Know your rights
When you have a debt, you are responsible for repaying the money owing. You also have rights to protect you when dealing with debt collectors. They must comply with all consumer laws such as the Consumer Guarantees Act and the Fair Trading Act.
A debt collector should only contact you when it is necessary to do so and when the contact is made for a reasonable purpose.
A reasonable purpose includes:
- making a demand for payment
- making arrangements for repayment or reviewing a repayment plan
- finding out why an agreed repayment plan has not been met.
Generally, visits to your home or another agreed location should only take place if the debt collector can’t phone you or contact you by post or by email, or if you agree. You should report any conduct involving assault or threats of violence to the police.
Debt collectors must protect your personal information and the personal information of third parties. Contact the Office of the Privacy Commissioner(external link) if you believe that a debt collector or creditor has breached privacy laws.
If a debt collector tells you that you will be fined or face legal and court costs on top of the original debt, this is misleading and a breach of the Fair Trading Act.
Example of a debt collection agency process
Step 1: You receive a notice from a debt collection agency stating:
- the details of your debt and the request for full payment
- an agreed method of payment
- that if payment is not forthcoming, you will get a bad credit rating
- that they will take court action if you don’t pay the debt.
Step 2: You have 14 days to either pay the debt or reply to the letter. If you take no action, they will usually advise you in writing that:
- they will give you a bad credit rating that will remain in force for five years
- they intend to take legal proceedings against you.
Only the Court can decide what costs may be imposed, and on who.
Forced entry into your home is also illegal.
Debt collection fees
Debt collection agencies can only charge reasonable collection fees or late payment fees (extra to the original debt) if the trader informed you at the time you bought the products or services that late payments will result in extra charges. Traders can give notice in the contract, on the back of a cheque, on publicly displayed notices or price lists, or on their application forms for credit cards or store cards.
Reasonable fees must relate to actual work done by the lender or collection agency. You can ask for a breakdown or explanation of the fees if they seem excessive.
Under the Fair Trading Act, if you weren’t given any prior notice of debt collection fees or late payment fees, you don’t have to pay these fees. This includes cases where the debt collector gives you a notice ‘requesting’ payment for a collection fee when they attempt to recover the debt, but the trader hasn’t given you any prior notice of the fees.
See the Commerce Commission’s factsheet on Debt collection(external link)
Security over your property
If the lender has security over your property, they will have included a right in the contract to repossess the products that are named in the security interest.
Read Repossession to find out more.