work out how long the shift will be for. In the case of this customer they have made arrangements to pay their next installment on 09-08-16. They have defaulted as of the 26-07-16, so the time shift should be for 14 days.

In the day’s section we input 14 for the amount of days we would like to shift. If the customer was paying via Ezi Debit we would add an extra three days to allow for the direct debit to clear.

Then we press the shift button. The database will re calculate the schedule and move the defaulting date.

The new default date will appear in the Defaulting Contract section.

The end date of the lease has now been changed so now the contract expiry date also needs to be changed.  This date will appear on the customer’s account statement that is sent to them yearly, so we need to make sure that it is correct.  I would update the expiry date to the 10th January2017 to allow for payments to clear by the expiry date

The time shift is now completed.