Friday, June 6, 2014

Second hand debt

Never heard of it?? then read on

Secondhand Debt

 Something most people do not realise is that most debt which is being chased by the large debt collectors no longer belongs to the original creditor. The collection agency has actually purchased what is know as non performing debt for a small percentage of its actual cost. They then attempt to add costs and collect on the full amount. This is generally credit cards, phone accounts and unsecured personal loans. An example might be- John owes $5000 on a credit card he cannot afford due to loss of his job. The issuer has attempted to collect from John but has realised he cannot afford to pay. 
The cost of legal action and debt collectors will simply add more o an account they know John cannot pay so they write the debt off. Enter the lucrative world of the secondhand debt industry. These debts are usually put up for "auction" and sold to the highest bidder. The $5000 debt is probably purchased for under $1000. Enter the credit agreement John signed which stated something like in event of this account being in default of our terms we reserve the right to collect using any means available (within the law of course) and also recover all associated costs-  or something to that effect. See you thought all that legal mumbo jumbo was just there to fill in the pages. Any protection under the privacy act would also be lost when you signed that dreaded privacy form.
I hear you all screaming how can this be legal- I entered a contract with the credit providor why the hell should my debt now be with somebody i have never heard of. Much to my disgust it is according to a prehistoric property law click here if you feel the need to read it but it makes bugger all sense to me.
The bottom line is that it is legal and is a huge business which seems to be increasing all the time. The assignment of the debt to the new "owner" includes all contracts and the right to charge pretty well whatever they like in charges. The $5000 debt has now become $15000. This particular law needs to be tested in court to see if it holds up-  BUT who when in financial distress is gonna be able to fin the huge fees to test it.

Now a little bit of legal stuff just to confuse things a bit more.

According to the law there is no time period the creditors need to wait before selling the debt- as soon as you are conducting the account outside the agreed terms they are free to sell it.
For the assignment or transfer of the debt to comply with the law in all States and Territories in Australia it must satisfy 4 elements.
1. The assignment must be absolute ie. the entire debt including all rights and contracts must be transfered and replaced under the receiving parties control.
2. The assignment must be in writing and signed by the assignor- there is no requirement for the debtor to be shown this document-which is like a bill of sale I guess- only a notice of assignment as descibed in 4 below
3.  The intention of the parties to the assignment within the written document that it is an absolute assignment between the parties
4. Written notice to be given to the debtor- there is no time requirement for this notice as long as it is served BEFORE any attempts are made to enforce the debt.

I have not after speaking to hundreds of debtors since setting up this site come across one single person including myself who has been notified of the assignment of a debt verbally let alone in writing. 

It may be prudent at this stage to highlight the fact that debt becomes statute barred after 6 years in most Australian States and Territories ie. A debt can no longer be enforced or default listed after 6 years from the last time you made a payment or verified in writing that the debt was yours.

So when the debt collector calls about a debt you have forgotten about for whatever reason- or maybe you thought it had been sorted by an ex partner or whatever. Make sure you ask if the debt is still with the original creditor or if it has been sold. Request the relevant paperwork  to verify the assignment and insist on getting a copy of the original contract showing the debt is actually yours and also a current complete statement showing the balance and any additional charges. You are now in control. If the collection agency fails to comply simply CONTACT ME and I will point you in the direction of the correct action to take.

This is my view of the current very confusing law in relation to debt assignment in our fair country. If you have an opinion or something to add please let me know

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