Greater protections for borrowers under new debt collection guidelines

Borrowers struggling to stay afloat will be offered greater protection from debt collection agencies under new guidelines being applied by Australian banks.

As recently reported by the ABC, debt collectors can legally sue to recover debts as little as $5,000, with one debt collection agency suing hundreds of people for bankruptcy to recover debts.

“Consumer advocates were alarmed the tactic meant people were being dragged through the courts and risked losing their homes over small debts,” the ABC report states.

New guidelines

The good news for borrowers is that the Australian Banking Association’s (ABA) new guidelines not only outline a new, more stringent process that banks must follow before they sell a debt to a collection agency, but it also includes provisions for once a debt is sold.

The guidelines outline that adhering banks must:

– proactively contact a customer to find other solutions before a debt is sold (this can include restructuring, consolidation and hardship support)

– not sell any debt that is in the process of being disputed by a customer

– only contract debt collectors that follow all regulatory codes and a bank’s own policies for supporting customers in hardship

– regularly audit all contracted debt collectors to ensure they meet the high standard set by the new guidelines

– require a debt collector to consult with a bank before bankruptcy is initiated, giving the bank an opportunity to repurchase the debt if a vulnerability is identified

– as an interim before a government review, each bank will assess the bankruptcy threshold and determine an appropriate level (for competition reasons the industry as a whole cannot set its own level)

– if a customer has an ongoing vulnerability and there is no reasonable prospect of the debt being repaid a bank will not sell this debt.

Moving forward

As part of the new guidelines the ABA, along with consumer groups Financial Counselling Australia, the Consumer Action Law Centre, and the Financial Rights Legal Centre, have written to the federal government to request a review of the $5,000 threshold for forced bankruptcy.

“This new guide includes some really important protections, including that even if a bank sells a debt, the debt purchaser cannot move to forced bankruptcy without the permission of the bank,” says Fiona Guthrie, CEO of Financial Counselling Australia.

Gerard Brody, CEO of the Consumer Action Law Centre, says the new guidelines will help ensure forced bankruptcy is the last resort possible.

“It is so important that debt buyers understand customer circumstances and explain why bankruptcy is appropriate before taking this sort of harsh debt collection action,” says Brody.

“No one should risk losing their home because they’ve found themselves in a vulnerable financial position.”

Final word

As outlined above, if you’re going through financial hardship and are struggling to repay your debts, there are often a number of other steps you can take before resorting to bankruptcy.

If you’d like to explore those options, get in touch – we’d be happy to go through them with you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Predatory payday lenders debt-trapping vulnerable Aussies: report

Predatory payday lenders are profiting from vulnerable Australians and trapping them in spiralling debt, according to a collaborative report by 20 consumer advocacy bodies.

The report, The Debt Trap: How payday lending is costing Australians, projects that by the end of the year there will be $1.7 billion worth of payday loans lent out in Australia.

It also found that over 4.7 million individual payday loans were taken on by 1.77 million Aussie households between April 2016 and July 2019.

“Predatory payday lenders are profiting from vulnerable Australians to the tune of an estimated $550 million in net profit over the past three years alone,” explains Consumer Action CEO and Stop the Debt Trap Alliance spokesperson, Gerard Brody.

“The harm caused by payday loans is very real, and this newest data shows that more Australian households risk falling into a debt spiral.”

Hang on, what exactly is a payday loan?

Payday loans (also known as small amount credit contracts or SACCs) are high-cost fast loans of up to $2,000 paid back over a period of 16 days to 12 months.

These loans are high cost because you can be charged a number of significant fees on top of the original loan – including a fee of up to 20% of the amount borrowed when you take out the loan (establishment fee) plus 4% per month.

According to the report, equivalent annual interest rates for these loans can vary anywhere between 112.1% up to as high as 407.6%.

And because these loans are for short periods with unaffordably high repayments, many Australians take out additional payday loans to try and keep up and suddenly find themselves stuck in a debt spiral.

In fact, the Alliance estimates 15% of payday borrowers fall into a debt spiral – which equates to 324,000 Aussie households.

“The debt trap happens because of a combination of factors: the high cost of these loans, their relatively short repayment terms, the vulnerability of the borrowers accessing them who are generally on low to moderate incomes and using them to meet day to day living costs,” explains the report.

What’s fuelling the boom?

Digital platforms are adding fuel to the fire, with payday loans that originate online expected to hit 85.8% of all payday loans by the end of 2019.

“Academic research has found that digital platforms are making payday loans very accessible but often borrowers do not fully understand the costs, risks and consequences of these loans,” explains the report.

The growing demand for payday loans is driven, in part, by aggressive marketing techniques.

“This advertising is also blending the ‘sell’ with advice on good budgeting, giving consumers a misleading message that payday loans are somehow linked to good financial management,” the report adds.

We’re here if you need us

Don’t fall for the slick marketing and digital ease: payday loans hurt many Aussie families.

Not only that, but they will have an impact on your credit score as they are listed on your credit report, which in turn, can affect your application for finance.

So if you, or someone you know, has taken out a payday loan and wants to find out more, feel free to get in touch. We’d be happy to discuss your options with you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Govt moves to free-up lending for SMEs

,

SMEs are set to have better access to finance, with the Australian government making two key moves this month to free-up lending to small business operators.

Firstly, Treasurer Josh Frydenberg says he will instruct the corporate watchdog ASIC to tell banks to waive responsible lending standards for small businesses.

Mr Frydenberg says while small businesses are exempt from responsible lending standards, many have been inadvertently caught in the tightening of those standards in the wake of the Hayne Royal Commission.

“There’s a real grey area as to what is a small business loan and a personal loan,” Mr Frydenberg told Fairfax.

“Small businesses are exempt from responsible lending standards; however, they are being inadvertently caught in the tightening of those standards post the Hayne royal commission as many use the family home to secure finance.”

Australian Business Growth Fund

Mr Frydenberg also recently released exposure draft legislation to allow the government to invest in an Australian Business Growth Fund (BGF).

The government is committing $100 million to establish the BGF and partnering with financial institutions to provide equity funding to SMEs.

The aim is for the fund to mature to $1 billion to help SMEs get access to the finance they need.

Why the need for the BGF?

Australia currently lacks a patient capital market for small and medium enterprises, the exposure draft’s explanatory materials states. Patient capital can provide entrepreneurs with the finance needed to expand without relinquishing control of their business.

“The government will help small businesses grow by co-investing with other financial institutions to establish a BGF that will provide equity finance to small businesses across a range of industries and locations,” the explanatory materials state.

Mr Frydenberg adds that many SMEs find it difficult to obtain finance other than on a secured basis – typically, against the family home.

They also find it difficult to access additional funding once they have pledged all of their real estate as collateral.

“With better access to more competitive finance, SME’s will be able to grow, fulfil their potential and continue to underpin Australian economic growth and employment,” Mr Frydenberg’s statement said.

Legislation to establish the BGF will be introduced to parliament before the end of 2019.

Does your business struggle to access finance?

If you’re a small business owner wanting access to finance, you don’t have to sit and wait for the government’s initiatives to take effect.

Instead, get in touch with us. We’re happy to talk through your current situation and help you explore your options.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Caps for new first home buyer scheme revealed

,

The property price caps in each state have been revealed for the federal government’s new first home buyer scheme. Read on to find out the maximum value of a property you can purchase under the scheme.

Imagine buying your first home with a 5% deposit and not having to pay lenders mortgage insurance (LMI).

Sounds good, right?

Well, the federal government has finally revealed more details in a draft mandate for the scheme, including the property price caps in each state.

The property price caps

Below are the property price caps for each city and regional centre with a population over 250,000, followed by the price caps for the rest of the state.

– NSW: $700,000 (Sydney, Newcastle/Lake Macquarie, Illawarra) and $450,000 (rest of state)

– VIC: $600,000 (Melbourne and Geelong) and $375,000 (rest of state)

– QLD: $475,000 (Brisbane, Gold Coast, Sunshine Coast) and $400,000 (rest of state)

– WA: $400,000 (Perth) and $300,000 (rest of state)

– SA: $400,000 (Adelaide) and $250,000 (rest of state)

– TAS: $400,000 (Hobart) and $300,000 (rest of state)

– ACT: $500,000

– NT: $375,000

Great, but what’s this scheme again?

Ok, so currently people with a deposit of less than 20% usually have to pay LMI.

But under the government scheme, eligible first home buyers with only a 5% deposit could be eligible to purchase a property without forking out for LMI.

Now, it’s important to note that this is not a handout – it’s simply a government guarantee.

But this guarantee could be very helpful, as it could save you as much as $10,000 in insurance.

Any more details?

The scheme is due to commence on 1 January 2020.

In order to be eligible first home buyers can’t have earned more than $125,000 in the previous financial year, or $200,000 for couples (and both need to be first home buyers).

But here’s the catch: the offer is limited to just 10,000 first home buyer loans each year. That’s less than 10% of the 110,000 Australians who bought their first home in 2018.

So who gets first dibs?

That’s the million-dollar question! (or, depending on where you live, the $400,000 question).

It looks as though applications will be granted on a “first come, first served” basis.

So if you’re considering purchasing a property but don’t have a 20% deposit saved up yet – get in touch.

We’d love to run you through the scheme in more detail and help you plan ahead for the new year.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Are you a spender or a saver?

, ,

Are you paid weekly, fortnightly or monthly? New research indicates that how often you’re paid has a pretty big bearing on whether you’re a saver or a spender.

The research, conducted by small business platform Xero, shows that Aussies who receive their salaries weekly are more likely to splash their hard-earned cash than those who are paid monthly due to a term they’ve dubbed ‘payphoria’.

This, in turn, can play a big part when it comes to your ability to save for a home loan deposit.

What the research found

The research analysed the payday habits of 1,000 Australians and found that a whopping 63% of workers claim to have financial difficulties before payday and rely on short-term fixes for support.

In fact, one in three workers have less than $100 in the lead up to payday, resulting in them foregoing luxuries such as coffee and eating out, or even delaying household bills.

“It’s not surprising that when payday does come around, Aussies are experiencing rushes of ‘payphoria’ and are wanting to reward their hard work by spending up,” explains Xero small business advocate Angus Capel.

Hence, the research suggests that the more paydays we experience, the more of these ‘payphoria’ spending sprees we reward ourselves with.

Below is Xero’s breakdown of Aussie savers versus spenders.

Characteristics of savers:

– 70% of Australians identified as savers (despite much of the research suggesting otherwise!)

– they’re more likely to be paid monthly

– they’re more likely to budget and keep track of expenses and spending habits (87%)

– they feel worried if they don’t have enough savings (95%)

– they’re more likely to be married with no children and live in metro areas

– their key financial goals are on financial management such as retirement, having an emergency fund and paying off mortgages.

Characteristics of spenders:

– 30% of Australians identified as spenders

– they’re more likely to be paid weekly

– they don’t want to give up luxuries that come with saving (77%)

– they believe lifestyle is more important than saving for the future (56%)

– they’re more likely to use their income to pay off debts like credit card bills

– they’re more likely to have children under the age of 18 and live in regional areas.

Get in touch

If you think you’re leaning more towards spender than you are saver, then get in touch.

We can provide you with some effective saving techniques that can help put you on the right path to saving for a home loan deposit.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.