The debt collection industry is a key part of New Zealand’s economy providing employment for many individuals and businesses. Debt forms part of the social and economic life of today’s world and gives borrowers the flexibility to make purchases, utilise future earnings, and deal with crises to make up shortfalls. CAP acknowledges that debt is not a bad thing when it is properly managed and there is appropriate support for people that face financial instability and hardship.
However, each day CAP sees the complex social challenges of financial hardship and the intergenerational patterns of crisis and indebtedness in many vulnerable families across Aotearoa. CAP is concerned that appropriate support for borrowers is sorely missing and the prevalence of poor debt collection practices exacerbates material and financial hardship.
This report investigates poor debt collection practices in New Zealand to bring regulatory reform and better protection for vulnerable families.
Poor debt collection practices are an under-reported issue in New Zealand. CAP regularly receives reports of clients that have been on the receiving end of misleading and unconscionable conduct by some debt collectors. The scale of the impact worsens the material and financial hardship for many families, strains relationships, engenders broken families, and affects mental health and wellbeing.
There is some form of regulation on what should constitute reasonable behaviour for debt recovery in New Zealand, but gaps in the guidelines have allowed poor debt collection practices to perpetuate. These practices have included undue harassment, bullying, coercion, false or misleading claims, and unrealistic repayment demands. The aftermath has left many borrowers feeling anxious, stressed, and living in perpetual fear.
Based on the findings of this report, CAP calls for the following:
• Broadening the scope and clarifying the interpretation of what constitutes harassment and coercion in the current legislation
• Criminalisation of undue harassment of borrowers
• Licensing of debt collectors in New Zealand
• Reform of application for the variation of attachment orders
• Making beneficiaries judgement-proof debtors
• Establishment of new guidelines for repayment plans, fees, and legitimate and undue contact
• Systematic changes to protect vulnerable people by providing opportunities for recourse and alternative dispute resolution.
The three key recommendations the report proposes are:
- Introduce regulations that provide clear guidance to limit harm from poor debt collection practices
- Make beneficiaries judgement-proof debtors
- Reform application to vary attachment orders to enable more people to access this process