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Debtors who have fallen behind in payments will generally receive one or more letters or notices from the creditor and/or from a debt collection agency demanding payment. These letters of demand will usually state that unless the debtor pays by a certain date, court action will be taken. Do not confuse these letters with court documents. They may look like court documents but they are not. If in doubt, seek legal advice.

Debt collection agencies have to be licensed (s4Security and Investigations Agents Act 2002 (Tas)) and must comply with a code of conduct (s38A, Security and Investigations Agents Act 2002 (Tas)). An agency can have its licence suspended or lose its licence if it engages in unsavoury or illegal conduct which shows that the operator of the agency is not a suitable person to hold a licence (ss15 and 16, Security and Investigation Agents Act). Conduct such as sending letters of demand that look like court documents may demonstrate such unsuitability. Court action to revoke a debt collector’s licence may be initiated following the lodging of a complaint with the police, or with the Commissioner for Corporate Affairs through the Office of Consumer Affairs and Fair Trading. If sufficient complaints are received by the police they may commence such an action. In any case before a licence is renewed the Commissioner is to take into account any information or matter that they consider relevant (s8(3), Security and Investigations Agents Act).

In its letter of demand a debt collection agency will often add to the debt a fee called its ’costs’. Generally this fee need not be paid. It is illegal for a debt collection agency to charge the debtor a fee for collection of the debt, or even attempt to do so, unless the debtor is legally liable to the creditor for that fee, for example if the agreement provides for payment of collection costs. Therefore the police should be told if a debt collection agency has made a demand for payment of its costs. It is an offence for which an agency or debt collector may be fined if convicted (s35, Security and Investigations Agents Act). It may also be conduct showing the person is unsuitable to hold a licence, in which case it could be suspended or revoked.

Responding to a Letter of Demand

When a letter of demand is received the following steps should be taken:

  • Check the amount the creditor is claiming. This is essential as the calculation of the total amount owing is often quite complicated and may have mistakes;
  • Write to the creditor (keep a copy) asking for a detailed statement of individual items, interest, term charges and any other costs;
  • When there is a letter of demand from a debt collection agency it is advisable to write to it too, saying a letter has been written to the creditor asking for a detailed statement;
  • When a statement is received, check it carefully or take it to debt counselling advice service where help can be sought;
  • If there are any errors or the account is unclear, write and request a correct statement or clarification;
  • If and when agreement is reached on the amount owing and the debtor is not able to pay, the debtor should attempt to make an arrangement with the creditor. If satisfactory arrangements are not made and the creditor obtains a judgment in his or her favour the debtor will have to pay not only the original debt but also the creditor’s costs;
  • Work out how much of the debt could comfortably be paid each week/fortnight and then write to the creditor offering to pay the debt or some part of it (name the amount) by weekly/fortnightly installments of a certain amount. If you show the creditor that you genuinely cannot pay the full amount at once, but are willing to pay by installments, a creditor will generally accept a reasonable installment offer. Do not sign a new agreement with the creditor for the new repayments if the agreement has a higher interest rate;
  • Investigate the possibility of obtaining a debt consolidation loan, under which all existing creditors can be paid out, leaving only one debt to the new lender. Debt consolidation loans from credit unions are generally available at lower interest rates than those from finance companies. Some finance companies take, as security for such a loan, a bill of sale over all the debtor’s household furniture, which may enable those creditors to exert considerable pressure to ensure that payments are maintained;
  • Do not simply ignore the letter and hope that the problem will go away. Usually it doesn’t and the debtor ends up having to pay extra for costs and interest.

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