Collecting Debt

Legal Action against You
When you owe a debt and do not pay, the person you owe the money to (the creditor) can take court action to recover the money and any other costs incurred - eg, lawyer's fees, court costs. Creditors can take court action to recover unpaid debts. But when a debt is disputed, they cannot lead you to believe that the only way to stop court action is to pay the debt.

For example: a letter from a debt collection agency showing that the non-payment of a $95.00 debt will result in court action and you will have to pay $150.00 lawyers fees, $110.00 in court costs plus any other related charges.

Paying Collection Fees
Collection fees are fees charged by debt collection agencies, in addition to the original amount of the debt. Debt collection agencies can only charge collection fees if you are aware (at the time you purchase the goods or services) that late payments result in extra charges.

If traders want to add debt recovery costs to the money you owe, they must warn you about the possible extra charges at the time of your contract. Traders can do this by:

  • clearly displaying notices at reception desks, checkouts or on price lists;
  • stamping notices on the back of checks in the presence of the buyer, or
  • statements in application forms for credit cards or store cards.

If the trader does this, you have agreed to collection fees being charged. But if you do not agree to a collection fee, you do not have to pay any more than the original debt.

For example, Jack writes out a check for $90 at his local supermarket. A notice at the checkout states, "Customers will be charged costs of debt collection for unpaid checks." The check is bounced by his bank because there is not enough money in his account. The supermarket sends the debt to a debt collection agency. The agency demands payment of $140 - the $80 plus a $60 collection fee. Jack has to pay the extra $60. The supermarket had a notice at the checkout warning Jack about what would happen if his check bounced.

For example, Mary writes a check at the supermarket and the seller stamps the back of it with a notice stating, "I agree to pay all collection costs to recover the sum of this check if it is dishonoured." Mary signs the statement. Even if Mary did not realise the effect of this statement, she agreed to collection fees being charged if her check bounced. The back of a check must be stamped in the presence of the customer and read by the customer.

What if there were No Notifice Given of Extra Charges?
If you were not informed of these possible extra charges at the time of entering into the agreement, then you do not have to pay a collection fee. To charge you a fee may be a breach of Fair Trading laws.

Some debt collection agencies may attempt to get around the legal guidelines on debt collection by 'requesting' payment for a collection fee when they set out to recover the original debt. If the 'request' appears to the consumer to be a compulsory charge and not an option, then Fair Trading laws may have been breached.