How much will it cost if you get your debt collection activities wrong?
Dealing with debt collection can be a challenging task, for businesses and individuals alike. While recovering debts is essential for financial stability, it’s equally crucial to navigate this process correctly. Missteps in debt collection can have significant consequences for a business, both legally and financially.
Over the past ten years, Australian regulators have ramped up oversight and penalties to improve debt collection conduct. The Australian Competition & Consumer Commission (ACCC) and the Australian Securities & Investments Commission (ASIC) point to the immense personal distress caused by illegal collection activities as justification for amplified punishments to deter wrongdoing. Tactics like excessive contact, false threats of legal action or default listing, misrepresentation, and disclosure of consumer debts to third parties without consent can profoundly disrupt vulnerable individuals’ lives. Strict enforcement aims to stamp out such harm.
The level of penalties imposed is worth taking note of (on average over $500,000 in each case), however arguably more concerning for business is how few consumers need to have been affected by poor practices for the regulators to step in and seek retribution.
ACM Group Pty Ltd were fined $750,000 based on their interactions with 8 consumers, ASICs case against A&M Group Pty Ltd was based on 6 debtors with the Court imposing penalties of $650,000 and Panthera Finance Ptd Ltd were fined $500,000 based on the evidence of just 3 consumers.
Further, Directors have also been individually fined. In ACCC v Excite Mobile Pty Ltd, 2 Directors were fined approx. $50,000 each on top of the penalty imposed on the Company of $455,000.
Aside from direct financial penalties for non-compliance, violations of debt collection laws can inflict additional damages on a business, including:
- Reputational Damage: Negative publicity due to aggressive or unethical debt collection practices can harm your reputation. A tarnished image may lead to lost business opportunities, reduction or limitations on funding, and strained relationships with clients.
- Lost Debts: Incorrect debt collection tactics can alienate debtors, making them less likely to repay. Persistent harassment or threats may drive debtors away, resulting in lost revenue.
- Wasted Resources: Chasing the wrong debtors or pursuing uncollectible debts consumes time, effort, and resources. These resources could be better utilized elsewhere.
- Increased Costs: Legal fees, administrative expenses, and fines all contribute to the overall cost of mishandling debt collection. Moreover, if you lose a legal battle, you may be liable for the debtor’s legal costs as well.
Both the ACCC and ASIC recognises that consumers experiencing vulnerability and disadvantage can be disproportionately impacted by conduct in breach of the law and therefore prioritises conduct that impacts these consumers. In an era of heightened regulatory focus, businesses must ensure that they have the appropriate compliance
Remember, ethical debt collection not only protects your financial interests but also maintains trust and goodwill with debtors. By following the rules and treating debtors fairly, you can avoid the pitfalls and costs associated with improper debt collection.
Disclaimer: This blog provides general information and should not be considered legal advice. Consult legal professionals for specific guidance tailored to your situation.