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New research reveals harm caused by debt collection practices

Contributor:
Fuseworks Media
Fuseworks Media

FinCap is calling for robust regulation to counter unfair debt collection practices in Aotearoa, following the release of a new research report today.

Overwhelming bombardment via phone calls, texts, emails and in-person visits as well as unpredictable yet substantial fees have been revealed among a range of harmful practices from debt collectors.

It is reported that these can continue even when it is clear they will not help break a cycle of unmanageable debt for those who are already facing financial hardship.

Victoria University senior lecturer Victoria Stace and Liz Gordon, of Pukeko Research, partnered with FinCap for the Debt Collection in Aotearoa from the perspective of financial mentors report .

Financial mentors were interviewed about people they support who are experiencing debt collection.

Some of the key findings show tactics used by debt collectors can cause great harm to whānau in debt, the settings for the attachment order process in our courts need reform and irresponsible lending continues to be a problem.

It also highlights the vital role financial mentors play in advocating for their clients against unfair practices.

"I don’t know how some people actually survive the barrage of text and emails and phone calls and letters in the post," one financial mentor reports.

"But some people don’t survive it which is why they come to us in tears and end up going insolvent just so they don’t have that pressure."

For example, 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, and the client has no way of paying this.

FinCap chief executive Ruth Smithers says whānau facing hardship should not be up against unfair debt collection which makes matters much worse.

"With a lack of oversight for debt collection in Aotearoa there is some totally unacceptable behaviour and reckless processes going unchecked. People that are already struggling are up against it," she says.

"We need changes to the Fair Trading Act that lead to robust regulatory oversight, clear industry guidelines and effective protections for people looking to get back on their feet, when in debt."

FinCap is also calling for a judgement proof debtor policy to prevent up to 40 per cent of people’s benefits being taken away by attachment orders before it reaches their bank account to pay for food.

"Financial mentors are doing great work to prevent debt spiralling out of control, but we’re only dealing with the tip of the iceberg - we need robust regulation for everyday fair practice," says Ruth.

"We intend to work with government to find a solution for the issues raised in this report."

FinCap has also shared previous research related to debt collection on their website:

Debt collection in New Zealand: Considering the case for adoption of guidelines, modelled on Australian debt collection guidelines, to address poor conduct by debt collectors

Working Towards a Fairer Consumer Credit Market: A study of the issues in New Zealand’s consumer credit market and proposals for reform: Enforcement Issues

Working Towards a Fairer Consumer Credit Market: A study of the issues in New Zealand’s consumer credit market and proposals for reform: Debt Collection

If you or anyone you know needs more support around debt collection, contact the MoneyTalks helpline on 0800 345 123.

Note: FinCap is the umbrella organisation for the 900 financial mentors across the country.

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