This innovative advocacy project, documented here by one of the project initiators Denis Nelthorpe of Footscray Community Legal Centre, demonstrates how strategic and collective organization of individual casework can bring about systemic change in the culture of corporate institutions and lay the groundwork for regulatory reforms.
Income support payments to long term Centrelink recipients should be directed to meet essential needs such as rent, energy and food rather than debt repayment. Seeking debt repayments from long term Centrelink recipients in financial hardship is counter-productive and uneconomic. The failure of most debt collectors to reflect this fundamental understanding, and the consequent suffering inflicted on those already in financial hardship, was the beginning point for The Bulk Debt Project.
Thinking strategically and acting collectively
The goals of the Bulk Debt Project were to reduce financial hardship for long term Centrelink income debtors, to create a more effective form of advocacy for financial counsellors and legal assistance lawyers working with debtors in long term hardship, and to win the acceptance by creditors and debt collection agencies that some debtors in long term financial hardship should be relieved of their obligation to pay debts.
The project strategy was to establish a centralized case collection data base operated initially by West Heidelberg CLC and later by Victoria Legal Aid. Workers at financial counselling agencies, legal centres and legal aid agencies were asked to register as participating advocates and to then refer their debtor clients to the central data base to be part of a bulk negotiation. The debtors were required to be long term Centrelink recipients, tenants, without significant assets, and in circumstances which were unlikely to change over time. The project attracted referrals from more than 500 workers across Australia. The project targeted 15 creditors over a four year period and negotiated between 15 and 350 debts with each creditor through a bulk negotiation.
The project assisted debtors with over 3000 debts worth approximately $25-30 million over a four year period. Indirectly, many more debtors were assisted by direct approaches by financial counsellors and lawyers for waivers to creditors and debt collectors based on the project criteria.
The project was successful in convincing financial service providers and debt collection agencies that debtors who met the bulk debt criteria should be offered relief through waiver of debts.
Most large financial institutions and debt collection agencies have accepted the bulk debt criteria as a basis for ongoing negotiation of a waiver for debtors in long term financial hardship. For instance, Westpac has a bulk debt website available to financial counsellors.
The project was also successful in changing the advocacy strategies of financial counsellors and legal assistance lawyers in advocating for debtors in long term hardship. It is now common practice for these workers to seek a waiver based on the Bulk Debt criteria for this type of client.
It also helped to achieve change to the debt collection guidelines of ASIC and the ACCC.
Change – how and why?
It would appear that the project has achieved a long term cultural change in the approach and response to debtors in long term financial hardship. It is worth asking how this was achieved.
Bulk negotiation – the impact of numbers
Two obvious factors in this project were the sheer weight of numbers (3000 debtors) and the astonishing buy-in by legal assistance and welfare agencies all across Australia. It was virtually impossible for any creditor to challenge the claims of desperate financial hardship given the sheer weight of numbers produced by the project. It was also impossible to ignore or bypass the project due to the strong support from the sector. These factors forced the targeted creditors to directly address the response of their organization to needs of debtors in long term financial hardship.
A decision was made at the outset to concentrate on the economic status of the debtors to the exclusion of legal remedies that might be available to those debtors to challenge the validity of the debt. The view was taken that if a debtor could not repay in any circumstance there was little point in pursuit of an argument in regard to legal liability. Win or lose, the debtor simply could not pay.
This emphasis on the economic impact relieved financial counsellors and lawyers of the need to pursue time-consuming and costly arguments as to the liability in courts or dispute resolution schemes.
The emphasis on economic impact also allowed creditors and debt collectors to avoid the cost of legal arguments over liability, but concentrated their attention on the stark economic question of capacity to pay.
Many studies, both in Australia and overseas have found that debt problems were often triggered by a combination of events, but loss of employment, ill health or relationship breakdown were generally among them.
The project guidelines placed great emphasis on the identification of the non financial causes of financial hardship of the debtors. The information recorded was presented to creditors and debt collectors as evidence of the long term incapacity to pay.
Prior to the project, creditors and debt collectors tended to refer to ‘can’t pay’ won’t pay’ without any real consideration of the cause of the incapacity to pay.
In May 2014 a National Forum was convened to explore the characteristics of incapacity to pay, and stake-holders’ perspectives on long term financial hardship. The forum which was attended by representatives from the community sector, government, industry and regulators, reached a consensus on a more realistic categorization of financial hardship. The forum broadly agreed that there were three categories of financial hardship:-
- Can Pay – But may need some flexibility
- May Pay – But has uncertain short term prospects
- Can’t Pay – Un-recoverable debt.
The outcomes of the forum reinforced the outcomes of the Bulk Debt Project. Most creditors and debt collectors have acknowledged that financial counsellors and legal assistance lawyers are best placed to identify and confirm the circumstances of debtors in the third category of long term incapacity to pay.
Learnings from the project
- Financial counsellors and legal assistance lawyers know their clients instinctively and need to trust their judgement in the face of challenge. However, there is often an assumption that others such as financial sector institutions, debt collectors, government policy makers and regulators share that instinctive knowledge. Our sector may need to better document and share that knowledge with the wider community.
- Industry, government and regulators are often reluctant to support regulatory change to resolve the problems of low income clients. In order to achieve regulatory change, our sector may have to pursue cultural change within a particular industry. Ironically, achieving that cultural change may alleviate the need for regulation.
Our sector can sometimes to guilty of excessive pessimism! Change is impossible! The Bulk Debt Project, as an element of a broader strategy for change, shows that if we work together, change can happen.
 The Bulk Debt Project began as a pilot project at the West Heidelberg Community Legal Centre in 2010 and was expanded to a national project in partnership with NSW and Victoria Legal Aid from 2011 to 2013.