Your rights with debt collection when you haven’t paid for products or services as agreed, or you owe money to creditors.

Debt collectors must comply with the law

An overdue debt is when you owe money and have missed payments. You could have an overdue debt for a personal loan, for products bought on credit (credit sales), or if you haven’t paid a supplier, such as a phone, electricity or power company. The lender or creditor who is owed the money will take steps to recover this money. This is known as debt collection.

A debt collector can be a creditor collecting a debt themselves, or an independent collection agency. If a debt collector contacts you about a legitimate debt, you can expect to be treated with respect.

If a debt collector contacts you, you can:

  • check to see whether the debt is legally enforceable
  • see a budget adviser
  • try to re-negotiate payments with the lender for smaller instalments.

Debt collectors must not:

  • use physical force, pressure, or unreasonably harass or hassle you or your family
  • mislead or deceive you or try to do so about the debt, or threaten legal action without any grounds to do so
  • take unfair advantage of any vulnerability, disability or other similar circumstances affecting you (this may amount to unconscionable conduct)
  • tell your family, friends, employer or others about your debt without your consent
  • provide false information to a credit reporting agency for your credit record
  • charge unreasonable debt collection fees.

If you have a written contract with the lender or creditor, it will explain what happens when you don’t pay. Debt collection is one of the options amongst others that a lender may have under the contract, such as taking legal action to recover the debt, repossession, or adverse credit reporting.

If you really can’t pay your debts, you should get legal advice on bankruptcy, the no-asset procedure and summary instalment orders.

See also:

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.

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.

You have different options with debt collection. A lender has six years to seek debt recovery. If you have acknowledged the debt or made a part-payment, the six-year period starts from the date of the acknowledgement, or the date of the last part-payment (whichever is the later).

Contact the bank or lender first

If you have concerns about your bank’s lending decisions or are in financial difficulty, you should contact your bank or lender first. If your concern or difficulty is not resolved to your satisfaction within two months, you can then contact the Financial Dispute Resolution Scheme that your lender belongs to.

If you don’t think you owe the creditor the amount they are claiming or any money at all, don’t just ignore them. Tell the debt collector or the creditor that you don’t agree with the debt and write a letter with your reasons why you disputing the debt. Make sure you keep a copy of your letter.

If you borrowed money or bought products on credit for personal or household use, you also have rights under the Credit Contracts and Consumer Finance Act (CCCFA).

See also:

Contact the Insolvency and Trustee Service

If there is no way that you can pay your debts then you may be able to apply for a:

  • summary instalment order
  • no-asset procedure
  • bankruptcy.

Talk to the Insolvency and Trustee Service(external link) for more information about these options. Contact them on 0508 INSOLVENCY (0508 467 658).

Read Managing bad debt and insolvency to find out more.


Next steps

If you are unable to resolve your issue directly with the bank or lender, contact the Financial Dispute Resolution Scheme that your lender belongs to. You can find the scheme details in the Financial Service Providers Register.

Financial Service Providers Register(external link) — New Zealand Companies Office

The Disputes Tribunal or District Court may be your next step.

Need more help?

Contact us for more guidance.

Common situations

Debt collection and fees

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.

Unreasonable debt collection fees

A debt collection fee of $1,037 on a debt of $6,223 was unreasonable, where the only evidence of the services provided by the debt collector was that they sent one letter to the debtor.

Debt collection notice stating legal fees and court costs

A letter from a debt collection agency shows that non-payment of a $50 debt will result in court action and the debtor will have to pay $150 lawyer’s fees and $100 court costs. This letter risks breaching the Fair Trading Act.