Work and Income systems converted into ‘conveyor belt for private debt collection’

Thursday, 29 August 2024

At the end of end of June there were 27,500 attachment orders stripping $680,000 a week from benefits.

Work and Income’s systems have been converted into a conveyor belt for private debt collection at scale, and it’s undermining the benefits system, a poverty expert says.

Jake Lilley, a policy analyst at the Fincap umbrella group for financial mentors, said private debt collectors were using courts to get attachment orders to strip as much as 40% of people’s benefits.

Lilley said at the end of June there were 27,531 attachment orders to benefits stripping $680,000 a week from benefits.

Of those, there were 8745 attachment orders stripping $225,000-a-week from sole parent benefits, with 7980 against women.

Speaking at a lecture at the Stout Research Centre of Victoria University on Wednesday, Lilley said the attachment orders were usually for about $30 from people with some of the lowest incomes in the country. That was undermining the efficacy of benefits, which were already too low for people to live on adequately.

All these figures have been increasing as lenders and debt collectors who have bought old debts are exploiting the system, he said. In all, figures from the Ministry of Social Development (MSD) show $168 million of debt is being repaid to private lenders though the erosion of benefits.

The Children's Commissioner criticized the government for lowering child poverty reduction targets, warning that this change could result in an additional 24,000 children remaining in material hardship.

The digital age meant “old debts continue to haunt,” Lilley said, including loans that may well fail today’s responsible lending tests.

He gave the example of the District Court approving an attachment order against a woman’s benefits to repay a debt collector at $30 a week on a debt of $14,000.

The debt was from a hire purchase agreement in July 1999 when Dame Jenny Shipley was prime minister, Lilley said. It was to buy a computer and desk. She borrowed $9600 to buy goods worth just over $5000.

She was sold the equipment by a door-to-door salesperson as part of a scheme targeting Māori and Pacific families, with salespeople pushing the idea that the equipment would help their children get a good education.

District courts impose attachment orders when asked for by debt collectors. Often the people owing the debts are not represented in court, and may not even know the process is taking place.

MSD must accept court attachment orders, Lilley said, unless they took the proportion of an individual’s benefit that was subject to attachment orders past the 40% legal limit.

Often the attachment orders were imposed without people knowing it was happening, Lilley said.

Labour Anahila Kanongata’a-Suisuiki campaigned to stop lenders from stripping debtors’ benefits.

Efforts to lobby politicians to protect benefits have so far failed.

Labour MP Anahila Kanongata’a-Suisuiki created a private members’ bill towards the end of the last government to limit the amount that could be taken on a single attachment order from a benefit to just 5%.

But it did not get debated until after the last general election put the National, ACT and NZ First coalition Government into power.

After its first reading, it was voted down and did not even get sent to a select committee to have hearings on whether it was needed.

“It was extremely disappointing not to get to the select committee so we could explain all this,” Lilley said.

The debate preceding the vote to kill the bill made it clear to MPs how corrosive private debt attachment orders could be, however.

Labour’s Ginny Anderson gave the example of a man getting $452.74 a week in benefit payments.

After rent and an attachment order for private debt, he had $86 a week to live on.

Labour MP Ginny Anderson argued that benefits should be protected from private debt collectors using attachment orders.

“If those members opposite think it's OK to live on $86 a week, I'd like to see them try and do it themselves,” she said.

National’s Cameron Brewer said: “We cannot take people's financial responsibility as citizens away with this bill.

“This bill, we believe, will not encourage self-responsibility to those already in debt. It simply reduces the amount that can be recovered,” he said.

In his lecture Lilley did not name the private lenders and debt collectors that are the biggest users of attachment orders, but MSD figures reveal the top 20.

They include a number that are either having legal action taken against them by the Commerce Commission for breaking lending laws, or have had action taken against them in the past.

Fourth on the list is a debt collection company related to car loan company Go Car Finance, which the commission is taking legal action against, alleging irresponsible lending.

Sixth on the list is Aotea Finance which was warned in July by the commission over breaches of responsible lending laws. In 2019 it had to make refunds to borrowers for other breaches of lending laws. In 2018 it was fined for other lending law breaches.

Top of the list was Intercoll Ledger, a company that collects past due loans it buys from the likes of finance companies.

It has attachment orders against people on benefits owing a collective $40.8m, and gets $295,000 diverted from benefits using attachment orders.

Debt collector Mark Francis says it may be time for a debate about the proportion of a benefit that can be subject to attachment orders.

Mark Francis from Intercoll Ledger said people who entered contracts to borrow money should pay it back, and there had to be a remedy for lenders when borrowers would not do so, or even engage with lenders to arrange payment plans.

“It would be concerning to exclude part of the community from their obligation to pay a debt, and could exclude them from the ability to get goods and services,” he said.

And, he said, the use of involuntary payment orders was not limited to private lenders. It was a mechanism government agencies used as well.

However, Francis said perhaps it was time for politicians to debate whether to protect more than 60% of benefits from attachment orders.

Francis said if any person subject to an Intercoll Ledger attachment order told the company they were struggling, it would look at suspending it.

Lilley called on politicians to act to regulate attachment orders and debt collectors, to preserve benefits and keep people from falling into even deeper poverty.

He also called for New Zealand to finally learn from Victoria in Australia, and ban debt collection from people whose sole income was a benefit.

In Victoria, people in this position are called “judgment proof debtors”.

“Benefit incomes are really really low, and every time you take money from them, you are taking food out of somebody’s mouth,” Lilley said.

The private lender attachment orders diminishing benefits came on top of debts being repaid to MSD, and to other government agencies.

Lilley said MSD was collecting about $2.61 billion in debts owed by over 600,000 people; $1.26b was to repay accidental overpayments of benefits, with around $1.35b of debt for recoverable assistance, essentially interest-free loans from MSD to people on benefits to buy things like whiteware, school uniforms, or pay overdue rent.

A total of $136m debt to MSD was owed by people who were found to have defrauded the benefits system, he said.