Telecommunications Industry Ombudsman – Submission on the Debt Collection Harmonisation Regulation Options Paper

December2011

Telecommunications Industry Ombudsman

Debt Collection Harmonisation Regulation Options Paper

December 2011

Contents

About the TIO

TIO approach to the Debt Collection Harmonisation Regulation Options Paper

Complaints to the TIO

Overall complaint trends

Main issues for new complaints

Credit management issues for new complaints

Issues about debt collection practices

How the TIO handles complaints about debt collection

Specific responses to the proposed Options

Licensing Options

Conduct Options

Complaint handling options

Information standards options

Educational requirements options

Appendix 1 – Case Studies

Case Study 1

Case Study 2

Case Study 3

Appendix 2 – TIO Complaint Issues

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Telecommunications Industry Ombudsman

Debt Collection Harmonisation Regulation Options Paper

December 2011

About the TIO

The Telecommunications Industry Ombudsman (TIO) is a free and independent alternative dispute resolution service for small business and residential consumers in Australia who have a complaint about their telecommunications services.

We aim to resolve these complaints quickly in a fair, independent and informal way, having regard not only to the law and to good industry practice, but also to what is fair and reasonable in all the circumstances.Before the TIO becomes involved in a complaint, the service provider is given an opportunity to resolve the complaint with its customer.

We are independent of telecommunications companies, consumer groups and government.

For most complaints we receive, we establish the issues in dispute and the resolution sought, and then refer the consumer or small business to a designated point of contact at the relevant telephone or internet service provider. The provider is given a final opportunity to resolve the matter directly with the consumer, without the TIO’s direct involvement. Around 90% of complaints we receive each year are resolved at this stage of the process.

Where the consumer and service provider do not reach an agreement at this early stage, the TIO becomes more directly involved by seeking to conciliate an agreed resolution between the parties. Around 7% of complaints are resolved using this conciliation process.

Complaints that cannot be resolved by conciliation are escalated for formal investigation by the TIO. If the complaint remains unresolved after formal investigation and the TIO is of the view that it would be fair and reasonable to do so, the TIO can make binding determinations up to a value of $30,000 and non-binding recommendations up to a value of $85,000 in respect of each complaint.

We record complaints according to service types – internet, mobile, landline and mobile premium services (MPS), and by the types of issues that these complaints present. These issues include connection delays, credit management disputes, contractual disputes, customer service/complaint handling and billing disputes. Every complaint involves at least one issue. Some complaints can involve multiple issues – for example, a complaint about a delay in rectifying a faulty landline service may also involve a claim that the consumer’s complaint about this fault was not acknowledged or escalated (a complaint handling issue).

Further information about the TIO is available at

TIO approach to the Debt Collection Harmonisation Regulation Options Paper

The TIO welcomes the opportunity to provide our comments on the Debt Collection Harmonisation Regulation Options Paper (the Options Paper).

In providing our response to the Options Paper, we have drawn on our experience in handling and resolving complaints from consumers about their telecommunications services. We have focussed our comments in this submission to the proposed options in the Options Paper where these are directly relevant to the debt collection practices we see in complaints within the telecommunications industry. These practices relate to:

  • in-house debt collection by telecommunications service providers
  • debt collection outsourced by telecommunications service providers to debt collectors.

We set out in this submission:

  • an overview of TIO complaint statistics including key trends about debt collection issues for new complaints from consumers in connection with their telecommunications services
  • a brief outline of how the TIO handles complaints about debt collection practices or conduct of debt collectors relating to telecommunications debt
  • our brief comments on five categories of the proposed options in the Options Paper, in light of the TIO’s role as an external dispute resolution (EDR) scheme in the telecommunications industry.

Complaints to the TIO

Overall complaint trends

When a consumer – residential or small business – contacts us about an expression of grievance or

dissatisfaction about a matter within the TIO’s jurisdiction that the service provider has had an

opportunity to consider, we record this as a ‘new complaint’.

The TIO recorded and handled 197,682 new complaints in 2010-11. This compares with 167,772 new

complaints recorded during 2009-10. Customer service, complaint handling, billing and fault issues

continued to be key areas generating new complaints to the TIO in 2010-11. The 17.8% increase in

new complaints in 2010-11 compared to the previous year is mainly due to new complaints relating

to network problems experienced by a major mobile carrier as well as to the increase in the use of mobile smartphones in Australia.

Graph 1 shows the breakdown of new complaints recorded by the TIO by service type – internet,landline, mobile and mobile premium services – over the past four years.

Graph 1: New complaints by service type

Main issues for new complaints

We record new complaints by the types of issues that these complaints present. These issues include connection delays, credit management disputes, contractual disputes, customer service/complaint handling and billing disputes. A brief outline of each of these issues is set out in Appendix 2.

In 2010-11, we recorded increases in all categories of issues for new complaints except for a small decrease of 2.0% in issues about billing and payments. Fault issues increased by 87.1%, primarily as a result of the increase in new mobile complaints in 2010-11. Customer service issues in 2010-11 increased by 59.2% compared to 2009-10 and complaint handling issues increased by 71.9% over the same period. Credit management issues – which include issues about debt collection practices – increased by 19.4% in 2010-11, following a 35.7% increase in 2009-10.

The graph below highlights the main issues for new complaints over the past three years.

Graph 2: Main issues for new complaints

Credit management issues for new complaints

As mentioned above, we have seen an increase in credit management issues for new complaints over the past two years. Credit management issues formed 8.6% of all issues recorded for new complaints in 2010-11. Some of the common issues we see under the category of credit management include complaints from consumers that:

  • the provider did not monitor the consumer’s expenditure or take reasonable action to limit a consumer’s exposure to debt, resulting in financial over-commitment, or did not supply appropriate tools to help the consumer manage their telecommunications expenditure(29.6% of credit management issues in 2010-11)
  • their telecommunications service was suspended or disconnected without prior or reasonable notice or while the debt remained in dispute (22.9% of credit management issues in 2010-11)
  • a default was recorded against the consumer’s credit file although the debt continued to be disputed and the matter remained unresolved or the provider did not give adequate notification of the default listing (17.3% of credit management issues in 2010-11)
  • collections agents continued to pursue payment of a debt despite being advised it is in dispute or they used harsh, harassing or otherwise offensive methods to recover payment of a telecommunications debt(13.7% of credit management issues in 2010-11)
  • the provider refused to negotiate with a consumer about a payment arrangement, or refused to renegotiate an existing payment arrangement when a consumer’s financial circumstances changed(9.8% of credit management issues in 2010-11)
  • the provider did not cease credit management activity while a payment arrangement is in place or being negotiated or when the debt is genuinely disputed or under investigation (4.9% of credit management issues in 2010-11)
  • the provider did not undertake adequate credit assessment prior to offering the consumer a service or did not give adequate reasons when it declined a service (1.7% of credit management issues in 2010-11).

The graph below outlines the common credit management issues that we have recorded over the past three years.

Graph 3: Common credit management issues for new complaints

Issues about debt collection practices

We have observed a steady increase in new complaints about debt collection practices in the telecommunications industryover the past four years. Although the number of new complaints about these issues are small in comparison to other credit management issues (for example, overcommitment issues), the impact of these issues on consumers – as demonstrated in the Case Studies in Appendix 1 – can be significant.

In 2010-11, we recorded 5,430 new complaint issues about collections agents continuing to pursue payment of a debt despite being advised it is in dispute. This is an increase of 2.2% following a 33.3% increase in 2009-10.

We recorded 494 issues about collections agents using harsh, harassing or otherwise offensive methods to recover payment of a telecommunications debt in 2010-11. This is an increase of 42.8% following a smaller 2.4% increase in 2009-10.

The graph below shows the increase in issues about debt collection practices recorded by the TIO over the past four years.

Graph 4: Issues about debt collection practices for new complaints

The issues we see about debt collection practices in the telecommunications industry present in one or more of the following ways:

  • the consumer claims that they are contacted by collections agents demanding payment of a telecommunications debt despite having paid the debt, disputed the debt with their provider or not being aware of the debt
  • the consumer claims that the collections agents may act in a harassing or threatening manner, including threatening legal action, where the consumer feels forced to pay the debt even though they dispute it
  • the consumer claims that they are willing to pay the debt but the debt collector has refused to accept a reasonable payment arrangement and instead demanded a lump sum payment which the consumer cannot afford
  • the consumer claims to have been default listed over the telecommunications debt, even though they disputed it or paid the debt
  • the debt collector continues to pursue collection of the debt even after the service provider has recalled the debt – suggesting a lack of clear processes or communication between service providers and debt collectors.

The Case Studies in Appendix 1 illustrate these issues.

How the TIO handles complaints about debt collection

As indicated in our complaints statistics, we continue to receive complaints from consumers that they are being pursued by the service provider or their debt collections agent for payment of a disputed telecommunications debt. Wealso receive complaints from consumers that the conduct of the debt collector is harsh, unreasonable or threatening.

The TIO takes the view that the telecommunications service provider is responsible for the debt collection conduct and practices of its in-house debt collection staff or that of its debt collectors or if the debt has been sold, by the debt buyers. We also take the view that the service provider is responsible for ensuring that it does not commence debt collection or sell the debt to a third party if the debt is being disputed by the consumer. In addition, the TIO expects service providers to cease debt collection activity – including those undertaken by its debt collectors or if the debt has been sold, by the debt buyers – if the debt is genuinely disputed by the consumer or once the TIO commences its investigations into the complaint.

These views are consistent with the obligations imposed on telecommunications service providers by the industry’s Telecommunications Consumer Protections (TCP) Code.

The TCP Code:

  • requires telecommunications service providers to not take credit management action (including debt collection) on genuinely disputed amounts which are unresolved or under investigation by the service provider, the TIO or relevant agency (Clause 7.4.10)
  • outlines the obligations of telecommunications service providers in relation to the collection methods of its debt collectors – namely that these methods cannot be harsh, unconscionable, constitute undue harassment or are otherwise unlawful, disreputable or offensive (Clause 7.4.13(a))
  • requires service providers to ensure that its debt collectors comply with professional and ethical standards for collection of debts and that these agents have complaint handling processes that are consistent with the Australian Standard on Complaint Handling (Clause 7.4.13(b))
  • imposes a further obligation on service providers to ensure that debts sold or assigned to third parties do not involve unresolved issues or disputed amounts (Clause 7.4.14).

We have the power to receive, resolve, investigate and report on complaints from consumers about matters arising under the TCP Code. Most new complaints about debt collection issues are resolved at the referral or conciliation stages of our complaint handling processes. Where new complaints about debt collection issues remain unresolved after our referral or conciliation process, the TIO can investigate these matters and if appropriate, make determinations that are binding on the telecommunications service providers.

The TIO can also record confirmed code breaches against service providers for non-compliance with provisions of the TCP Code. This data is provided to the industry and to the telecommunications regulators on a monthly basis.

Under the TIO Constitution and our Complaint Handling Procedures, the TIO can issue interim directions against service providers who do not cease credit management activity while the TIO is handling or investigating the complaint.

Specific responses to the proposed Options

Licensing Options

The options outlined under this category in the Options Paper relate to debt collection in relation to ‘credit activities’ as defined under the National Consumer Credit Protection Act 2009 (the National Credit Act). The Options Paper notes that ‘credit activities’ do not currently include payment of telecommunications bills.

The TIO sees the benefits in the removal of exemptions for third party debt collectors from the National Credit Act (option 2 in the Options Paper) as this would result in improved consumer protection in relation to debt collection. However, we are concerned that this option could result in a lack of certainty for consumers and providers, particularly if the licensing regime requires all debt collectors to be licensed if they collect or buy debts from a range of creditors, some of whom may fall within the National Credit Act and others who may not.

In this regard, we take the view that if option 2 is pursued, the following issues would need to be addressed and resolved:

  • the potential for overlapping obligations under the National Credit Act as well as under other industries’ regulation or codes
  • the potential for confusion for consumers as to which EDR scheme they should have recourse to. For example, if a telecommunications debt is being pursued by a debt collector that may have used inappropriate collections methods, which EDR scheme should the consumer approach if the debt collector is also licensed under the National Credit Act?
  • the potential for confusion for debt collectors and debt buyers, as to which EDR scheme they should belong to.

Conduct Options

The telecommunications industry operates within a co-regulatory framework. The telecommunications industry issues a number of industry codes within this framework. The TCP Code is an example of this.

In our experience, the efficacy and effectiveness of industry codes depend on a number of factors:

  • strong industry commitment across all industry participants to the principles and rules within the industry codes
  • effective monitoring and enforcement mechanisms to ensure industry compliance with the industry codes.

In our view, prescribed or non-prescribed industry codes of conduct (options 2 or 3 in the Options Paper) can frame appropriate standards of conduct for the debt collection industry, if there is strong commitment within the industry and effective monitoring and compliance mechanisms in place.

Complaint handling options

A robust internal dispute resolution mechanism can be very effective in improving debt collection practices and reducing complaints. We see option 3 in the Options Paper as an important way in which complaints about debt collection can be quickly addressed and resolved. Clear, transparent and accessible internal dispute resolution processes can significantly reduce consumer detriment that arises as a result of poor debt collection practices. These processes should also be consistent with the Australian Standard for Complaint Handling.

We acknowledge that imposing mandatory membership of an EDR scheme (option 2 in the Options Paper) on all debt collectors who are not already members of an EDR scheme, is likely to improve consumer outcomes. An effective EDR scheme provides consumers with a free, fast and fair mechanism to help them resolve their disputes with debt collectors.

If the option of mandatory membership of an EDR scheme is pursued, the TIO strongly supports an approach that:

  • does not attempt to duplicate existing dispute resolution services, as this may be inefficient and a waste of resources, and may result in confusion or indirectly lead to ‘forum shopping’. It may also result in objections raised by the other party about the appropriateness of the forum that is selected to resolve the dispute – and this may unduly delay the effective resolution of the dispute
  • does not generally deal with matters where other, specialist dispute resolution services (such as the TIO) can already deal with the dispute
  • makes clear to consumers that where the underlying debt is also disputed, recourse to the appropriate EDR scheme with subject matter expertise, a sound understanding of the technologies, platforms and applicable industry standards/codes, would be critical in assisting the parties resolve the entirety of the dispute fairly, quickly and economically. For example, it would be preferable for the consumer to seek recourse to the TIO if the consumer is disputing a telecommunications debt as well as the conduct of the debt collector in pursuing the debt.

Information standards options

In our experience, complaints about debt collection sometimes arise because of a lack of clarity about the nature or origin of the debt, who is pursuing the debt and the basis for this. Clear, easy to understand information about the debt, the consequences of failing to pay the debt, what to do if the debt is disputed and recourse to independent avenues of redress such as an industry Ombudsman or EDR scheme, can assist in addressing consumer confusion or sensitivities around the debt collection.