03 Dec 2012

Is debt collection a financial service?

by Graeme Howatson

The Court considered debt collection could be a financial service for the purposes of the ASIC Act.

Deciding whether or not a particular service is a “financial service” can be a convoluted process. A good example of this is the recent decision in Australian Securities and Investments Commission (ASIC) v Accounts Control Management Services Pty Ltd [2012] FCA 1164.

In this case, Federal Court Justice Perram found that ACM, which carried on a debt collection business, had breached sections 12DA and 12DJ of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act) in its dealings with debtors by:

  • engaging in misleading or deceptive conduct; and
  • engaging in unduly harassing or coercive conduct.

His Honour held that ACM had breached section 12DA and, in some cases, section 12DJ in phone conversations between ACM employees and eight debtors (named in the judgment as “Debtor 1” through to “Debtor 8”, in order to preserve their anonymity). The debtors had incurred either credit card debits or personal loan debts which had been purchased from the debtor’s financial institution by ACM.

A threshold question (though it is actually dealt with at the end of the judgment) was whether, as required by sections 12DA and 12DJ, the misleading and deceptive conduct was conduct “in relation to financial services” and the undue harassment or coercion was “in connection with the supply or possible supply of financial services to a consumer or the payment for financial services by a consumer”.

ACM argued that its conduct did not breach the ASIC Act because (to quote the judgment) “the business of extracting money from overdue debtors did not involve the provision of a financial service” (at [330]).


Justice Perram rejected ACM’s argument. Section 12BAB(1)(g) of the ASIC Act states that a person provides a financial service if they “provide a service that is otherwise supplied in relation to a financial product”. In contrast to the Corporations Act 2001, the ASIC Act defines credit as a financial product.[1] Section 12BAA provides that “a credit facility (within the meaning of the regulations)” is a financial product.

Justice Perram concluded that the loan and credit card contracts between the debtors and the original creditors were financial products because each of them was a “credit facility” within the meaning of reg 2B of the Australian Securities and Investments Commission Regulations 2001.

However, this was not enough to resolve the issue in ASIC’s favour. Section 12BAA(8) of the ASIC Act excludes from the definition of a financial product:

  • a facility that is a designated payment system for the purposes of the Payment Systems (Regulation) Act 1998 (Cth); and
  • a facility for the exchange and settlement of non-cash payments between providers of non-cash payment facilities.

On 11 April 2001, the Reserve Bank of Australia designated the credit card schemes operated by Bankcard, Mastercard and Visa as a payment system. Did this mean that the credit card contracts entered into by some of the debtors were not financial products? No, said Perram J:

"I do not think that the individual contracts in question are themselves a facility which is a designated payment system.

No doubt they are part of a payment system but that is not what [s 12BAA(8)](e) requires. Likewise the individual contracts are not, by themselves, a facility for exchange and settlement between the banks involved; they are at best merely part of such a system." (at [339])

Having determined that the loan and credit card contracts were financial products, the next question to be decided by the court was whether (as required by section 12BAB(1)(g) of the ASIC Act) ACM had provided a service in relation to these products. ASIC submitted that by providing ongoing credit to the debtors, ACM was providing a “service” and that the service was supplied “in relation to a financial product”. Justice Perram accepted this argument:

"I accept the latter submission given the breadth of the words “in relation to”. Attention can, therefore, be confined to whether the defendants provided a “service” consisting of on-going credit.

“Service” is defined in s 12BA(1) to include “any rights (including rights in relation to, and interests in, real or personal property), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce”, subject to some irrelevant exceptions. I accept that the granting to each debtor of more time to pay was the granting of a right (namely, the right to relieved of the immediate obligation to pay) and that this occurred in trade or commerce. An essential part of each collections officer’s job was to get the debtors on to payment plans.

Necessarily, the provision of a payment plan was, albeit in an unusual sense, the provision of credit. … It follows that I conclude that there was a provision of a financial service to each debtor on each occasion that more time was extended" (at [342]–[345]).

Finally, Perram J considered the wording of sections 12DA(1) and 12DJ(1). His Honour was satisfied that, as required by the sections, the misleading conduct had occurred “in relation to” financial services and the unduly harassing or coercive conduct was “in connection with the supply or possible supply of financial services to a consumer”.

As a result, the court held that ASIC was entitled to bring proceedings against ACM for breaching sections 12DA(1) and 12DJ(1).

Undue harassment or coercion

There have been comparatively few cases which have considered what constitutes undue harassment or coercion under section 12DJ of the ASIC Act. This decision sheds some judicial light on what sort of conduct by debt collectors is considered to be undue harassment or coercion.[2]Examples of conduct found by Perram J to be in breach of section 12DJ included:

Debtor One

  • threatening to inform Debtor One’s husband about her indebtedness (where Debtor One had already told ACM that her husband did not know and that she did not want him to know);
  • threatening to call Debtor One’s friends and employer until she repaid the debt;
  • threatening to have Sherriff’s officers attend her house to serve documents (when this was not going to happen); and
  • calling third parties (her neighbour and friend) with the expectation that they would tell Debtor One that ACM had contacted them (at [124]).

Debtor Five

  • · threatening to humiliate Debtor Five in front of her colleagues by serving papers commencing legal proceedings on her at her workplace (at [228]).

Debtor Six

  • threatening to issue a warrant for Debtor Six’s arrest;
  • threatening to take action that would result in Debtor Six’s taxi licence being revoked; and
  • threatening to take action that would result in Debtor Six being unable to travel overseas (at [250]).

This article was first published in Australian Banking and Finance Law Bulletin
December 2012

[1]Section 765A of the Corporations Act 2001 (Cth) provides that a credit facility within the meaning of the regulations (other than a margin lending facility) and certain facilities for making non-cash payments are not financial products for the purposes of Ch 7 of the Act. The provision of credit is regulated by the National Consumer Credit Protection Act 2009 (Cth). Back to article

[1] ASIC and the Australian Competition and Consumer Commission have jointly issued a publication on debt collection, titled Debt collection guideline: for collectors and creditors, which discusses section 12DJ of the ASIC Act. Back to article

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