Apr 18, 2013 - interest to the Account. 5. ... premiums and associated fees and interest. ... 2009 and January 2010 whic
Determination Case number: 232561 Credit - Consumer Credit - Credit Cards - Charges - Incorrect fees/ costs Credit - Consumer Credit - Credit Cards - FSP Decision - Inappropriate debt collection action 18 April 2013
Background 1.
The Applicant had a credit card account (the Account) with the Financial Services Provider (the FSP).
2.
Between August 2005 and January 2010, the FSP charged insurance premiums to the Account.
3.
The Account went into arrears and in or about June 2008, the FSP commenced collection activity to recover the credit card debt.
4.
The Applicant lodged a dispute with the Financial Ombudsman Service (FOS) claiming the FSP had:
5.
a.
conducted inappropriate collection activity; and
b.
incorrectly charged the insurance premiums and associated fees and interest to the Account.
In a Recommendation dated 31 July 2012, FOS said that: a.
The FSP had made a commercial decision to refund all the insurance premiums and associated fees and interest. However, when providing the refund of the premium charged to the Account on 12 September 2008, the FSP refunded $4 less than what was actually charged. Therefore the FSP should refund the Applicant a further $4.
b.
When attempting to collect the credit card debt, the FSP breached the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) and the Debt Collection Guideline for Collectors and Creditors, released by the Australian Competition & Consumer Commission and the Australian Securities & Investments Commission in 2005 (Debt Collection Guideline).
c.
The FSP’s collection activity caused the Applicant stress and inconvenience for which it should pay the Applicant $2,000 compensation.
d.
The Applicant was liable to pay the outstanding balance of the Account.
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6.
The Applicant rejected the Recommendation. His reasons for doing so are summarised below in paragraph 9.
7.
The FSP accepted the Recommendation but said that the compensation awarded to the Applicant should be paid to him by reducing the balance of the Account in lieu of a cash payment to him.
8.
This Determination deals with the responses to the Recommendation.
Summary of Applicant’s position 9.
When rejecting the Recommendation, the Applicant said: a.
The FSP continually harassed him when collecting the credit card debt and this conduct breaches the ASIC Act.
b.
He understands that a breach of the ASIC Act can attract severe penalties.
c.
The FSP “has not explained” the debt it says he owes to it.
d.
The Recommendation appears to blame him for the FSP’s wrongful collection activity.
Summary of FSP’s position 10.
The FSP says that while it accepts the Recommendation, the compensation awarded to the Applicant should be paid to him by reducing the balance of the Account, rather than directly to him.
Issues The issues for investigation include: 11.
What loss, if any, did the Applicant suffer as a result of the FSP’s inappropriate collection activity?
12.
If the Applicant has suffered a loss and is entitled to compensation, how should that compensation be paid to the Applicant?
Reasons for decision The responses to the Recommendation 13.
Following each party’s response to the Recommendation, the issue which remains in dispute is the amount of loss the Applicant has incurred as a result of the FSP’s collection activity and how any compensation should be paid to him.
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14.
As outlined above, the Recommendation awarded the Applicant $2,004 compensation. The Applicant rejected that assessment of his loss. The Applicant also says that the Recommendation appeared to apportion some blame on him for the FSP’s conduct (the inference being that it was wrong for the Recommendation to do so).
Apportionment of loss 15.
When assessing the Applicant’s loss, the Recommendation said that the Applicant did not make himself reasonably available to the FSP to discuss the repayment of his credit card debt. The Applicant’s conduct was taken into account when assessing his loss.
16.
FOS does expect applicants to make themselves reasonably available to discuss the repayment of an overdue account. However, the FSP is obliged to comply with the ASIC Act when attempting to collect the debt regardless of the Applicant’s conduct. Likewise, the Applicant’s conduct should not distract the FSP from following the Debt Collection Guideline.
17.
The Recommendation did not specifically outline how the Applicant’s conduct had affected the amount of compensation that was awarded to him. However, after reviewing the FSP’s conduct in collecting the debt, in my view the amount of compensation that the FSP should pay to the Applicant is as follows.
Compensation for collection activity before the matter was referred to FOS 18.
The Debt Collection Guideline provides that contact with the debtor should be no more than 3 times per week, or 10 times per month. Contact with the debtor generally refers to successful contact and may include contact by mail, telephone, SMS, email or message services.
19.
However, unanswered calls should not be automatically discounted, especially in cases where it is demonstrated that the debtor is aware of calls such as through caller number display shown on “missed calls” to mobiles or home phones.
20.
In this case, the FSP’s collection notes indicate the FSP made repeated telephone calls to the Applicant’s home and mobile numbers in November, December 2009 and January 2010 which exceeded the weekly and monthly allowances recommended by the Debt Collection Guideline.
21.
For example, in the seven days between Monday, 16 November 2009 to Sunday, 22 November 2009, the FSP made 24 calls to the Applicant and sent one collections letter to him. Of those 24 calls, 14 were answered. Fourteen of the calls were also to the Applicant’s mobile phone.
22.
While it is not entirely clear from the FSP’s records who answered each call, the collection notes indicate the Applicant was at least aware of them - either answering the calls himself and then terminating the call, from the person
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answering the call informing the Applicant about them or from a call number display. 23.
Similar breaches of the Debt Collection Guideline in relation to the amount and frequency of contact, both on a weekly and monthly basis, occurred throughout December 2009 and January 2010.
24.
The collection notes indicate the Applicant was stressed by the amount and frequency of the calls he received from the FSP. In terms of severity, I consider more than 7 calls in one week and more than 20 in one month to be a severe breach of the Debt Collection Guideline.
25.
In my view, the FSP should compensate the Applicant $6,000 for making more frequent contact with the Applicant than that recommended by the Debt Collection Guideline. Severe breaches of the Debt Collection Guideline will usually warrant compensation for non-financial loss of $1,000. As this conduct persisted over three months, and each breach constitutes a separate claim, my view is that the FSP should pay $1,000 for the first breach (November), $2,000 for the second (December) and $3,000 for the third (January).
26.
There were also other breaches of the Debt Collection Guideline by the FSP. In my view these breaches give rise to a separate claim for loss.
27.
The Debt Collection Guideline provides that a creditor should respect the wishes of a debtor not to be contacted by phone where another form of communication is available. In this case, the Applicant informed the FSP on more than one occasion in 2009 that he did not want to discuss the details of his account over the telephone. It appears from the collections notes that the Applicant was uncomfortable providing his details over the telephone, in particular to calls originating from call centres located overseas.
28.
However, the FSP’s collections notes show that the FSP disregarded the Applicant’s request and continued to contact him by telephone. This was despite the FSP having the Applicant’s address meaning it could have communicated with him in writing.
29.
In my view the FSP ought to have respected the Applicant’s wishes in relation to not communicating with him by telephone and its failure to do so breached the Debt Collection Guideline. In my view the FSP should pay the Applicant a further $1,000 compensation for the stress and inconvenience its conduct caused him.
Compensation for collection activity after the matter was referred to FOS 30.
The FSP acknowledges it continued with collection activity after the matter was referred to FOS. The system notes indicate that one telephone call was made, and one letter sent, to the Applicant after he lodged his dispute with FOS on 28 January 2011.
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31.
In response to that contact, the Applicant contacted FOS. FOS then directed the FSP ensure that no further collection activity take place until we had completed our review of the Applicant’s complaint. After this, the FSP conducted no further collection activity.
32.
The FSP acknowledges that its conduct in continuing with collection activity after the matter was referred to FOS breached the Debt Collection Guideline. In my view the FSP’s conduct in terms of its severity and impact on the Applicant was in the low to medium range and warrants an award of compensation of $500.
Refund of the insurance premiums 33.
When the FSP agreed to refund the insurance premiums charged to the Account, it refunded $4 less than the sum of those premiums. As the FSP agreed to refund all of the insurance premiums, the FSP should credit a further $4 to the Account.
How should the compensation be paid to the Applicant? 34.
If FOS does award compensation to an applicant to compensate them for the loss they incur as a result of a financial services provider’s wrongful collection activity, and the debt being collected is owed by the applicant and remains unpaid, then it is generally appropriate for the compensation to be applied toward repaying the debt rather than being paid directly to the applicant in cash or by cheque.
35.
However, there are situations in which it is appropriate to depart from this general approach. For example, where compensation is awarded for collection activity that occurs while the matter is with FOS, it may be appropriate for the compensation to be paid directly to the applicant, rather than being applied to repay the debt.
36.
This is because, under the FOS Terms of Reference, a member of FOS (such as the FSP) is obliged to stop all collection activity upon a matter being referred to FOS. As a result, customers who lodge a dispute with FOS are entitled to expect that financial services providers will abide by this obligation. The continuation of collection activity while FOS is considering a dispute also reduces the effectiveness of our dispute resolution process. As a result, such conduct should not occur where a financial services provider is on notice of the dispute.
37.
In this case, the FSP continued with its attempt to collect the debt after FOS had notified the FSP of the dispute. In my view the FSP’s conduct in this regard warrants a departure from the general position outlined above about applying compensation monies to the outstanding debt.
38.
In my view the compensation I have awarded to the Applicant for the FSP’s conduct in continuing with collecting activity while the matter was with FOS ($500) should be paid directly to the Applicant rather than applying it to
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reduce his credit card debt (unless, of course, the Applicant separately agrees for the FSP to apply it to the Account). 39.
The balance of the compensation I have awarded to the Applicant ($7,004) should be paid to the Applicant by reducing the Applicant’s credit card debt by $7,004.
Penalty for breaching the ASIC Act 40.
When the Applicant rejected the Recommendation, he said that he believes a breach of the ASIC Act attracts a penalty/fine.
41.
The ASIC Act prohibits:
42.
Misleading or deceptive conduct
Unconscionable conduct
Physical force, undue harassment or coercion in the collection of a debt
While the Applicant is correct in his understanding that a breach of the ASIC Act can lead to the imposition of a fine or penalty, the power to impose any such fine/penalty is reserved in the courts. FOS does not have the power to impose a fine.
The credit card debt 43.
The Applicant says that the FSP has not “explained” his credit card debt. What I understand the Applicant means when he says this is that he is unsure why his credit card balance stands at $10,105.41.
44.
To assist the Applicant understand why his credit card balance is $10,105.41, I provide the following observations.
45.
The account statements for the Applicant’s credit card account show that there was a balance transfer from another credit card account on 19 July 2005 for $9,049.25. The account statements also show that over the next few months, the Applicant made some payments to the account but the payments he made were less than the sum of his purchases. This caused the account balance to increase. By 13 December 2005, the account balance was $17,105.48. From that date until April/May2007, the account balance remained between $17,000-$18,000 (the Applicant’s payments being about the same amount as the sum of the monthly interest charges, fees and transactions debited to the account).
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46.
In April/May 2007, the Applicant made payments totalling $4,000 which reduced the account balance to $14,316.62 on 11 May 2007. The account balance stayed around $14,000 until July/August 20081 when the Applicant made some additional payments, reducing the balance to around $13,500.
47.
Between July/August 2008 to February/March 2011, the account balance remained around $13,500. In February/March 2011, the FSP decided to reverse certain insurance premiums it had charged to the account together with associated interest and fees. This reduced the account balance to $8,852.32 on 11 March 2011.
48.
Interest and late payment fees were charged to the account between 11 March 2011 and 13 September 2011 – the Applicant’s last payment having been made in January 2011.
49.
On 13 September 2011, the balance of the account was $10,105.41. The FSP then made a commercial decision not to continue to charge interest and fees to the account and no further payments have been made by the Applicant. As a result, the debt owed by the Applicant immediately prior to this Determination is $10,105.41.
Financial difficulty 50.
The FSP has adopted the Code of Banking Practice (Code).
51.
Under clause 25.2 of the Code, the FSP has an obligation to assist its customers overcome their financial difficulty. However, the assistance of the customer in financial difficulty is also required. In particular, the customer should provide their financial services provider with current and accurate details of their financial position when requested together with a realistic repayment plan. The customer should also respond promptly to a financial services provider’s reasonable requests for other information.
52.
In this matter, FOS requested the Applicant provide details of his financial position and details of how he proposed to repay the debt should he be found liable for it. The Applicant did not respond to FOS’s requests.
53.
As the Applicant has not provided details of his current financial position and a realistic repayment plan for the credit card debt, the FSP is not able to assist him overcome his financial difficulty (if any).
1
The Applicant’s payments between May 2007 and July/August 2008 were about the same amount as the sum of the monthly interest charges, fees and transactions debited to the account during that period. Case No: 232561
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Determination 54.
On the basis of the available information I determine that: a.
The FSP’s wrongful debt collection activity caused the Applicant stress and inconvenience for which he should be compensated as follows: i.
$7,000 to compensate the Applicant for stress and inconvenience caused by the FSP’s collection activity before the matter was referred to FOS. This compensation is to be paid to the Applicant by reducing the balance of his credit card debt by $7,000.
ii.
$500 to compensate the Applicant for stress and inconvenience caused by for the FSP’s collection activity after the matter was referred to FOS. This compensation is to be paid to the Applicant as he directs.
iii.
$4 to compensate the Applicant for the insurance premium that the FSP agreed to refund but which it overlooked refunding. This compensation is to be paid to the Applicant by reducing the balance of his credit card debt by $4.
b.
The Applicant’s credit card balance is to be reduced to $3,101.41 ($10,105.41 minus $7,004). The Applicant is liable to repay the reduced balance of his credit card.
c.
The FSP is not obliged to assist the Applicant overcome any financial difficulty he is experiencing until the Applicant provides the FSP with current and accurate details of his financial position together with a realistic repayment plan for the credit card debt. If the FSP reasonably requests other information from the Applicant to assess any request for financial assistance, the Applicant should respond promptly to those requests.
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