Debt collectors beware: idle threats will hurt you

Parents of young children are often heard making the most extraordinary threats to their children: “If you don’t hurry up I will leave you behind”; or “If you don’t eat your vegetables your teeth will fall out!”[1]

However, those engaged in the business of debt collecting need to be extra careful when making threats to debtors about commencing legal proceedings or the possible effect on their credit ratings. A recent decision of the Federal Court of Australia[2] highlights some extraordinary conduct by a large debt collecting company that contravened the Australian Consumer Law (ACL). Once again, it stands as a salutary lesson to those in business who make empty threats to consumers in order to recover their debts.

Background

On its website, ACM Group Limited describes itself this way:

ACM is the largest privately-owned debt acquisition company in Australia. ACM purchases debts from telecommunications providers, utilities providers and financial institutions. These debts include outstanding credit cards, phone bills and other similar loans.

The CT Debt

ACM had purchased various debts from Telstra that were owed by Telstra customers. One such customer was CT.  CT’s debt to Telstra was $5,768.53. ACM had purchased the debt from Telstra for the grand sum of $334.57 in June 2010.

Sadly for CT, he had suffered a series of 3 strokes on one day in 2007. He was incapable of communicating in any more than a few words, could not write, and was effectively confined to a nursing care facility for the rest of his life. He had no assets, and no income, other than a full government disability pension.  ACM had been informed of CT’s condition on at least 2 occasions by representatives of CT. CT’s care facility had also told ACM that CT could not receive their telephone calls. CT’s status was held in the records of ACM.

That did not discourage ACM from telephoning the care facility some 40 times and from sending at least 20 letters of demand to CT between 2011 and 2015. These letters included at least 3 “Final Notices”, 7 “Notice of Intention to Commence Legal Proceedings ” letters, and at least 4 “Urgent Notice” letters. As Justice Griffiths noted: They included statements that unless the balance of $5,768.53 was paid within seven days of the date of the letter, legal proceedings involving court costs to CT may commence without further notice, and that failing receipt of payment (or, in the case of some letters, a phone call regarding a satisfactory arrangement), ACM may forward CT’s account to its solicitors without further notice.  At least 14 Seven Day Demand Letters were sent to CT between 29 April 2011 and 12 June 2015.  Letters informing CT that, unless arrangements were made to pay the debt within “48 hours”, legal proceedings may be commenced without further notice.  At least 6 “48-hour” demands were sent to CT.

The JR Debt

JR owed Telstra $3,149.51. That debt was assigned to ACM in June 2014.

JR was a single mother of 3 children, work part-time as a secretary, and was on Centrelink benefits. She could not afford to pay Telstra’s debt.  All of this was known to ACM, however that did not stop one of their employees telephoning JR and informing her that ACM had commenced preparing the documents that would be used for legal action against JR, that ACM management was planning for a summons to be drawn, issued and served upon JR soon so that ACM could recover the debt in full, and that if a default was listed on her credit file, JR would not be able to obtain credit for the next five to seven years. Mr Francisco said words to the effect of “And I know with three kids, credit is very important to you, right?”  [3]

JR felt so intimidated and flustered that she arranged to make an immediate payment of $1,000 for fear that court proceedings would be immediately issued otherwise. This amount represented her entire Centrelink payment and put her in a position where she was unable to pay her rent.

ACM issued these demands via the Philippines.

The Application

The case was a separate hearing on liability for whether ACM had breached, amongst other Acts, the ACL for:

• making representations that were misleading and deceptive, or likely to mislead or deceive;
• engaging in conduct that was unconscionable; and
• the use of undue harassment and coercion in the provision of services for Telstra.

The proceedings were brought by both the Australian Securities and Investments Commission, as well as the Australian Competition and Consumer Commission.

The Findings

It might not surprise many readers that ACM was not successful in defending the claims brought against it. This is particularly so in the light of the Debt Collection Guideline: for collectors and creditors issued jointly by ASIC and ACCC as long ago as 2005[4]. Any debt collecting company of any size ought to be complying with that guideline, let alone “the largest privately-owned” one.  The Court here found that ACM had not done so – although it is important to note that the Guideline is not “law” – it is a guide only, but Courts do take these things into consideration when determining issues such as “coercion” or “unconscionable conduct”.

ACM however attempted to encourage the Court to take full account of “the nature and realities of debt collecting”, relying on a passage in ACCC v McCaskey[5] :

• … a consumer who owes money to a supplier can expect repeated unwelcome approaches requesting payment of the debt if he or she does not pay. No doubt such approaches might also qualify as harassment. If legitimate demands are reasonably made, on more than one occasion, for the purpose of reminding the debtor of his or her obligation and drawing the debtor’s attention to the likelihood of legal proceedings if payment is not made, then that conduct, if it be harassment, is not undue harassment. If, however, the frequency, nature or content of the approaches and communications associated with them is such that they are calculated to intimidate or demoralise, tire out or exhaust a debtor rather than convey the demand and an associated legitimate threat of proceedings, the harassment will be undue.

The Court confirmed that “harassment” has its ordinary meaning, which includes conduct which tends to intimidate, embarrass, ridicule, shame or otherwise destress the person to whom the conduct is targeted[6] . However, for there to be a breach of the ACL, the harassment must be “undue”.  The Federal Court had previously determined that:

• the word “undue”, when used in relation to harassment, ensures that conduct which amounts to harassment will only amount to a contravention of the section where what is done goes beyond the normal limits which, in the circumstances, society would regard as acceptable or reasonable and not excessive or disproportionate. [7]

Adopting the language of the Court in McCaskey Justice Griffiths was “comfortably satisfied” that ACM’s conduct against CT amounted to “undue harassment” and was “misleading and deceptive”.  The Court also found that the various statements and demands made by ACM to CT and JR amounted to coercion against JR and unconscionable conduct in breach of the ACL.  The Court lastly found that the conduct did not conform to the ASIC/ACCC Guideline, which therefore supported the negative findings against ACM.  Even as long ago as 2005, the Guideline recommended:

• Do not make misrepresentations about the legal process. For instance, do not: state or imply that you have instructions to start legal proceedings when this is not intended, or you have received no such instructions.

The parties in this case have been given 3 weeks to bring in proposed orders reflecting the judgment on liability.  Then the penalty hearing should start!  This isn’t the first time that ACM has borne the wrath of the Federal Court[8].  In that earlier decision, ACM was on the receiving end of an injunction over their business practices against the debtors, which included:

• heaping personal abuse upon them; and
• blackmailing them by threatening to reveal their positions as debtors to relatives, friends, employers or neighbours.

I perfectly understand that collecting small corporate debts from consumers is tough. And, given the enormous volume of them to collect, efficiencies need to be employed to minimize expenses (like not incurring fees to lawyers!).  But there’s a real difference between playing hardball to collect debts, and using empty, idle yet intimidating threats, making patently false and misleading statements and coercing disadvantaged consumers to pay amounts that they could never afford.  Perhaps large debt collecting companies consider that this is the cost of doing business to pull in these debts they’d otherwise never recover?

And bear in mind that the result in this case was based upon 4 years of that behaviour just to try and collect two debts totaling less than $9,000.

Stay tuned for the result on the penalty to be paid. I bet it’s more than nine grand.

I would highly commend the judgment to anyone associated with the recovery of debts from consumers.