Debt collection fees can add 25 per cent to unpaid power debts

Friday, 22 October 2021

Debt collection is a necessary part of our economic system, but collection practices and fees are an increasing focus of concern.

Weak debt collection laws have led power, water and telecoms companies to set private regulatory standards the debt collectors they hire must stick to when chasing overdue accounts for them.

Some are even requiring debt collectors to abide by Australia’s debt collection rules, which were introduced earlier this year in a bid to stop harassment and intimidation of debtors.

But there is a lack of transparency around debt collection costs, with some of the largest utility companies reluctant to reveal the fees and costs added by debt collectors when collecting overdue debts from their customers.

Those that would reveal their debt collection fees show they can add up to 25 per cent to customers’ overdue debts.

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Critical reports from Christians Against Poverty and Fincap have put the spotlight on power and telecoms debts, which their financial mentors say are the most common debts among struggling families which seek their help.

Neither directly accuses debt collectors used by power and telecoms companies of wrongdoing in their reports, which claim indebted families face a barrage of phone calls, email, texts, unreasonable repayment demands, and sometimes even intimidating visits from debt collectors.

One Auckland single mother, who felt vulnerable and did not want her her surname used to protect her eldest child from ridicule at school, slipped deeper into debt as she tried to raise two children on her own, and found herself being subjected to a blizzard of emails and phone calls.

On one occasion Nina was visited at home by a pair of debt collectors dressed in a bullet-proof vest that resembled a police uniform with an earpiece and a walkie-talkie.

Spark says it holds debt collectors to high levels of ethical behaviour.

She said calls from debt collectors were frequently harsh, condescending and often followed by unrealistic demands for repayments.

Nina, who is now clear of debt with the help of a Christians Against Poverty financial mentor, said debt collectors needed to be regulated to require ethical behaviour, including not pressuring people to make payments they could not afford.

“If you are on the benefit, and can only afford $5 a week, they still say we can’t take below $20 or $25 a week,” she said.

Fincap report author Victoria Stace said by far the most common type of problem debt cited was power and phone bills, and especially power.

“A client might have a $500 power bill that was incurred years ago, but then it goes to debt collection, and it’s now a $1500 debt,” one financial mentor told Stace.

Spark, Vodafone, Watercare, Mercury, Contact Energy, Meridian, Trustpower and Genesis all said they hired external debt collectors, but only did it reluctantly, and only after repeated attempts to get people to pay.

All defended the practice of not revealing debt collection fees on their websites, and in their contracts.

Fiona Smith, Trustpower general manager for customer operations, said disclosure to its debtors was done by letter during the collection process.

Vodafone has temporarily stopped selling overdue customer debts to ‘debt buyers' as a response to the Covid-19 pandemic in which more of its customers are struggling due to reduced incomes.

“This letter is circa the tenth attempt via letter, email, phone call, and text to engage with our customer to enter into a payment plan,” Smith said.

None of the eight companies appeared to have debt collection fees of more than 25 per cent, though before overdue accounts were sent to debt collectors, late fees could have been added.

Spark's website said it charged a late payment fee of $18.40 a month on residential accounts.

Contact Energy said the debt collection agencies it used added a one-off commission of between 12.5 and 17.5 per cent to debts it collected, with no interest or additional fees charged.

Watercare does not sell overdue debts to ‘debt buyers’ who then chase repayments.

Meridian said typically fees added were 20 to 25 per cent of the amount owed.

Vodafone said typically 25 per cent of the debt value was added on as collection charges.

Spark would only say its fees were “in line with the industry rates”.

Genesis Energy, which operates the Huntly Power Station, says it has overhauled the way it treats customers who are behind on their bills, which has resulted in a sharp decrease in the debts owed to it.

Genesis said the fees charged by its debt collector were commercially sensitive.

Trustpower said a $50 referral fee was added when a debt was passed to Baycorp, which was paid a 10 per cent commission out of anything it recovered.

Many of the companies said they wrote off small debts.

The companies all vetted debt collectors for ethical standards.

The debt collection agencies used by the big eight utility companies included Baycorp, Milton Graham, Debtworks and Intercoll.

Mercury Energy, which operates the Lake Karapiro power station, said it had recently changed its approach to overdue accounts. It was now centred around “two-way conversations and working in partnership to find long-lasting solutions”.

All either “aligned” themselves with the Australian rules or had their own codes of practice.

The utility companies which sometimes sold overdue customer debt – Spark, Contact and Vodafone – said they only sold to ethical debt collectors.

Genesis and Mercury said they had not sold any debts since 2019, and Watercare, Merdian and Trustpower said they never sold customer debts.

Covid-19 has made utility companies reassess the way they deal with their debtors.

Spark said the pandemic prompted it to start a financial hardship policy giving customers tailored repayment plans over time frames they could manage.

Vodafone said it had temporarily suspended debt sales because of the pandemic.

Genesis had overhauled its processes over the past two years, including offering tailored repayment plans.

It said it had seen a 26 per cent reduction in the amount of debt from customers during that time.

The owner of Baycorp, Australian ASX sharemarket-listed Credit Corp, which owns more than $22 million of debt bought from New Zealand companies, said debt sales had slumped as companies suspended debt sales as part of their “Covid-19 forbearance”.

But self-regulation does not go far enough for Christiand Against Poverty or Fincap, which want Australian-style regulation.

Bruce Cross, chief executive of Debtworks, expected lobbying from financial mentors to be successful.

“I see it as a given, but it's going to come at a cost to debtors,” he said.

Cross estimated the average mark-up on debt collection was about 20 per cent, but powerful companies, and government departments, could negotiate that down as low as 12-17 per cent.

Mark Francis, general manager of Intercoll, said Fincap's claims about the fees of as much as 40 per cent of the value of people's overdue debts being charged by some debt collection agencies needed investigating.