An inquiry into pay day money lending in South Australia has recommended workers in the industry be subject to criminal checks.
State Parliament's Economic and Finance Committee is also calling for a special tribunal to resolve disputes between lenders and customers.
Committee President Tom Koutsantonis says criminal checks are needed because of the unlawful conduct in the industry.
"The police tell us that organised crime and especially bikie gangs move in where there is an opportunity," he said.
"If there is a market for them to move in and take advantage of people, they will."
Mr Koutsantonis says the inquiry heard cases of unethical practices, and interest charges of up to 1,000 per cent a year.
The committee wants a special tribunal to resolve disputes.
Mr Koutsantonis says the tribunal would have judicial powers to make binding orders, and the ability to revoke or amend licences.
"The problem is that when people are taken advantage of in these schemes they have no real recourse because they can not afford to go to a court," he said.
"If we have a tribunal, Mums and Dads could go and say 'Look I borrowed this much money at this much per cent'."
Source: ABC
Saturday, October 27, 2007
Monday, October 22, 2007
Beating credit card bankruptcy in Australia
Increasing numbers of people are finding it difficult to manage their finances, including their credit card debt.
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail
Part 9 of Bankruptcy Act introduced in 1997 aimed at keeping people out of bankruptcy.
Debtors arrange to partly repay creditors over time debt agreements are one stop short of declaring total bankruptcy for the increasing number of people who can't pay their credit card debts, personal loans and bills.
A debt agreement under Part 9 of the Bankruptcy Act, allows debtors to strike a deal with their creditors to repay less than the full amount at an agreed weekly rate over a period of time – without any additional interest. It is an option for people with unsecured debts of less than $77,021 and after-tax income below $57,765.
Now big creditors seem to be getting tough and, according to debt agreement administrators, some are insisting on unrealistic returns from insolvent people.
Part 9 agreements were introduced in 1997 following widespread public concern about young people in particular having to file for bankruptcy over consumer debts such as small credit card debts or even mobile phone bills.
Since then an industry of debt agreement administrators has grown up, often relying on heavy marketing and with trading names such as Debt Assist, Debt Relief and Debt Busters.
They specialise in organising agreements and approaching creditors who vote on each proposal. Fox Symes is a market leader in the industry, filing about 300 agreements a month.
"Some of the big lenders have totally unrealistic expectations," says Deborah Southon, director of Fox Symes.
"People are coming through now with up to $78,000 in consumer debts," Ms Southon says. "You can't pay that back in less than five years and probably not at much more than 40¢-50¢ in the dollar."
Recent amendments to the Bankruptcy Act enshrine the principle that an insolvent person's debt agreement proposal must be affordable and therefore sustainable.
Debt agreement administrators say Westpac and St George Bank are among big lenders voting down debt agreements based on the debtor's ability to repay.
The administrators report a noticeably harsher approach from Westpac and St George compared with a generally supportive approach of the Commonwealth Bank and National Australia Bank in particular.
Some say that St George is telling them no less than 65¢ is acceptable, while Westpac is said to be voting down agreements that return less than 70¢ in the dollar, regardless of the circumstances of the debtor.
Penny Doube, a debt agreement administrator based at Tarragindi in Brisbane, says that on average her agreements involve an insolvent debtor repaying about 50¢ in the dollar over three years.
Ms Doube says St George has informed her that its minimum acceptable return is 65¢.
"St George have always been difficult to deal with," Ms Doube says. "They are not fond of Part 9s."
Administrators typically negotiate agreements that return between 40¢ and 80¢ in the dollar over three to five years. For that, they charge an upfront fee that usually ranges between $600 and $1500 and an ongoing commission.
Ms Southon says each agreement has to ensure that the rent or mortgage is paid, plus provide for utilities, food, essentials, children and the occasional medical visit.
Under the new voting rules, big creditors have increased power and cannot be easily outvoted.
"If St George is your majority creditor, then it is 'shut the gate and file now for bankruptcy', because they are not going to agree to anything," says one debt agreement administrator.
Melbourne debt agreement administrator Melissa Treherne says she is being sandwiched by tough creditors and the new rules, which require her to certify a debtor can afford repayments.
"The new rules are good, they have really cleaned things up but some of the creditors are just not looking at the budget of these people," says Ms Treherne.
"They say they have a new rule, nothing under 55¢ for example, and they won't be flexible about time or rate of return."
A Westpac spokesman says 70¢ "is one of its highest repayment guidelines" and it does apply lower proportions on a case-by-case basis.
A spokeswoman for St George Bank says the bank assesses each proposal individually.
"Most importantly, customers' specific circumstances are taken into consideration, and the final decision is not solely based on the return to the bank."
Digby Ross, the Queensland insolvency registrar, says the system requires goodwill by all parties in the industry if it is to succeed, including the big creditors.
"The major creditors have generally been very supportive, right through (the reform process)," said Mr Ross.
"Yes, definitely, it needs goodwill by creditors to succeed and the contact we've had has been positive." Source: Sunday Mail
Sunday, October 21, 2007
Household debt in Australia on the rise
Household finances around Australia have taken a battering in the past year, according to research by ING Direct and the Melbourne Institute.
Telephone interviews with 1200 households found 46 per cent of families were managing to save money compared with 54 per cent a year ago.
The number running into debt rose to 7 per cent from 4 per cent.
”Higher interest rates, bigger mortgages, record levels of credit card debt, larger grocery bills and the general rise in the cost of living are affecting our inclination and capacity to save,'' ING spokesperson Michael Smolders said.
Western Australians were the best savers and the least likely to go into debt. Victorians were the second best savers and households from New South Wales came in third.
But the New South Wales ranking improved from three months ago when it claimed the wooden spoon for savings.
Households in South Australia are now the worst savers, the survey found.
”The piggy bank has certainly gone missing in action amount the majority of South Australian households,'' Mr Smolders said.
Nationally, the survey found less people were prepared to commit to saving for expensive items like home renovations - down to 14 per cent from 24 per cent - a new home - down to 14 per cent from 17 per cent - and travel - down to 38 per cent from 45 per cent.
Telephone interviews with 1200 households found 46 per cent of families were managing to save money compared with 54 per cent a year ago.
The number running into debt rose to 7 per cent from 4 per cent.
”Higher interest rates, bigger mortgages, record levels of credit card debt, larger grocery bills and the general rise in the cost of living are affecting our inclination and capacity to save,'' ING spokesperson Michael Smolders said.
Western Australians were the best savers and the least likely to go into debt. Victorians were the second best savers and households from New South Wales came in third.
But the New South Wales ranking improved from three months ago when it claimed the wooden spoon for savings.
Households in South Australia are now the worst savers, the survey found.
”The piggy bank has certainly gone missing in action amount the majority of South Australian households,'' Mr Smolders said.
Nationally, the survey found less people were prepared to commit to saving for expensive items like home renovations - down to 14 per cent from 24 per cent - a new home - down to 14 per cent from 17 per cent - and travel - down to 38 per cent from 45 per cent.
Thursday, October 18, 2007
De facto couples are 'risking financial ruin'
De Facto couples are being advised to draw up "domestic relationship agreements" or risk financial ruin if their partnership breaks down.
Family lawyers say a growing number of men and women who split from long-term partners are losing out because they are not entitled to the same legal protection as married couples.
Most are unaware of the "cohabitation trap", in which their legal rights change automatically after two years or if they have a child together.
This can result in a single mother being deprived of financial compensation for the future or a de facto making a claim on a property or asset owned entirely by their partner.
Census figures show 76 per cent of Australian couples have lived in de facto relationships.
Jackie Vincent, a partner in Watts McCray, Australia's largest specialist family law firm, told The Sunday Telegraph couples needed to be more aware of the potential legal pitfalls of de facto relationships.
"We need to get people to understand what their life choices mean," she said.
"Choose to live your life how you want to live it, but be aware of the consequences. We do see a lot of de facto couples and we think: 'Do they really realise what they're getting into?'
"It's traumatic for them when you say to them their partner could have a claim on their house."
Ms Vincent described "domestic relationship agreements" as being similar to pre-nuptial contracts for married couples, specifying exactly how assets and money should be awarded to protect each partner in the event of a separation.
Mothers were usually the biggest losers in de facto break-ups because they received less in separation settlements than married women, she said.
Sydney couple Paul Cassat, 30, and his partner Alicia Twohig, 25, have lived together for two years.
"We bought (property) together and we have nominated each other as equal beneficiaries," Mr Cassat said.Source: Sunday Telegraph
Family lawyers say a growing number of men and women who split from long-term partners are losing out because they are not entitled to the same legal protection as married couples.
Most are unaware of the "cohabitation trap", in which their legal rights change automatically after two years or if they have a child together.
This can result in a single mother being deprived of financial compensation for the future or a de facto making a claim on a property or asset owned entirely by their partner.
Census figures show 76 per cent of Australian couples have lived in de facto relationships.
Jackie Vincent, a partner in Watts McCray, Australia's largest specialist family law firm, told The Sunday Telegraph couples needed to be more aware of the potential legal pitfalls of de facto relationships.
"We need to get people to understand what their life choices mean," she said.
"Choose to live your life how you want to live it, but be aware of the consequences. We do see a lot of de facto couples and we think: 'Do they really realise what they're getting into?'
"It's traumatic for them when you say to them their partner could have a claim on their house."
Ms Vincent described "domestic relationship agreements" as being similar to pre-nuptial contracts for married couples, specifying exactly how assets and money should be awarded to protect each partner in the event of a separation.
Mothers were usually the biggest losers in de facto break-ups because they received less in separation settlements than married women, she said.
Sydney couple Paul Cassat, 30, and his partner Alicia Twohig, 25, have lived together for two years.
"We bought (property) together and we have nominated each other as equal beneficiaries," Mr Cassat said.Source: Sunday Telegraph
Wednesday, October 10, 2007
Americans turns to credit cards in the aftermath of the recent mortgage meltdown
America's favourite automated teller, their mortgage, is empty and Americans are relying increasingly on credit cards to pay their living cost shortfall, indicating tough hurdles ahead for US consumer spending and markets.
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Americans turns to credit cards in the aftermath of the recent mortgage meltdown
America's favourite automated teller, their mortgage, is empty and Americans are relying increasingly on credit cards to pay their living cost shortfall, indicating tough hurdles ahead for US consumer spending and markets.
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
Federal Reserve data released on Friday showed US consumer borrowing rising by $US12.18 billion ($14.2 billion) in August, more than 20 per cent more than economists had forecast.
Most striking was an 8.1 per cent increase in borrowing on revolving credit lines, mostly credit cards, to a record $US909 billion.
Credit card borrowings rose at the sharpest rate since early 2002.
So what was it that persuaded consumers to rack up more debt during the month?
Was it the increasing press coverage, no doubt reinforced by friends and family, that their houses were worth less than a month or a year ago?
Or was it the near meltdown in financial and credit markets that prompted a surge in speculation about an upcoming recession?
Quite possibly, it wasn't because they felt better, but because things had gotten suddenly worse.
"If they had been financing their consumption on the basis of the equity of their homes and suddenly that is cut off then they will have to borrow more through traditional channels," said Stephen Lewis, economist at Insinger de Beaufort in London.
And August was a very bad month for the substantial minority of Americans who have depended upon housing borrowing to finance ongoing consumption.
Not only were house prices continuing their slow, steady march lower, but the world had woken up to the seriousness of the issue and the asset backed financing markets more or less shut.
That meant less housing wealth to borrow and fewer lenders willing to lend against it, either in the form of a home equity loan or refinancing.
So, what's a borrower to do but put it on the card.
Retail sales rose just 0.3 percent in August, and when motor vehicles and parts were stripped out, sales fell 0.4 per cent, the sharpest drop since September 2006.
Considering that people always have to eat and many Americans have only limited discretion over how much gasoline they use, a period when credit card debt is expanding rapidly while retail sales are contracting points to debt financing of necessities, rather than luxuries.
That, clearly, can't go on forever.
Falling gasoline prices pulled the government's measure of August gasoline sales down sharply, weighing on the overall retail sales reading, however.
Ryan Sweet of Moody's Economy.com notes that mortgage equity withdrawal has been down sharply on a year-on-year basis, a factor that if extended would force consumers further into the arms of their credit card lenders.
Interestingly, the market for credit card based asset-backed securities has recently become quite hot.
Credit card ABS issues in the United States is the only asset-backed segment to experience growth in 2007, up 30 percent on the year to September to $69.2 billion.
Spreads have tightened as well, after having widened considerably over the summer.
Delinquencies are still low, though the most recent data covers only the second quarter. Late payments on bank cards fell in the second quarter to 4.39 per cent from 4.41 per cent, according to the American Bankers Association.
Given the experience with subprime, you can expect that banks will tighten, indeed may already be tightening, access to consumer credit, and that they will see those low rates of late payers rise. Source: Reuters
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