Australian comPet¡tion& Consumer Commission Our Ref: +35t5 ContactOfücer: DerekFarrell / KateEckermann GPOBox 3131 ContactPhone: (08)8946 9610 CanberraACT 2601 23 MarcusClarke Street CanbenaACT 2601 8 December2011 tel:(02) 62431111 fax: (02)6243 1199 www.accc.gov.au Dear Sir/lvladam As you may be aware,the Australian Competition and ConsumerCommission (ACCC) is the independentstatutory authority responsiblefor ensuringcompliance with the Competition and ConsumerAct 2010 (the Act) (formerly known as the Trade Practices Act 1974). The purposeof the Act is to encourage afair and competitive business environment and provide for consumerprotection. Schedule 2 to the Act contains the Australian ConsumerLaw (the ACL) which, amongstother things, prohibits misleading and deceptiveconduct. The purpose of this letter is to make the debt collection industry aware of the outcome of the ACCC's recent court action relating to misleading conduct in this industry. Misleading conduct As you may be aware,s. 18 of the ACL þreviously s. 52 of the Trade PracticesAct) prohibits a person,in trade or cofirmerce,from engagingin conduct that is misleading or deceptive,or is likely to misleador deceive. In considering whether conduct contraveness. 18, the overall impression createdby the alleged conduct determineswhether it is likely to lead a significant number of people into effor or has the tendencyto deceive such persons. In general,misleading someonemay include conduct ranging from lying to them, to making false or inaccurateclaims, to creating a false impression,to leading them to a wrong conclusion,to omitting important information. It is important to note that intention to mislead or deceivedoes not have to be established to prove abreachof s. 18 of the ACL. Whether or not conductis held to be misleadine will dependon the circumstancesof eachcase. Recent proceedingsregarding debt collection In October 2010, the ACCC instituted legal proceedingsin the Federal Court againstthe principal of a Melboume law firm (the Respondent), alleging misleading and deceptive conduct in contraventionof s. 52 of the Trade PracticesAct (as s. 18 of the ACL was then known) with respectto severaldebt collection notices sentto alleged debtors of various DVD hire storesfor which the law firm acted. OnlT October 201I, the FederalCourt made orders by consentagainst the Respondent declaring that they had engagedin conduct in contraventionof s. 52 of the Trade Practices Act. A copy of the judgment is enclosedfor your information. The following summarisesthe details of the conduct the FederalCourt declaredto be misleadingor deceptive,or likely to misleador deceive. o Debt collection notices sent by the law firm containedstatements that it actedon behalf of an identified client in relation to the recovery of an outstandingamount 'together wìth $30.00 [or other such amount specified that was not $0] Solicitors costs'. This was declaredto be misleading as there was no outstandingamount which included $30 (or other such amount specified) for solicitor's costsand furthermore, the law firm's client had no necessaryentitlement to recover solicitor's costs in respectof its debt claim. o Debt collection notices sent by the law firm containedstatements that: an outstandingamount was required to be sent to the law firm within 5 business days of the date of the letter, failing which the law firm had instructionsto 'this proceedwith legal action without further notice and that will result in added costs' to the addresseeofthe notice; the legal costs incurred by the addresseeas a result of the law firm issuing 'very proceedingsagainst them were likely to substantially exceedthe amount of the claim to date'; if the matter was not resolvedto the law firm's satisfactionwithin 5 businessdays 'expensive of the date of the letter, legal proceedings will be issuedagainst you withoutfurther notice'; 'using documentswere being preparedagainst the addressee all available court processesto recover the amount due'to the client and if payment was not made by the addresseewithin 5 businessdays from the date of the notice, the law firm 'will would issueproceedings on behalf of the client which only involveyou in additional costs'. These statementswere declaredto be misleading because,if unsuccessfulin the legal proceedings,a creditor would have no entitlement to recover legal costs in respectof its debt claim. Furthermore,even if successful,a creditor would not necessarily obtain an order for costs in respectof a proceedingissued for the recovery of a small debt. In this respect,many of the debtsclaimed were small, and MagistratesCourt / Small Claims / Civil and Administrative Tribunals legislation in the Statesand Territories variously provide that legal costs cannot be recoveredfor small debt claims except in special circumstances. 'unless o Debt collection notices sent by the law firm contained statementsthat thefull amount claimed is paid/you successfullydefend the summonsonce issuedat Court, then we will enterjudgment againstyou'. This was declaredto be misleading as a law firm cannot enterjudgment against a debtor without obtaining an order from the Court. A judgment cannot be entereduntil legal proceedingsare commencedand thereafter: if the debtor doesnot file a defence.an order in default of defenceis obtained against the debtor; or a summary order is obtainedagainst the debtor on the basisthey have no defence; or on the hearing of the matter, the creditor representedby the law firm is successful in the claim againstthe debtor. 'such o Debt collection notices sent by the law firm contained statementsthat judgment wìll be enforced by a waruant or a garnishee order and/or attachmentof earnings '. order against your wageswhich will be served upon your employer This was declaredto be misleading as a law firm cannot itself enforce any judgment obtained againsta debtor. The creditor representedby the law firm would needto be successfulin Court proceedings,then an application for ari order for a warranr, garnisheeorder and/orattachment of eamings would need to be madeby the law firm, and then the Court would needto grarúan order for a warrant, garnisheeorder and/or attachmentof earninss order. o Debt collection notices sent by the law firm did not incorporate its letterheadand were similar in format to a documentthat had been, or was able to be, filed with a Court. This was declared to be misleadingas a reasonableperson in the classof addressees that were sent the notices would believe they had been sent a documentthat had been, or \Ã/¿rsable to be, f,rledin a Court, when that was not so. The Federal Court also ordered: o injunctions againstthe Respondent; o that the Respondentpublish conective notices in the Australian Financial Review, the Australia,the Lawyer's Weekly, and Credit Managementin Australia; o thatthe Respondentensures that they, and the law firm's staff, undertaketrade practices compliance training at least once a year for the next 3 years;and o that the Respondentcontribute $30,000 towards the ACCC's costs. The Court fuither ordered that its findings in theseproceedings, with the sealof the Court thereon,be retained in the Court for the pu{posesof s. 83 of the Act. As you may be awate,this meansthat the findings in the ACCC's proceedingscan be used as prima facie evidenceof those same facts in any later proceedingsby an affected personfor damagesor compensationorders. Action to be taken I recommendthat you review the debt collection letters and notices your practice usesin its debt recovery work, with referenceto the Act, to ensureno aspectsof those letters and noticesare misleadingor deceptive,or likely to mislead or deceive. If you do not have expertisein trade practices law, I recommendthat you seek legal advice from a practitioner who does. In the review of your debt collection letters and notices, some important things to rememberfrom these proceedingsare: . if something is only a possible consequenceof not paying a debt, ensureyou do not createthe impression that it is a definite consequence; o before assertingthe right to payment of administrative and./orlegal costs on top of a debt amount, ensureyou are aware of whether or not your client has a legal entitlementto claim this by referenceto both the relevant Stateor Tenitory MagistratesCourt / Small Claims / Civil and Administrative Tribunals legislation, and the contractual arrangementsbetween your client and the allegeddebtor; . ensureyou do not createthe impressionthat your debt collection lettersand notices are documentsthat have beenor are able to be filed with a Court. Further information As you may be awate, s. 50 of the ACL (previously s. 60 of the Trade PracticesAct) prohibits the use of physical force, coercionand undue harassmentin connectionwith the payment for goods and services. Generally,undue harassmentcan be constitutedby unnecessaryor excessivecontact or communicationwith a debtor calculatedto intimidate, demoralisedor exhaust them. Coercionis constitutedby any incident of actual or threatenedforce or compulsion that restrictsa debtor's choice or freedomto act. Thoseinvolved in debt recovery work in your practice should take careto avoid such conductwhen engaging with debtors. The maximum penalty for contraventionsof s. 50 is $1.1million for corporationsand $220,000for individuals. Further guidanceon debt collection and your obligations under the Act can be found in the joint ACCC and Australian Securitiesand InvestmentsCommission publication Debt collection guideline: for collectors and creditors, which