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The Risk of Dodgy Debt Collection

‘Cynical’, ‘unconscionable’ and ‘clearly unfair’ are words most business owners never want to hear. When a federal court justice uses these very terms to describe your debt collection activity, chances are it’s going to be coupled with a hefty fine that could financially cripple your business and the individuals involved in it.

A recent action from the Australian Competition and Consumer Commission (ACCC) shed light on fake debt collection practices violating the consumer act. While resorting to these tactics may prove effective in the short term, the sanctions levied potentially put your whole operation at risk. Brand damage, monetary fines and restrictions placed against employees all hamper the chances of future success.

So what raised the ire of both the ACCC and the federal court?

Misrepresentation of the debt collection process
If your company is handling debt collections, you must make this apparent to your debtors. It is unlawful to infer an independent collector is handling your debts when, in fact, you’re performing this function yourself.

Creating fake debt collectors
While it may seem like a good idea to create a fake debt collector for your business, it’s in violation of the Australian Consumer Law to do so.  Misleading debtors into believing they’re dealing with an independent debt collector is also in violation of the ACCC debt collection guidelines.

False representations of debt collection rights
You cannot institute policies against a debtor that fall outside of the law. Creating excessive fees and retrieving assets not attached to the debt is not only illegal, it’s behaviour viewed as unconscionable.

Making threats
Threatening your customer base is never a good idea, even if they’re delinquent payers. Using abusive language and making threats of physical violence are against the law.

It goes without saying that carrying debt in your business can be stressful and affect your ability to manage and grow your company. Using misleading tactics and making false claims in an effort to recover your debt can create serious problems including:

  • Companies can incur up to $1.1 million in fines per offence
  • Individuals can be fined up to $200,000 for every proven instance
  • Individuals can be disqualified from managing a corporation
  • Injunctions against performing certain business functions
  • Orders to pay costs

Regardless of whether a business is acting out of ignorance or consciously misleading the consumer, the ACCC is cracking down on unscrupulous debt collection practices.  One good way to ensure you’re not violating the Australian Consumer Law it to use an independent debt collection agency. If you’re concerned about cash flow, find an agency that only bills you when a debt has been collected. This is a no-risk investment for your business because you don’t have to pay a service fee to the agency if they’re unsuccessful in recovering the money owed to you.  It’s an especially good choice for small businesses because there are no outgoing costs to incur.

Natalie Walker
Natalie Walker is managing director of Blitz Credit Management (www.blitzcredit.com.au), a technology-driven debt collection agency based in Australia. Her modern approach to debt collection and credit management services has been widely embraced by Australian businesses. She can be contacted at (08) 6140 2584.