By Anica Cunanan, Solicitor at Matthews Folbigg in the Insolvency, Restructuring and Debt Recovery Group
With any debt collection service, such as a debt collection agency or a debt collection lawyer, the costs of debt collection can be significant. So the question we are always asked is ‘Can the debtor be held liable for my debt collection costs?’
As we tell our valued debt collection clients, there are at least a couple of different answers to this question. But critically, debt collection clients can take steps to get a better outcome in relation to their debt collection costs!
The key is to understand that a debtor can be liable for debt collection costs, if it is part of the agreement between the creditor and debtor. That is, if your agreement with your customer allows you to claim your debt collection costs, then absolutely, these can form part of your debt collection claim. In our experience, many clients do not regularly review their terms and conditions and don’t know what debt collection costs can be recovered. This is at the very least missing out on significant opportunity to improve your success in debt collection.
Some creditors believe that, as a matter of principle, they should be entitled to recover debt collection costs, as they have only been incurred because the debtor has failed to pay their debt. Although this sentiment is understandable, it is not part of debt collection law.
Attempting to recover debt collection costs without an entitlement can constitute misleading and deceptive conduct in breach of s 18 of the Australian Consumer Law (Schedule 2 to the Competition and Consumer Act 2010 (Cth)), as well as other legislation such as section 154 of the National Credit Code (Schedule 1 of the National Consumer Credit Protection Act 2009 (Cth)).
This issue was explored in Australian Competition and Consumer Commission v Sampson [2011] FCA 1165. In that case the Court found that a lawyer had engaged in misleading debt collection practices on behalf of video rental store creditors. The lawyer had issued demands for costs of $30 when the creditor did not have any contractual entitlement to recover such costs.
If there is no contractual entitlement for debt collection costs, all is not lost. Once debt collection proceedings have been commenced, some legal costs are recoverable outside of any contract with the debtor. However, this is subject to certain court rules, legislation and also to the Court’s discretion in certain circumstances. It will also be a fraction of the actual debt collection costs.
In debt collection, it is important that creditors regularly review and update their terms and conditions, to ensure the best debt collection outcomes. At Matthews Folbigg Lawyers we love reviewing terms and conditions because it allows us to help maximise debt collection recoveries. It is relatively cheap, and easy to do, and can maximise your chances of debt collection success, and there are a number of other benefits and improvements that we can achieve for our valued debt collection clients in the debt collection space. Please contact us to see if we can help you with your debt collection processes.
Matthews Folbigg Lawyers has a specialist team dedicated to Insolvency, Restructuring and Debt Collection.
If you would like more information or advice in relation to recovery from debtors, garnishee orders, or in relation to and Insolvency, Restructuring or Debt Collection practice and procedure, please contact Stephen Mullette or Jeffrey Brown on (02) 9806 7459 or (02) 9806 7446, or email stephenm@matthewsfolbigg.com.au or jeffreyb@matthewsfolbigg.com.au.
