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When you owe a debt and do not pay, the
person you owe the money to (the creditor) can take a court action
to recover the money and any other costs incurred - eg, lawyer's
fees, court costs.
The creditor can take court action to recover an unpaid debt. But
when a debt is disputed, they cannot lead you to believe that the
only way to stop court action is to pay the debt.
eg a letter from a debt collection agency
shows that non-payment of a $50.00 debt will result in court
action and you will have to pay $150.00 lawyers fees, $100.00 in
court costs and other related charges.
The Fair Trading Act may have been
breached.
As a debtor you have the right to challenge the creditor's claim
to recover the debt where there is a genuine dispute. Who pays for
the court costs and creditor's solicitors fees is something that
only a judge can order. The stated extra charges in the letter are
not an inevitable consequence of non-payment - although costs may be
imposed by the court, the debt collection agency does not make that
decision.
If you think the Act may have been breached, take it up with the
company or contact the Commerce
Commission for more information on debt collection and the Act.
Paying collection fees
Collection fees are fees charged by debt collection agencies that
are in addition to the original amount of the debt.
Debt collection agencies can only charge collection fees if you
are aware at the time you agree to purchase the goods or
services that late payments will result in extra charges.
If traders want to add debt recovery costs to the money you owe,
they must warn you about the possible extra charges at the time your
contract is made. Traders can do this by:
- clearly displaying notices at reception desks, checkouts or on
price lists
- stamping notices on the back of cheques in the presence of the
buyer, or
- statements in application forms for credit cards or store
cards.
If the trader does this, you have agreed to collection fees being
charged. But if you do not agree to a collection fee, you do not
have to pay any more than the original debt.
eg, Max writes out a cheque for $80 at his
local supermarket. A notice at the checkout says "customers will
be charged costs of debt collection for unpaid cheques". The
cheque is bounced by his bank because there is not enough money in
his account. The supermarket sends the debt to a debt collection
agency. The agency demands payment of $125 - the $80 plus a $45
collection fee. Max has to pay the extra $45. The supermarket had
a notice at the checkout warning Max about what would happen if
his cheque bounced.
eg, Sindy writes a cheque at the
supermarket and the seller stamps the back of it with a notice
that says "I agree to pay all collection costs to recover the sum
of this cheque if it is dishonoured". Sindy signs the statement.
Even if Sindy did not realise what the effect of this statement
was, she had agreed to collection fees being charged if her cheque
bounced. A stamp on the back of a cheque must be done in the
presence of the customer and the customer given the opportunity to
read it.
What if there was no notification given of charges?
If you were not informed of these possible extra charges at the
time of entering into the agreement, then you do not have to pay a
collection fee. To charge you a fee may be a breach of the
Fair Trading Act.
Some debt collection agencies may attempt to get around the
Commerce Commission’s guidelines on debt collection by 'requesting'
payment for a collection fee when they set out to recover the
original debt. If the 'request' seems to the consumer to be a
compulsory charge and not an option, then the Fair Trading Act may
have been breached.
Late fees on overdue accounts
Some traders add a "late fee" or "penalty charge" to accounts
that are not paid by the due date. However, you will only have to
pay a late fee if you were told verbally or in writing (eg, a sign)
about the fee before your contract with the trader was made. The
same rules apply as for debt collection charges above. You do not
have to pay a sum of money if your payment is late unless it was
agreed to, or made known to you, before the original agreement for
goods/services was made.
eg, Nick takes his car to the garage for
repair. A sign on the counter says that a 10% charge will be added
to all accounts not paid by the due date. This sign is clearly
visible to Nick when he makes the arrangement with the garage
about his car. The garage can charge Nick a fee if he does not pay
his account on time.
eg, Sally rings a builder about installing
a new window in her house. The details of the work, including the
price, are agreed to over the telephone. Before posting his
account to Sally, the builder writes on it "a 10% charge on
accounts not paid within 28 days". The builder cannot charge Sally
for late payment. The builder did not tell Sally about this charge
at the time the contract was made.
Disputing a debt
If you dispute part, or all, of the debt you should consider the
following action:
Don't ignore the notice
Ignoring the notice will not make it go away. If an agency is
unable to collect directly from you they may take action in the
District Court to recover the money owed.
Advise the agency and the creditor that the debt is disputed and
why
Advising the agency that there is a real and unresolved dispute
over the debt may mean that the agency will stop any action to
collect the debt until the matter is settled.
Consider action in the Disputes Tribunal to resolve the dispute
If a dispute cannot be resolved, you can take a claim to the
Disputes Tribunal to seek an order that you are not liable to pay
the debt in full or in part.
Debt collection records
Privacy Act
Your credit records are accessible to others to assess credit
ratings. So the information stored is required, under the Privacy
Act 1993, to be accurate. Information that is not accurate must be
removed.
You can make a written application to the agency carrying the
incorrect information for it to be removed. The agency must comply
with this request. If they do not comply you may make a complaint to
the office of the
Privacy Commissioner.
Checking your own records
The Credit Reporting Privacy Code requires credit reporters
(companies that provide credit reports on consumers and businesses)
to provide individual consumers with free access to their credit
information on request. If you need the information urgently (within
a five working day period), the company can charge you are
reasonable fee.
Also, credit reporters must have an internal complaints process
consumers can use to complain about mistaken debt information.
Complainants can go to the Privacy Commissioner if they are
dissatisfied with the outcome.
More information on the Privacy Commissioner and the Credit
Reporting Privacy Code is available from the Commissioner's
website.
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