Debt collection practices and women’s safety
As pandemic impacts continue to be felt across much of Australia, changes in personal debt, particularly for women and lower-income households, is increasingly concerning. In today’s analysis, Dr Lucinda O’Brien (Melbourne Law School), Dr Vivien Chen (@VivienC63298369, Monash Business School), Professor Ian Ramsay (Melbourne Law School) and Associate Professor Paul Ali (Melbourne Law School) report on research recently published on how under -regulated debt collection practices are contributing to women’s lack of safety.
Debt and COVID-19
As many Australians grapple with financial hardship caused by the COVID-19 pandemic, consumer advocates warn of an impending ‘avalanche in debt collection’. Debt collectors’ activities can have harsh and damaging impacts, especially for women affected by family violence, who often incur debts as a consequence of their partners’ abuse. Our research highlights the urgent need for law reform and better enforcement of existing laws, to protect vulnerable consumers from improper debt collection practices. Women who are experiencing violence or have recently left a violent relationship are particularly vulnerable, our findings show.
We have recently published an article drawing on a series of focus groups with solicitors, financial counsellors and other consumer advocates with expertise in assisting people in financial hardship. The focus group participants emphasised the harmful impact of debt collection practices on vulnerable individuals:
“People can get suicidal over debts. It’s a massive stress for them because they don’t know their rights and people call them every day … If they’ve got any underlying anxiety, then that just skyrockets.”
Debt collectors are often hounding women in crisis. Photo by Tim Mossholder on Unsplash
Stress due to debt collection activity can have a significant impact on individuals’ health and lead to family and relationship breakdown. Although there are laws and guidelines aimed at protecting consumers from harassment, consumer advocates say that these are often breached or evaded by debt collectors. These advocates say that consumers routinely experience harassment in the form of excessively frequent, rude or threatening telephone calls. Consumers may receive such calls at their workplace, jeopardising their employment. They may be threatened with legal proceedings without proper basis or receive several “missed calls” in a single day. While the guidelines recommend no more than three contacts per week, a missed call does not count as a “contact” unless the caller leaves a voicemail message.
Under Commonwealth laws, social security payments are protected, meaning that consumers cannot be compelled to repay debts out of their social security income. According to consumer advocates, some debt collectors continue to demand payment even when consumers are wholly reliant on social security and therefore entitled to the benefit of these legal protections. Many consumers do not understand their legal rights in relation to collections activity and a sense of shame or perceptions of social stigma often deter them from seeking help. Consequently, problems with debt collectors are likely to be under-reported.
The overlay of debt and family violence
Women affected by family violence are especially at risk of financial, social and psychological harm as a result of debt collection activity. Financial insecurity is one of the key reasons why women remain in or return to abusive relationships. Debt collection processes are at times misused by perpetrators of family violence, who deliberately incur debts in their partners’ names or refuse to contribute to jointly-incurred debts. The dramatic increase in family violence during the COVID-19 pandemic, along with the widespread financial hardship it has caused, pose significant risks of harm from this kind of behaviour, which has been termed “economic abuse”.
For family violence survivors, harassment by debt collectors exacerbates the trauma that they have already endured. Unsympathetic responses from creditors, who often continue to pursue debts incurred by abusive former partners, can have serious long-term consequences for survivors and their children.
Our research investigates ways in which the risks of harm to consumers may be reduced. Better enforcement of laws designed to protect consumers from harassment, unfair, misleading and deceptive conduct by debt collectors is crucial. In February 2021, the Australian Competition and Consumer Commission (ACCC) identified the debt collection industry as one of its “compliance and enforcement priorities”. Although regulators have taken enforcement action against several debt collectors in recent years, the experiences of consumers suggest that enforcement action needs to be more robust. More enforcement and penalties could serve as a deterrent to non-compliant businesses, while raising consumers’ awareness of their legal rights through media coverage.
Importantly, we need law reform to safeguard survivors of economic abuse from further harm.
Focus group participants described the trauma suffered by clients who were being pursued by debt collectors while experiencing family violence. One participant spoke of a highly vulnerable and disadvantaged client who was pursued for over 10 months by debt collectors while her husband was in jail for repeat family violence offences:
“... She had it hanging over her head all the time that he was coming out. They wouldn’t release him because he was continuing to make threats from behind bars… but she didn’t know whether he was going to turn up on the doorstep at any minute. He was informing people he was going to kill her, she was really traumatised, had three kids to look after and had this car company that was repossessing her car.”
Advocates and support workers say that, since the beginning of the pandemic, they have received many requests for help from women experiencing economic abuse for the first time. Consequently, it is important that debt collectors adopt better methods for detecting economic abuse and offering appropriate support to affected individuals.
As a covert form of family violence, economic abuse is under-recognised. Even so, it can have severe long-term implications for survivors’ financial, physical and mental wellbeing. The Australian Bankers’ Association (ABA) guideline, “Preventing and Responding to Family and Domestic Violence”, specifically identifies “financial abuse” as a form of family violence and recognises that affected consumers may require special assistance, including payment moratoriums, interest or fee waivers and even debt waivers in some circumstances. Outside the banking industry, however, survivors and their advocates often face an uphill battle when seeking release from debts incurred due to family violence.
Current protections are inadequate
The existing Australian Securities and Investments Commission (ASIC) and ACCC Debt Collection Guideline does not impose any specific obligations on debt collectors in relation to family violence or economic abuse. ASIC and the ACCC should revise the Guideline to incorporate clear, detailed definitions of these terms. The Guideline should ensure staff are trained to identify and respond to signs a consumer is experiencing, or has experienced, family violence or economic abuse. Debt collectors should also refer these consumers to sources of support, such as family violence services, community legal centres or financial counselling. They should take steps to minimise the number of times survivors are required to disclose the abuse, when dealing with different representatives.
More broadly, extending the existing national consumer credit licensing regime to include debt collection would facilitate better regulation of the industry. When this national regime was introduced in 2009, the exemption for debt collectors was cast as a temporary measure, to allow for consultation with industry and the States and territories. Twelve years on, there appears to be no clear policy rationale for the industry’s continuing exemption from these laws. An alternative and more modest reform would be to require all debt collectors to be members of the Australian Financial Complaints Authority (AFCA). This would enable consumers to seek assistance from AFCA in resolving disputes with debt collectors. It would offer consumers a number of flexible remedies, including debt waiver and compensation in cases of serious misconduct by debt collectors.
The debt collection industry argues that poor practices by original creditors are the primary cause of many problems encountered by consumers in financial hardship. If original creditors adopt better hardship policies, in line with the ABA’s guideline, and if the remuneration of debt collectors rewards compliance with standards, rather than amounts collected, outcomes for consumers are likely to improve.
The recent National Summit on Women’s Safety reiterated the importance of economic security. Improving support for survivors of economic abuse, in the context of debt collection processes, could play a significant role in helping them to rebuild lives free from violence.
This post is part of the Women's Policy Action Tank initiative to analyse government policy using a gendered lens. View our other policy analysis pieces here.
Posted by @SusanMaury