RLC routinely encounters people dealing with the challenges of financial hardship and understands that stress, anxiety and shame are ingrained in the debt recovery process. RLC proposed a number of measures to the Inquiry, which we believe will make the debt recovery process fairer and more efficient. In its submission to the Committee’s inquiry, RLC noted that:
“Debt recovery must be adapted for vulnerable and disadvantaged people, with low levels of financial literacy and with a long-term dependence upon Centrelink income.”
A particular concern for RLC about the debt recovery process was the use of garnishee orders, particularly against bank accounts. Garnishee orders permit a creditor, or the State Debt Recovery Office, to ‘garnish’ money directly from a person’s wages or bank account.
RLC highlighted a gap in current legal protections for the ‘garnishee’ process. While s122 Civil Procedure Act 2005 mandates that a person subject to a garnishee order attached to their wages must retain the ‘net weekly amount’ of their wages (currently at a minimum of $447.70), there is no such protection for garnishee orders attached to bank accounts.
The garnishee process permits the creditor, or NSW State Debt Recovery, to collect a debt directly from a debtors’ bank account without requiring them to leave a basic living wage.
Increasing protections for low waged and Centrelink Income recipients is of major concern. Centrelink Income is now paid directly into the bank account of most recipients. And whilst Centrelink Income has some theoretical legislative protections under s60 of the Social Security (Administration) Act (Cth), unfortunately in NSW these protections are mitigated by deficiencies in the civil process.
Under SS(Admin)Act s62, Centrelink Income loses its ‘inalienability’ protection when retained in a bank account after a period of time. This formula is applied by the creditor, SDRO or bank and involves no consultation with the debtor. The process occurs without a proper appraisal of the debtor’s personal or financial circumstances. It leaves many vulnerable consumers ‘cleaned out’ and uncertain of their basic living income.
RLC regularly assists vulnerable consumers who, after a garnishee order, have been left without enough money to cover their basic costs of living - unable to pay for food or rent. RLC Solicitor Will Dwyer told the Committee:
“the moment [Centrelink income] hits someone’s bank account it is then characterised as regular funds…”
“Quite often we see clients who present with their bank statement, they might have been paid 10 days ago and their whole bank account is essentially cleaned out.”
“They are left with a lengthy period of time in which they have nothing to live.”
RLC recommended to the Committee that law reform was urgently required to address this issue. “The protection of vulnerable consumers, and subsistence welfare payments, should be paramount,” the Centre said.
We are pleased that in response, the Inquiry has made a number of Recommendations in their final report, addressing this issue. The Committee noted the submissions of RLC and recommended this “gap in legislation” should be amended to “ensure that a minimum bank balance is maintained in bank accounts that are the subject of a bank garnish order.”
The Centre also spoke out against current laws concerning the seizure of property from debtors. When debtors are pursued under the Bankruptcy Act 1966, certain items are protected from seizure including: basic essential household items, a car (up to a prescribed limit) and educational or sporting equipment for students. However, these protections do not currently extend to NSW civil process regarding property writs.
The costs involved in the Sherriff pursuing the recovery and sale of basic household items, such as fridges, TVs and washing machines, clearly outweighs the amount that is potentially recoverable at auction. Creditors can use this aspect of the property seizure and sale process oppressively.
“[Property seizures] are just a form of punishment,” RLC’s Principal Solicitor Elizabeth Morley said at a public hearing. “They are almost a penalty rather than an actual, genuine debt recovery.”
RLC continues to advocate for further law reforms, which improve protections for vulnerable consumers in the debt recovery process. RLC’s submission noted that:
“Social welfare, and a basic living wage, must remain quarantined from creditors… The law should not permit the myopic enforcement of creditors’ rights at the expense of impecunious and disadvantaged consumers.”
Some of the report’s recommendations include:
The Committee recommends that concise, plain English information be made available at registry offices on court processes for debt recovery procedures and that this information is consistent with information available online.
The Committee recommends that the Civil Procedure Act 2005 be amended to ensure that a minimum balance is maintained in bank accounts that are the subject of a bank garnishee order, and that this minimum balance aligns with the net weekly amount that must be retained for debtors subject to wage garnishee orders.
The Committee recommends that the Civil Procedure Act 2005 be amended to bring the items protected from seizure under a property writ in line with the items protected from seizure under bankruptcy proceedings in the Bankruptcy Act 1966 (Cth).