Money lenders reject 'gold' standard debt collection code

Sunday, 24 September 2023

Money lenders are set to unveil a code to self-regulate the way they collect debts from defaulting borrowers.

But even the organisation that has created it calls it “silver” standard compared to the “gold” standard proposed by debt collector Mark Francis, who’s efforts to bring in higher standards for debt collection have so far fallen on deaf ears.

Next month, the Financial Services Federation (FSF) industry association of lenders, which includes Avanti Finance, Finance Now, Instant Finance, and some debt collectors, will unveil a “responsible debt collection code”.

While the FSF would not share the code for publication, a copy obtained by Stuff shows lenders who are members of the FSF will pledge to “never engage in the use of physical force, undue harassment, coercion, trespass, misleading deceptive conduct or unconscionable conduct”, all of which are already banned by laws including the Fair Trading Act.

The code will require them to be reasonable in their dealings wherever possible.

Lenders who agree to it would only be able to make six contact attempts a day to borrowers they are trying to contact, with the earliest contact attempts by phone or text being no earlier than 6am, and no later than 9pm.

The code also says FSF members will work with financial mentors, if borrowers want them to, which is a requirement of the Responsible Lending Code introduced by the government in 2015.

The code falls short of the things Francis called for in a discussion document he circulated in March intended to “create a fair and workable” code of conduct.

Francis, who owns debt buying and collection company DebtManagers, called for all debt collector “contacts” with debtors to be recorded, including in-person meetings and repossessions.

He called for debtors to be given “breathing space” of five consecutive days a month in which debt collectors will not contact them.

He said debt collectors should also agree not to execute warrants to seize property from people relying on beneficiary incomes.

He called for contact attempts to be limited to 12-a-month.

Francis also wants the debt collection industry to be licenced as many other professional services companies are, including lenders.

Francis is convinced his aspirations are commercially viable, and that debt collection is a legitimate industry that enabled commerce to function.

“We need to create a code that allows for the collection of debt,” he said.

But, it also needed to win the industry a social licence to operate, and end the perception that debt collectors harass people.

DebtManagers has started publishing a net promoter score on its website showing what the people it collects debts from think of it.

He was organising a hui on his proposals in November.

“I’m going to succeed in this,” he said.

Lyn McMorran, executive director of the FSF, acknowledged its code was weaker than Francis’ proposed code.

“There’s a gold standard. We have probably settled for something all our members are happy with, which is probably silver,” McMorran said.

DebtManagers is one of FSF’s members, but Francis had withdrawn from being involved in creating the FSF code when he realised it would not go far enough.

DebtManagers won the community and sustainability award at the FSF awards night earlier this month.

Financial mentors have long called for Parliament to regulate debt collection, with the latest call coming this month in the Voices report from Fincap, the umbrella group for financial mentors.

“There needs to be a mandatory code, not by industry, but by government,” said Fincap chief executive Ruth Smithers.

The Voices report alleged harmful behaviour by debt collectors was occurring, including debt collectors trying to collect debts they had no proof existed, and making unreasonable demands that “coerce parents to hand over money that would otherwise be spent on food or other essentials for their children”.

Some debtors had been bombarded with automated “robocalls” demanding debts be repaid, the report said.

A research paper by Tallara Daldorf and Victoria Stace of Victoria University of Wellington Te Herenga Waka last year detailed the lack of consistent regulation of debt collection.

However, the researchers said the university’s research had revealed that while irresponsible and inappropriate debt collection conduct was not a widespread problem, it nonetheless occurred.