I would like to thank the Australian Competition and Consumer Commission and the Australian Securities and Investments Commission for inviting me to officially open this Debt Collection Forum.
This forum provides an important opportunity to exchange information on debt collection issues and share our views on the way forward.
As Parliamentary Secretary to the Treasurer I have portfolio responsibility for a number of issues relating to debt collection including corporate governance, financial services, financial markets and consumer affairs.
So naturally, I am particularly interested in the outcomes of today’s forum.
Before I discuss debt collection specifically, I’d like to consider debt collection in the broader context of the Government’s overall economic policy.
Australia’s economic performance over the past decade has been among the best in the world.
It has delivered high economic, productivity and employment growth, low unemployment and sustained rises in living standards.
Much of this success is due to this Government’s sound macroeconomic policies combined with ongoing microeconomic reform.
These policies have delivered a low inflation, low interest rate environment which have enabled more consumers to have access to the credit market.
The growth of credit in recent years reflects our stable macroeconomic climate and a more liberal credit market environment.
For many consumers this provides greater freedom and choice and means that credit markets are working better than they used to.
At the same time, as credit becomes more prevalent, there are more credit market risks than ever before.
One of the most serious of these is over indebtedness where the credit commitments become unmanageable for the individual consumer.
As a result, debt collection has become an integral part of business activity in today’s economy.
We need debt collectors to ensure creditors and their agents can take reasonable steps to secure payments from people who are legally bound to pay, or repay, money they owe.
It is important for business to have confidence in the credit system, knowing that they can recover on overdue accounts.
However, we need to ensure that this confidence extends to the way in which debts are collected.
Many of the people affected are likely to be on low incomes, vulnerable and disadvantaged. Some of them are likely to become trapped in ongoing cycles of debt and debt collection.
This is why it is important to ensure that people who are involved in cycles of debt are treated fairly.
It is also important to recognise that debt can occur for a multitude of reasons.
Equally, we must recognise that debt is not limited to households, businesses or geographic regions.
It is therefore an issue of national interest that requires a uniform, consistent approach.
Because debt collection affects people all over Australia, it is appropriate that national bodies, the ACCC and ASIC, are responsible for ensuring appropriate debt collection behaviour.
A national approach that complements the state and territory laws is important because it ensures consistent and fair treatment.
The ACCC and ASIC work together to educate consumers about their rights and obligations in relation to debt collection.
Consumers who borrow need guidance about their rights in dealing with credit providers under the consumer credit licensing regime.
Additionally, the ACCC and ASIC ensure that the industry understands its rights and responsibilities. They provide advice on how to recognise and deal with inappropriate conduct or unfair practices such as unfair contract terms.
Debt collection is a business activity.
Like all businesspeople, debt collectors should make sure they use fair practices and have accurate information.
Fair practice means debt collectors should not use physical force, undue harassment or coercion when collecting debts.
They must also ensure their conduct does not mislead or deceive consumers. Nor can they take unconscionable advantage of consumers.
Accurate information means debt collectors should ensure that the credit status of the consumer is correct.
At the Commonwealth level there are two key pieces of national legislation that cover consumer protection in debt collection, the Trade Practices Act 1974 and the Australian Securities and Investments Commission Act 2001.
The Trade Practices Act covers the conduct of all corporations and their agents and includes provisions to ensure that all corporations, including debt collectors, trade fairly.
The Act prohibits misleading or deceptive conduct and certain misrepresentations, as well as undue harassment and coercion.
The consumer protection provisions of the Trade Practices Act are mirrored in the ASIC Act in relation to financial services.
To support the legislative framework, we need standards so that debt collectors understand their rights and responsibilities.
If industry can self regulate it can set its own standards of practice and monitor its performance against these standards.
This government has a policy of supporting self regulation where self-regulation is likely to be effective rather than legislating rules.
The Government sees self regulation as the preferred approach.
Successful self-regulation in the form of codes of practice or industry standards would bring debt collection businesses, as well as consumers, benefits that go beyond the requirements of the law.
Self-regulation can provide machinery for compliance and ready redress for consumers.
This would ensure that debt collection businesses are credible, and consumers can usefully distinguish between fair-dealing traders and others.
Effective self-regulation requires industry associations to work together with consumers and Government to develop industry best practice.
This forum provides an excellent opportunity to continue with this engagement.
The success of self regulation will depend very much on the effort and energy put into it by the debt collection industry.
Success will be influenced by trends in complaints over the coming months.
Whether we get more complaints and who they come from will also be important.
We will monitor whether they rise or fall and in doing so recognise and acknowledge the many factors that may give rise to consumer complaints.
With levels of personal and household debt increasing, debt collection is becoming more prominent.
This has unfortunately been accompanied by a rise in allegations of debtor harassment.
This raises particular challenges for consumer protection initiatives.
To limit such allegations, it is important that debt collectors communicate with both debtors and creditors.
When both sides understand each other’s concerns, they are in a better position to work out a reasonable solution, and a manageable way to repay the debt.
For many consumer protection issues, market forces can provide an effective solution.
In normal circumstances where consumers have adequate and effective information, most consumers can respond to poor disclosure or inappropriate selling techniques by exercising their power of choice and selecting another supplier to deal with.
However in debt collection, choices are very limited.
This is because the choice of debt collector rests with the creditor, not the consumer.
This means consumers have minimal market power in the debt collection situation.
They do not normally have a contractual relationship with a collector - and are not normally in a position to influence the conduct of the collector as consumers cannot threaten to withdraw their custom.
To put it another way, a debtor cannot shop around for their preferred debt collection agency.
Credit is an integral part of life for many consumers.
Credit cards have high penetration rates. Loyalty programs and debit arrangements make credit a very attractive option.
In addition, consumers are encouraged to build up a credit history so they can be eligible for further credit for major purchases, such as a home.
So it’s not surprising that there is a high level of consumer debt in Australia.
Today is an opportunity for industry and consumer representatives to discuss regulatory and consumer protection issues in relation to the debt collection industry.
I want to commend ACCC and ASIC on their initiative in arranging this forum and I hope it leads to tangible outcomes that benefit both consumers and business.
I look forward to hearing the outcomes of today’s forum.
Thank you.