New Zealand’s ongoing failure to deal with bad debt is costing the country a fortune – more than $2 billion dollars a year – according to DebtManagers.
DebtManagers is a socially responsible debt management firm that specialises in purchasing non-paying debt from businesses, freezing interest, and waiving fees to enable faster and fairer rehabilitation of those in debt. Their approach is human-centred and customer-led, meaning each repayment plan is tailored to each customer’s unique situation.
Research into the company by independent social impact auditor ImpactLab, which was co-founded by former Prime Minister Sir Bill English, shows its unique approach is delivering a social return on investment of $2,633 for every customer, or $7.30 for every $1 the company invests.
DebtManagers Executive Director, Charles Whiting, says, “There are around 900,000 Kiwis struggling with debt today, both to private companies and to the Government. If everyone involved, whether in the private or public sector, had a comparable approach and behaved in a more socially responsible way, that $2,633 wellbeing multiplier would generate over $2.3 billion worth of social good in areas such as mental health, reduced addiction, or risky behaviour.
“Instead, what we have today is a continuation of a misery multiplier. A one-size-fits all and out-of-date approach that lumps collection costs, fees and interest onto struggling customers, penalising, marginalising, and trapping them in a downward spiral of debilitating debt. This wreaks havoc on their wellbeing, as well as on families and communities, making us all worse off,” says Whiting.
DebtManagers’ different approach
DebtManagers purchases non-performing debt – debt in default after the borrower has stopped paying it back, often for an extended period – and works directly with the individual, stopping fees and interest.
The focus is on bringing that person back to better financial health and empowering them with a better understanding and more confidence in their finances. Customers are also referred to financial mentors and organisations like Good Shepherd New Zealand, to help them get their financial affairs in a better state and work with them to set up sustainable and affordable repayment plans that are clearly understood.
Throughout the repayment period, DebtManagers updates their customer’s credit report to help them integrate smoothly back into the financial system.
The Debt Iceberg
The company compares difficult debt to an iceberg, with only the actual amount owing being the visible piece above the waterline. Hidden underneath are the more corrosive range of debilitating social issues driven by the accumulation of fees and interest.
“It’s important to remember debt plays a critical role in society and in our economy. It helps people start businesses, buy homes, and purchase the things they really need. But a portion of debt becomes bad debt as a borrower falls behind on their repayments, often for reasons beyond their control.”
“Bad debt left unchecked and poorly managed can become debilitating debt, and this has an extremely negative impact on people, their mental health, relationships, physical wellbeing, not to mention their families, and can even manifest into violence and crime.
“This is the piece of the iceberg below the waterline, and it’s the piece we need to be most concerned about,” says Whiting.
A challenge for business and for Government
DebtManagers believe companies need to consider the wellbeing of their customers all the way through the customer lifecycle.
“Companies who extend credit, be it a bank, finance company, or utility, need to start thinking about the debt iceberg and the risk factors below the surface before they extend credit to a person.
“It’s not enough to just do community sponsorship; companies need to take real ownership of the problems they might be causing and work more closely with their customers. At the end of the day this is an extension of basic customer care, and we think it is a core part of your social license to operate,” says Whiting.
He has the same challenge for the Government.
“Sadly, our government agencies are some of the worst offenders, carrying out minimal, if any, affordability or vulnerability assessments before they extend loans, then using their statutory powers to make mandatory deductions to wages. This is unlike in the private sector which often has personal liability for putting an individual into hardship as a result of poor lending or collections practices.
“Government debt is a huge and growing issue. In 2021, out of a total of $4.75 billion of government agency debt, $3.5 billion was owed by about 565,000 people who were surviving on less than the living wage. That’s 14% of the working-aged population exposed to inconsistent collections practices without basic affordability assessments,” says Whiting.
New Zealand is also one of the only countries in the world without any regulation on debt collection, with no licensing system for debt collectors and no legislative minimum standards of conduct.
“We urgently need to lift the standard of debt collection in this country. Bad things can happen in the shadows and in regulatory vacuums. Our evidence is clear, everyone – borrowers, lenders, companies, businesses, and government – does better when we take a people-centric approach.
“We all need to work together to proactively address this problem and steer around the looming threat ahead, and we can start by clearly accepting the problem for what it is – an iceberg in every sense of the term,” says Whiting.