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Building Credit And Stopping Creditors
found at Sunday Star Times | Sunday, 4 March 2007
It's not an area in which the well-off investors in Provincial Finance, National Finance 2000 and Western Bay Finance are likely to have taken a walk, but it's the people here, most poor, many beneficiaries, who paid the interest on the wealthy's investments. Those companies are now defunct, though their loans, many made at interest rates of 27% or more, continue to blight this neighbourhood, and credit remains easy to get. Better-managed firms such as Instant Finance, Geneva Finance, Dorchester through its Senate subsidiary, and Five Star still operate here, making loans to residents using cash raised from middle New Zealand investors, many of whom, my companion assures me, would have no idea of the effect those loans are having on families. My companion is one of a largely unregulated army of document servers, repo men and debt collectors constantly on the move, tracking down those with unpaid debts to finance companies, banks, and the likes of Winz. He's a spry and courteous Scotsman in his 50s, formerly an engineer and businessman, who does not want to be named or photographed. The job is not depressing, but it has shown him "the real tapestry that makes up New Zealand". "Most people haven't got much of a clue about the country they live in," he says as we approach a huge boarding house where we're hoping to find a debtor, who he says is a "big man". Violence happens, my companion says, but rarely. Most people, when you can find them, just talk. Some threaten. On occasion, when P is involved, beating a hasty retreat is sensible. The man we're after isn't there, says the manager, who's looking for him too. My companion shows no frustration. He'll be back. Debts are hard to escape. Field agents are dogged. They follow leads, case family addresses, check car plates, visit workplaces. They network with other agents in other cities, other countries. Private eyes are hired when they fail. Court orders can be served through family members, friends and business contacts. Bankruptcies can be ordered by courts in absentia. "Many of our clients pursue debts on a point of principle, even if they end up spending more than they'll get back," my companion says. "They can't be known as a soft touch. But it'd be naive to think some people don't get away with it." The debt management and collection industry is the dark side to the credit boom that allows pretty much anyone to buy pretty much anything on tick, from TVs and cars to holidays. At the top end are the likes of Veda Advantage, Dun & Bradstreet and Collection House, which pursue debts for blue chip lenders such as the banks, using letters, faxes, the web and phone. Their processes are organised with actuarial precision around formulas designed to get results without anyone having to leave their comfy office. At the bottom are the field agents, often freelance, and the in-house debt collectors from the lower tier finance firms and back-street lenders, who are out there door-knocking at all hours. The freelancers work for fees, or commission on the debts they recover. Below them are the real hard guys. "The Mongrel Mob is sometimes hired to collect debts," says Bill Bevan, managing solicitor at the Whitireia Community Law Centre, and author of Consumer Credit, the standard textbook on consumer lending. Stand-over tactics, intimidation and strong-arming are not unheard of, but those on the receiving end are unlikely to complain, says Bevan. They're not people who turn to the authorities. Raewyn Neilson, chief executive of the Federation of Family Budgeting Services, says it's common for debtors to be pressurised into signing unrealistic repayment schedules. There are even companies and individuals which buy books of debts, often for a few cents in the dollar, then go all out to get debtors to pay up. Last October, listed company Cynotech, run by former Equiticorp boss Allan Hawkins, bought $23 million of bad loans from the receivers of National Finance 2000 for $7.7m. Thanks to that deal, investors got some of their money back and debtors can expect to be pursued to the full extent of the law, says Hawkins. A big chunk of Western Bay Finance's debt was bought by Finance Now, majority owned by Southland Building Society. Out on the road, I ask my companion whether lenders are lending irresponsibly. "I've no professional opinion," he says, but confides: "It's not hard to see a lot of it isn't very beneficial." "The onus has got to be on the person borrowing, not the lender," says Lesley Ray of Broomstick Collections in Glenfield on Auckland's North Shore, who at 5ft 3in is not the stereotype of a debt collector, and neither are her mostly female employees. "We've got to have personal responsibility. That's what we're lacking in this country. Too many people think the world owes them a living." But then she tells me of a young relative on a moderate income who racked up $40,000 in consumer debt. There's a dismal lack of taking responsibility on show in south Auckland. "There's a lot of `don't speak-a-da English'," my companion says. It's not long before I see what he means. Nobody, it seems, is ever home, and no one knows when to expect them. A Polynesian man answers the door. He seems barely able to understand what's being said. He doesn't know when his wife's due back. Does she live here? "She come in sometime," he says, speaking quietly, struggling to form the sentence. In the car outside, my companion tells me the man is a high school teacher, his poor English an act. Time and again, we knock on doors looking for debtors, and my companion explains patiently to evasive family members that every time he has to come back, the amount owed increases. "Three figures quickly becomes four. Four quickly becomes five," he says. "It can be a debt spiral." One finance firm debt of $6000 we're chasing has attracted more than $2000 in legal and collection fees and penalty interest is accruing at 30.5%. It's a sad experience talking to the adults, but when kids come to the door it's depressing. One boy, perhaps aged six, in a Spiderman pyjama top, is keen to impress. He tells us proudly he's done his homework. He wants to talk and asks us our names. "They're all born perfect," my companion muses. Then their families, and life, happens. Debt collectors and document servers are largely unregulated. There are standards for serving court documents, but no regulation stopping collectors knocking at 2am, and nothing to stop ex-cons with histories of violence or dishonesty from turning up at debtors' doors, says Bevan. That's forbidden for repo men, and Bevan thinks the same should apply to their near kin. Lazy document servers often don't deliver documents, but swear affidavits to say they have, Bevan says. Wal Britton of debt collector Accounts Enforcement in Auckland says it does happen, and agrees regulation is needed. But the New Zealand Collectors Association, which represents the largest and most professional debt management firms only, believes there's no problem to fix. Debt collectors are unanimous that one change in the law due to come in this year should be scrapped. But it could amount to responsible lending regulation through the back door. Now, the only way to get debts wiped is bankruptcy. Saleable assets are handed over, and for the next three years any windfalls or lottery wins will be appropriated by creditors. In those three years taking out credit of more than $100 is forbidden. This year, debtors owing $40,000 and with no saleable assets, will be able to opt for a "No Asset Procedure" order. It's just like bankruptcy, only instead of the three years, the overhang is just 12 months. When I tell Ray this she is amazed. "Forty grand? There's going to be thousands and thousands of them. That's just our PC government for you. It's a vote-buyer." Hawkins agrees, but says: "It'll make firms lending on appliances think twice about who they're lending to." THE DEBT SPIRAL
When consumer debtors fall into arrears, the lender begins calling them and sending letters. Penalty interest and fees begin to mount up.
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