Your options when debt collectors act on overdue debt from loans, credit contracts or fines.

When you don't repay debt, lenders and other organisations can try to get their money back. How they do this can depend on what it says in your credit contract and whether your debt is secured. The two processes are repossession and debt collection.

  • Repossession — taking back a product or item to cover overdue debt. Only secured items written in the credit contract can be repossessed. Usually the item is what you bought with the loan, eg car or TV, but it can be another item if it's listed on the contract.
  • Debt collection — the lender or organisation takes extra steps to get their money back, sometimes using a debt collection agency.

Your credit rating will be negatively affected by both these processes.

Repossession agents are different from debt collectors. They need to provide paperwork proving who they are and what they can repossess. If a debt collector tries to repossess items, ask to see their ID and paperwork.


Repossession

If your credit contract lists items as security and your payments are overdue, the lender could try to recover their money by repossessing those items. They cannot repossess items not listed in the credit contract.

The items listed as security might be the item you bought with the credit contract, eg a car or TV bought with the loan/credit, or it could be items not connected to the reason for the loan, eg jewellery, house, car, savings.

The security items written in the contract must be specific and detailed. For example, if you have two Sony TVs, it's not enough for the contract to just mention a Sony TV. It must specify which one. The items listed as security should not be worth a much larger amount than the loan itself, eg using a home as security for a car loan.

Once your item is sold after repossession, it freezes your account. No more interest and fees can be added. If an item is repossessed and sold, but there is still money left owing, this leftover debt could get passed onto a debt collector. For example, you might have $5,000 left on a car loan, but the repossessed car sells for $4,000. You still owe $1,000. The debt collector cannot add extra fees or costs at this point.

If you get behind on your home loan, repossession can result in a mortgagee sale. For information on this process, see:

Repayment problems: Mortgagee sales

 Only licensed repossession agents can repossess items. If a debt collector tries to repossess something, ask to see their licence and paperwork.

Repossessions

Watch: What a repo agent can and can't take

[Knock knock] Aunty: Who’s this calling at hour of the Shortland Street?

Repossession agent: Good evening, are you Herman Faleafa?

Herman: Maybe…… What’s this about?

Repossession agent: Oh, silly me. Where are my manners. I’m Chip Blockinson from Your Stuff, Our Stuff. You would of received a repossession warning notice in the mail a few weeks ago in relation to several payments on your car loan with Awesome As Cars LMDV.

Herman: Uh… I’m not sure?

Repossession agent: Yes, a letter was sent. Here’s a copy of it here if you wanted to take another look. It has a list of secured items I can take to pay off your loan.

Herman: No, it’s okay I read it. But the car’s still in pieces over at my cousins workshop. I had a bit of a run in with an ice cream truck.

Oh! Hello, I’m Chip Blockinson.

Aunty: Hmmm, Let me see that list.

Repossession agent: As I was explaining to Mr Faleafa, the repossession warning notice tells you how much you are in default, on your car loan with Awesome as cars. Which is... uh yes here it is, eight thousand dollars and 50 cents.

Aunty: Eight thousand dollars!?

Repossession agent: And, fifty cents.

Aunty: How does this happen, Herman?

Herman: The car’s busted and I got a bit behind in the payments, Sorry Aunty.

Repossession agent: So now you understand I have the rights to take your personal effects.

Aunty: Only the items listed here.

Repossession agent: Yes, of course.

Aunty: The ridiculously large television isn’t on your list, young man.

Repossession agent: Oh, silly me. You’re quite right.

Aunty: No no no no no no no no no, not the heater. Under the new law, you can’t take essential items. Last time I checked, heating was pretty essential.

Repossession agent: Actually I was just shifting the heater so I can get to the couch.

Herman: I’ll get you a cushion, Aunty.

Narrator: Repossession is a difficult situation. Even if you end up having your goods repossessed, repossession agents have to give warnings and follow the rules, including limits on what they can and cannot take. It is a good idea to take care when listing the items you list as security.

Debt collection

If you don't keep up repayments for loans, fines and other debt, it can be passed onto a debt collector. Debt from loans and credit contracts is covered by the Credit Contracts and Consumer Finance Act (CCCFA).

If your debt is from fines instead of credit, it is not covered by the CCCFA. If you think you have been mislead by the debt collector you can report them to the Commerce Commission. If the debt collector behaves in a threatening way, report it to the police. 

Debt collection agencies either:

  1. buy your debt, making them the new creditor
  2. collect your debt for the original lender.

Your rights are different with these two options. If the debt collector buys the debt, they are now the creditor so must follow the CCCFA and responsible lending code. This includes charging reasonable fees.

Debt collection(external link) — Commerce Commission

No matter which kind of debt you have or the debt collection process, you still have options to repay it:

  • Contact the debt collection agency. Try to renegotiate smaller instalments with them, or with the original source of the debt. They do not have to agree, but it is in their interest to help you pay your debt.
  • Contact a financial mentor. Talk through your options and make sure the debt is accurate. They can also talk to debt collectors on your behalf and make a complaint to your lender's dispute resolution scheme.

Free confidential advice(external link) — MoneyTalks

Prevent debt collection and repossession by talking to your lender about your options as soon as you have problems with any repayments.

Payment problems

What debt collectors can and can't do

Debt collectors should only contact you when they need to, and for a reasonable reason.

A reasonable reason includes:

  • asking for payment
  • creating or reviewing a repayment plan
  • finding out why you haven't followed an agreed repayment plan.

Debt collectors should only visit you if they can't contact you by phone, post or email, unless you already agreed to in-person visits.

Whether a debt collector has bought your debt or been hired by the lender, or your debt is from fines, there are laws they must follow:

  • Do not use physical force, pressure, or unreasonable harassment or hassling when dealing with you or your family.
  • Do not enter homes or garages by force.
  • Do not try to mislead or deceive you about the debt, or threaten court action without a genuine legal reason.
  • Do not take advantage of any vulnerability, disability or other similar circumstances.
  • Only tell family, friends, employer or others about your debt if you give permission, eg it was in your contract.
  • Give accurate information to credit reporting agencies — providing false information about debt is illegal.

Report any assault or threats of violence to the police.

If you dispute your debt because you don't think it's accurate — or you apply for hardship — debt collection and repossession must stop until these issues are resolved. If debt collection or repossession continues during a debt dispute or hardship application, contact your lender/debt collector or your lender's dispute resolution scheme.

Example – Disputed debt

Meg gets a letter from a debt collector saying she owes $450 in loan repayments. She doesn't think she owes any money. Meg emails her lender, saying she disputes the debt. She makes sure to save a copy of the email for proof. A week later she hears from the debt collector again. Meg tells her lender the debt collector has contacted her again. She reminds them debt collectors must stop the process while her debt is being disputed. The debt collector keeps contacting Meg. She complains to the lender's  dispute resolution scheme.

Fees

Debt collectors can charge collection fees, but:

  • You must be told about the fees by the initial lender/store/service provider — this can be in a credit contract, store display, or on the back of a ticket. This rule applies no matter whether your debt is sold to the collector or not.

If you are charged fees you weren't told about beforehand, contact the lender or provider, eg local council who issued you the fine.

Debt sold to a debt collector

The debt collector is now the creditor so must follow the CCCFA and responsible lending code, like the original lender did.

This means charging reasonable fees — enough to cover costs, but not earn a profit. These fees need to be in the contract. If fees seem high, ask them to explain the amount.

If you have a problem with the fees, contact the debt collector first. If you cannot solve the issue, try their financial dispute resolution scheme.

Debt collector hired by lender

Any fees the debt collector charges the lender can be passed on to you if it says so in the contract. Your lender must pass the fee on at cost, ie not add anything to it.

If you think the debt collector's fees are too high, complain to the lender. If that doesn't work, try the lender's dispute resolution scheme.

You can also complain to the Commerce Commission.

Debt from fines

Debt from fines is not covered by the CCCFA. If you think a debt collector misled you, you can report them to the Commerce Commission under the Fair Trading Act.

Make a complaint(external link) — Commerce Commission

If the debt collector behaves in a threatening way, report it to the police. For more info on your rights with debt due to fines, talk to a financial mentor.

Free confidential advice(external link) — MoneyTalks

Example — Allowable fees

Max signs up to his local library. When he signs up, the librarian tells him about the terms and conditions of membership and shows him where these are written on the website. The terms and conditions cover fine amounts and what happens if someone doesn't pay — the library will hire a debt collection agency who might charge fees. Max takes out five books and doesn't return them.

The library begins charging him 80c a book a day. Max does not pay the fines. The library hires a debt collection agency, who demands payment of the fines plus a $45 collection fee. Max must pay his library fines and the $45 because he was warned about the debt collection fee.

Debt collection process

There is no standard debt collection process. If you get behind in payments, whether your debt is from a loan or fines, the lender or organisation could:

  • hire a debt collector
  • sell the debt to a debt collector
  • repossess items, if the debt is secured and items are listed on the contract
  • take you to court.

The lender may be able take money from your wages or benefit, if this is written in your credit contract. You can cancel this, but you need to have another method of repayment worked out instead.

When you hear from a debt collector, don't ignore it. Contact the debt collector to work out a repayment plan. A free financial mentor can give you advice and talk to the lender or debt collector for you.

If you had items repossessed before debt collection starts, your debt must freeze. Debt collectors cannot add their fees on top of this.

To prove the total amount of your debt after repossession, you can provide the Statement of Account. You will get this from your lender 7 days after the sale of your repossessed item. If you don't remember receiving this, ask your lender for a copy.


Common problems

If there is no way you can repay your debts even with a new repayment amount, consider your options through the Insolvency and Trustee Service.

Bankruptcy and insolvency options

If you don't believe you owe the money, or think you owe less, tell the lender or debt collection agency in writing as soon as possible. This is called disputing the debt. Debt collection and repossession processes must stop until the dispute is settled.

If your debt is from a ticket or fine, contact the source, eg Ministry of Justice, local council. They will have a complaints process for you to follow.

Contact them in writing and keep a record of it. You will need to say why you believe the debt is not yours. Whatever the reason, make sure to give evidence to back up your point. For example, if you paid the debt already, provide bank statements proving it.

If you talk to the debt collector on the phone, keep records of their name, the time and date.

If this doesn't work, you can:

  • Complain to a financial disputes resolution scheme — all lenders must be members of a scheme. Check your credit contract to find out which scheme the lender belongs to. It is free for you to talk to them and make a complaint. If your lender sold your debt to another lender or debt collector, they should send you a letter within 10 working days. It will tell you who the new lender is, including their registration number and dispute scheme. See Make an official complaint.
  • Take a claim to the Disputes Tribunal — if you have taken your complaint through the disputes resolution scheme and it has not been resolved, you can take your complaint to the Disputes Tribunal. Debts must be under $15,000 or $20,000 if both groups agree. The Disputes Tribunal can order debt to be reduced or cancelled.

Disputes Tribunal

Banks and other lenders must check if you can afford repayments before lending you money. They must also follow other rules of responsible lending. If you think they should not have approved your loan, question how your lender checked your affordability.

What lenders must do

A free financial mentor can help look at your income and expenses and figure out whether the lender should have given you a loan. They can also help you discuss the issue with your lender. Start by contacting the free helpline MoneyTalks.

Contact information(external external link) (external external link) — MoneyTalks

If you and your lender cannot agree a solution, you can make an official complaint to their dispute resolution scheme.

Example — No affordability check

Mary buys a TV on credit from a truck shop, with no questions asked about Mary's income or living costs. After a few weeks, Mary can't keep up repayments. After getting a debt collector's letter, Mary contacts a MoneyTalks financial mentor. The mentor finds the repayments are more than Mary can afford — the truck shop should not have sold her the TV on credit. The financial mentor contacts the truck shop to complain.

Make an official complaint

The first step with any debt issue is always talk to your lender or debt collector, or ask a free financial mentor to do this for you. If this doesn't resolve your issue, you have options for taking it further:

  • Financial dispute resolution scheme — for complaints about your lender/debt collector, eg high fees or giving you a loan you could never afford.
  • Privacy Commissioner — for breaches of privacy, eg telling your family and employer about your debt without your permission.
  • Commerce Commission — for complaints involving the Fair Trading Act or the Credit Contracts and Consumer Finance Act. You can complain to the Commerce Commission and the financial disputes resolution scheme at the same time. The scheme will seek resolution for your specific problem, and the Commission focuses on the breaches in the law.

You can also get free legal advice from Community Law.

Our law centres(external link) — Community Law Centres

Dispute resolution scheme

All banks, lenders and financial advisers must belong to a financial dispute resolution scheme. This independent body can:

  • give you information about how lenders should act
  • share tips on how to complain to your lender
  • look into certain complaints when you and your lender cannot agree on a solution.

It's free for you talk to them and make a complaint. Or a free financial mentor can do this for you. Start by contacting the MoneyTalks helpline.

Free confidential advice(external link) — MoneyTalks

There are four financial dispute resolution schemes. To find out which your lender belongs to, you can either:

  • Ask your lender.
  • Phone any one of the four schemes to find out. For contact details, see:

Financial dispute resolution schemes

You can also check the lender's entry on the Financial Service Providers Register:

Search the register(external link) — Financial Service Providers Register

Debt collectors

If the debt collector is acting for your lender, you can still contact the lender's dispute resolution scheme. But it may be more difficult to reach a resolution. The debt collector is not part of the scheme and doesn't have to follow the same laws.

If your debt is from fines, this option does not apply because fines are not covered by the CCCFA.

Possible outcomes

The dispute resolution scheme will try to find a solution you and the lender can agree on.

Depending what went wrong, solutions include:

  • changing your repayments, eg more time to pay
  • waiving some or all fees
  • lower interest rate
  • reducing your debt
  • an apology
  • compensation.

If you and the lender/debt collector can't agree a solution, the dispute resolution scheme will decide.

It's up to you to accept or reject the decision. If you don't accept it, you can take your complaint elsewhere, eg Disputes Tribunal or District Court. The lender cannot disagree with the disputes resolution scheme's decision.

Privacy Commissioner

Debt collectors, lenders and other creditors (people or organisations you owe money) must not tell your family, friends, employer or others about your debt without your consent. If they do, you can complain for free to the Privacy Commissioner. This applies whether your debt is from fines or from credit.

The Privacy Commissioner investigates complaints when a debt collector or creditor either:

  • breaches a privacy principle, eg telling a neighbour about your debts
  • causes significant harm, eg financial loss, breach of your rights, serious embarrassment, hurt feelings, loss of dignity.

The Privacy Commissioner can:

  • decide if your privacy has been breached
  • ask creditors or debt collectors to meet with you, or share information
  • facilitate a settlement.

The Privacy Commissioner cannot:

  • make creditors and debt collectors give you information
  • issue fines
  • force either side to accept a settlement.

If you're unhappy with the result from the Privacy Commissioner, or the debt collector/creditor doesn't do what's required, you can take your complaint to the Human Rights Review Tribunal.

You cannot take a complaint straight to the tribunal without going to the Privacy Commissioner first.

Making a complaint(external link) — Office of the Privacy Commissioner

Human Rights Review Tribunal(external link) — Ministry of Justice

Example — Privacy breach

Henry is behind on payments for a loan he took out between jobs. The lender passes Henry's overdue amount to a debt collector. Henry gets a new job. The debt collector goes to his boss and tells him about the debt without Henry's permission. Henry tells the debt collection agency they are in breach of the Privacy Act and he will complain to the Privacy Commissioner.

Commerce Commission

The Commerce Commission enforces certain consumer laws, including the Credit Contracts and Consumer Finance Act. This is designed to make sure businesses lend responsibly, eg to check loans are affordable and disclose all interest and fees.

Commerce Commission doesn't act on behalf of individuals and can't investigate every complaint. But their investigations do help make sure businesses comply with the law. Your information helps them assess which consumer issues cause greatest harm.

Make a complaint(external link) — Commerce Commission

More help

Get support at any point from:

  • MoneyTalks: This helpline gives free budgeting advice to individuals, family and whānau. Financial mentors can help you understand your financial situation, organise your debt and plan for the future. They can also put you in touch with a local budgeting service and help with issues you're having with lenders. Phone 0800 345 123, or use live chat, email or text, if you prefer.

Contact information(external link) — MoneyTalks

  • Community Law Centre: Free one-on-one legal advice for people with limited finances. The organisation has 24 centres throughout the country. You can find legal information and other resources on its website.

Our law centres(external link) — Community Law Centres