Mortgage Blog

Article from: Jason Bryce
November 24, 2007 12:00am
heraldsun.com

THEY claim to act responsibly, but lenders still aim at the young, the uninformed and those already deep in debt, writes Jason Bryce.

Kasey* from Boronia has an addiction that is affecting her work, her health, her relationships, in fact every aspect of her life.

It is not shady drug pushers that have hooked her on a downward spiral with limited opportunities for escape, it has been some of Australia’s biggest, richest, most respected ASX-listed companies.

Kasey is addicted to credit. When she sees advertising offering her money, she applies.

At just 23, Kasey has racked up more than a quarter of a million dollars of debt. Her minimum monthly repayments outstrip her income by almost $500.

“I’m kind of addicted to finances (sic). Now I’m up s–t creek without a paddle.”

Now that her repayments are more than her income, you might think the financial institutions would stop lending her money, but you’d be wrong.

Just last month, she applied to GE Money for another personal loan of $7000. Not only was the $7000 approved, she was offered $10,000.

“I answered all their questions honestly and told them about all my other debts and my income,” says Kasey. “When I was on the phone to them, I was actually kind of thinking to myself. ‘God, I hope they don’t approve this’.”

Of course no one forced Kasey to take on all that debt; she has got herself into this situation. But there is no doubt that she has been actively encouraged all the way.

Even if Kasey didn’t tell the whole truth about her finances when she applied for that last loan, a quick scan of her credit reference file would have indicated that she has applied for many credit cards, personal loans and a big mortgage very recently. Just that information should have rung alarm bells.

She is a classic preferred customer of the debt pushers — she has a property (a small flat) that can be sold if everything else fails, and she is addicted to debt to fund spending.

Kasey might be in big financial trouble at just 23, but at least she isn’t officially bankrupt, unlike Matt*.

Matt, 25, is a shop assistant from Reservoir, the eldest of four children. He has used credit cards and personal loans to help his single mother with family expenses. Matt entered into a debt agreement (under part nine of the Bankruptcy Act) with his creditors in April 2006 after he ran up $47,000 in unsecured debt to ANZ, Citibank and GE.

His debt agreement means he is legally insolvent. The agreement remains on his credit reference file for seven years.

You might think that no lender would touch an insolvent person, but you would be wrong.

Recently, Matt was approved for a CreditLine card he applied for at The Good Guys in Thomastown. Matt’s debt agreement has now failed and he is filing for full bankruptcy.

GE Money corporate affairs manager Geoff Lynch says: “We would not knowingly extend credit to customers receiving unemployment benefits, who are insolvent or who, for any other reason, are over-extended.”

However, Mr Lynch says, sometimes genuine mistakes are made in the approval process.

“GE Money is a responsible lender and we take that obligation very seriously. It is certainly not in our interest to have customers default on their repayments.”

It may not be in a lender’s interest to have their customers default, but it is also not in their interest for customers to be paying back their cards and loans quickly.

Carolyn Bond, co-chief executive of the Consumer Action Law Centre, says: “Lenders are targeting the people who struggle a little bit to pay off the balances.

“The people who can’t pay their credit card off, but don’t default completely, are the most profitable customers for the lenders.”

The number of defaults and bankruptcies is skyrocketing despite the long economic boom. The number of Victorian bankruptcies and insolvencies is four times higher now than at the peak of the last recession, in 1989-90.

To reduce debt problems, lenders say they need access to more information about us in our credit reference files. GE Money is one lender that has been at the forefront of this debate, pushing for comprehensive credit reporting reform.

Mike Cutter, GE Money’s president and chief executive for Australia and New Zealand, told banking industry newsletter The Sheet in July: “We want full positive credit reporting because it tells lenders how people are managing their existing credit accounts.

“That is the best indicator of whether a person is able to take on more credit.”

The current system of credit reporting includes all applications for credit made in the past five years, bankruptcies, insolvencies, and usually any previous defaults.

That’s more than enough information to raise questions about Kasey and Matt’s ability to repay, even if they lied about their finances when applying.

Also undermining the arguments of the lenders in this debate is the fact that many institutions are approving credit to distressed borrowers more than once.

A good example is retrenched storeman Jacek*, from Narre Warren.

In addition to two mortgages, a big personal loan and credit card all from St George Bank, he has two American Express cards and two Commonwealth Bank credit cards. He also has two car loans and three other credit cards.

Even if St George, Amex and Commonwealth didn’t get enough information from his credit reference file to inform their decisions, they definitely did know what they themselves had lent him in the past, and his atrocious record of paying that credit back.

“Increasingly lenders are targeting people with debt already and people with equity on their homes,” says Carolyn Bond “There is nothing in their current lending practices to indicate that more information would produce more responsible lending.

“I have concerns that more information in credit reference files might create more debt marketing opportunities,” she says. “A person might apply for $5000 for example, then the lender sees they have a lot of other debt and says, ‘Do you want $100,000 to consolidate all that?”‘

Many people in the industry of debt consolidation, refinancing and debt assistance agree that lenders have well and truly headed down-market.

Donna Elliott, a mortgage broker and debt administrator based in Malvern, says: “The theory is that you can afford it if you can cover the interest — that way the lender can get a full whack of interest each and every month.

“Sometimes they work on the premise that a person only needs to repay 3 per cent of their total outstanding balance each month.”

Once they are in debt and feeling the stress of high repayments, Elliott says people are less likely to make clear decisions and plan sensibly.

“A lot of people with debt problems are suffering severe stress or depression,” she says. “They become very reactive and don’t make clear decisions.”

Dave* is an unemployed courier from Geelong trying to overcome a gambling problem he paid for with credit cards. Dave says he has been depressed since he lost his job and marriage, and readily admits that he did lie when applying for his numerous cards.

“It’s definitely a two way street,” he says. “I have been really stupid, but they encouraged me all the way. I was never asked to prove my income.

“Loneliness and depression sent me to the TAB. Now sometimes I think, ‘What’s the point of living?’ There’s a lot of people going through the same feelings as me.”
Kasey is in just that situation now.

“People say to me, ‘You are 23 — how can you have health problems from stress?’ But they don’t know the trouble I have got into.

“Now I have a stomach ulcer, I suffer from depression and anxiety, I’m secluded and my relationships are suffering,” she says.

With a good job and salary, Kasey should be enjoying the best times of her life.

Instead she is suffering from the same kind of symptoms that a drug addict might have. She is addicted to debt.

*Cases-names have been changed.

Phone: 1300 735 161

www.mrsmortgage.com.au

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* SOURCE: Lesley Parker - The Age 12th June 2008

Agencies are cracking down on harassment from debt collectors. Regulators have warned that they are keeping a sharp lookout for breaches of laws governing debt collection, as higher interest rates, rising petrol costs and a possible economic downturn put household budgets under financial pressure, pushing bills into arrears…

This follows a high-profile case in which the Australian Securities and Investments Commission found that subsidiaries of GE Money had used unreasonable debt collection tactics, such as contacting debtors at their workplaces.

ASIC and the Australian Competition and Consumer Commission last year released a joint consumer guide to dealing with debt collectors, noting a steady increase in consumer complaints in this area last year.

The latter’s deputy chairwoman, Louise Sylvan, says that in 2008, “We still have complaints, no doubt about that - it takes quite a while to get some of these behaviours out of the markets.”

And with economic conditions putting household finances under pressure, she agrees there’s the potential for complaints to ratchet up.

“We haven’t seen greatly rising complaints this year but these things often have long ‘tails’ - sometimes you don’t see it for quite a while,” she says.

“A lot of industry people want to improve their practice and I think that’s happened. Nevertheless, sometimes it is still the case that people cross the line. We want to police that very carefully … If we see increased complaints, then we are going to act.”

Sylvan says people being chased by debt collectors are already in unfortunate circumstances and don’t need to face harassment on top of that.

“Yes, a company has a right to collect the debt but [does not] have a right to harass people and treat them unfairly in doing that,” she says.

Sylvan says the regulator is also putting companies on notice that selling their debt to another business - a practice that is an increasingly popular way to manage cash flow - doesn’t absolve them of responsibility for the way their customers are treated.

In a “factoring” transaction, for example, businesses sell their accounts receivable at a discount to a factor - to gain access to the money now rather than later - and the factor then seeks payment from the debtor.

“When companies on-sell their debt - which is now the norm - our view is that if company ABC has sold it, the debt is still looked at as being company ABC’s. Their reputation is still on the line and they can’t wash their hands of it,” Sylvan says.

“How these people behave is affecting the reputation of those companies. We are very strong on that.”

The Trade Practices Act, administered by the consumer body, and the ASIC Act bar debt collectors from using physical force, harassment or coercion, from misleading or deceiving you (or trying to do so) and from taking unfair advantage of any vulnerability or disability you may have, in what is called “unconscionable” conduct.

These laws protect you as well as your family and associates. They cover creditors collecting a debt themselves, anyone acting on behalf of the creditor, such as a debt collection agency, and anyone “assigned” or sold a debt.

According to the regulators’ joint guide, a debt collector should only contact you when it is “necessary” to do so and when the contact is for a “reasonable purpose”, such as making arrangements for payment.

Contact should be limited - unless agreed otherwise - to a maximum of three phone calls or letters a week but no more than 10 a month. Phone or personal contact can be made only between 7.30am and 9pm on weekdays and 9am to 9pm on weekends. You must be left in peace on national public holidays.

Debt collectors should aim to arrange terms of repayment over the phone and by letter and can only come to your home if there’s no other way to reach you. The guide says that, as a rule, personal visits should be limited to one a fortnight and take place between 9am and 9pm.

“A debt collector should not visit you at your workplace unless you request them to, or if you haven’t given them any other effective way to contact you,” it says. Even then, the debt collector must never reveal information about your situation to anyone else.

WHAT THEY CAN’T DO

In examples of conduct likely to breach consumer protection laws, the guide says debt collectors can’t:

* block your way;

* use obscene, demeaning or racist language;

* leave messages about your situation that others may hear or read;

* say that unpaid debts are a criminal offence (being in debt is not a crime);

* say that your children can be taken away from you;

* send letters demanding payment designed to look like court documents;

* pretend to be, or pretend to act for, a solicitor.

Nor can they make false statements about what will happen if your debt isn’t paid - for instance, by saying your goods will be seized immediately when there’s no mortgage over your goods, and if there were you’d be given 30 days’ notice.

If you dispute a debt, a debt collector should hold fire until the debt has been confirmed. A default can’t appear on your credit report while a debt is still in dispute.

Australian Competition and Consumer Commission deputy chairwoman Louise Sylvan says consumers who believe they’ve been treated unreasonably should contact the ACCC or the (ASIC) Australian Securities and Investments Commission.

People who find they are getting behind on debt should contact a free, government-funded credit counselling service earlier rather than later.

Brought to you be www.mrsmortgage.com.au

Disclaimer: This document is for information purposes only, and must not be relied upon as a substitute for professional services or legal advice.

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