Where did it go wrong? I have had no answers, and I have to
pay the debt. They give you a certain amount of time. They say, 'Either you
have to pay it in full or we can take five per cent of your earnings or you can
offer us more.' They were very friendly about it. They said, 'Every three
months the repayments for that debt will go up from five per cent of your
earnings to 15 per cent'—and that's it: they just take it.
Once a purported debt has been raised against an individual, debt
recovery may be commenced.
Debt recovery may involve seeking an individual's agreement to a payment
plan with the Department of Human Services (the department) or engaging an
external debt collection agency. This chapter considers both debt recovery options
and the impact on the individuals affected by them.
The inquiry received evidence from the department of the importance of
the debt recovery stage of the Online Compliance Intervention (OCI) program, as
the key performance indicators (KPIs) for the OCI program was the level of
Of the two external debt collection agencies contracted by the department, Probe
Group advised the inquiry that 'recovery performance' was one of the KPIs in
its contract with the department.
Dun and Bradstreet advised that while their contract with the department did
not include an explicit KPI regarding debts collection amounts, the company did
set internal KPIs of 'positive outcomes' expected from its own debt recovery
Process of debt recovery
How a purported debt is recovered by the department depends upon whether
the individual is in receipt of a current income support payment. If the
recipient is currently in receipt of a payment, an amount will be withheld from
the payment each week to satisfy the purported debt.
If the individual is not currently in receipt of a payment, the
department will first engage with them to establish a payment plan. The
department can enter into a payment plan with an individual for as little as
five dollars per week.
If an individual is not in receipt of a current payment and does not
engage with the department, an external debt collection agency may be engaged
to recover the purported debt.
According to the department, a purported debt will only be referred to
an external debt collection agency where certain criteria are satisfied:
...first is that they have to be a former recipient. We have to
not be aware that there is a vulnerability there...They also have to not be
engaging with us. Our first point of call is to send them a letter asking them
to repay the debt or enter into an arrangement. If they do not engage with us
at all, eventually we would refer them to an external collection agency for the
purposes of collecting the debt.
The committee notes that the department's estimate about the proportion
of purported debts referred to external debt collection agencies has varied
during the committee's inquiry. On 8 March 2017 the department informed
the committee that:
Generally, as part of our broader debt program, about 10 per
cent of debts are referred to collection agencies.
But on 18 May 2017 the department said:
...the department refers around 20 per cent of its debt to
external debt collectors.
The department later provided evidence to the inquiry that of purported
debts raised between July 2016 to February 2017, 42 per cent were referred to
external debt collection agencies.
The department currently uses two external debt collection agencies: Dun
and Bradstreet and Probe Group.
The department allocates debts randomly between the companies. Business rules
ensure that each company is referred the same number of debts.
The only exception to this rule is that:
...sometimes a particular recipient may have more than one
debt, and if a particular company is already handling one debt for that
recipient...then we would allocate any other debts to that same company, so that
they are not being contacted by different companies.
If an individual is contacted by an external debt collector and they
dispute that they owe a purported debt, the matter is referred back to the
department for resolution. The department reassured the committee that:
If a person whose debt has been referred to an external
collection agent disputes that debt, that matter is dealt with by the
department. As soon as they say that they do not owe a debt, that matter is
referred to the department because only the department undertakes their
reassessments or appeals. In one of our recent enhancements, we have also said
that, in the event that anybody does seek a reassessment or appeal, we will
pause recovery action pending the outcome of that reassessment or appeal.
However, the individual may not necessarily know that they can have the
matter referred back to the department.
Debt collection by the department
The department has greater power than ordinary private parties to
collect debts from individuals that are currently in receipt of a payment
because it has the power to deduct money from a payment without needing to go
to court and demonstrate that it is owed a debt.
As noted in Chapter 4, private parties generally need to provide
evidence to demonstrate that a debt exists or obtain judgment from a court
before a debt is recoverable. In respect of current payment recipients, the
department does not need to do either. The Consumer Action Law Centre told the
...the tax office and Centrelink, they do not have to go to
that step of going to court. They can take direct action to garnish amounts in
bank accounts or Centrelink payments. So it is a different standard that
In Tasmania, the committee was told by the Launceston Community Legal
Centre that if the department decides to deduct money from a current payment:
The standard repayment rate is 15 per cent of your benefit
amount. That is obviously very difficult to pay if you are already in severe
financial hardship. Generally, when you are contacting the debt recovery team,
it is merely to renegotiate that to a lower rate of repayment which, in and of
itself, can be challenging and confronting for clients, especially clients who
have problems with literacy and numeracy and who may have problems with
communication and expressing themselves.
The department has confirmed that 40 per cent of individuals with an OCI
purported debt are current recipients.
This means that these types of deductions may form a significant part of the
underlying cash recovered to date.
The Australian Council of Social Service (ACOSS) told the committee
that, in some cases, a deduction occurred despite the recipient disputing that
they owed a purported debt to the department.
As noted in Chapter 4, the department refined the process earlier this year to
provide that a repayment plan can be paused while the purported debt is
Impacts of debt recovery
Withholding part of a Centrelink payment can have a substantial impact
on the recipient who is relying on the payment, as Case Study 5.1 reveals
Case study 5.1—UnitingCare
This is a client that has come to our
service, and shows the vulnerability of a client who does owe a Centrelink
debt. This client presented to our service. She is 68 years old. She is on the
Centrelink age pension. She lives alone. She has no social or family support.
She has no assets, no financial support and no savings. She lives in a remote
town, approximately an hour away from Bundaberg—so it is pretty isolated. This
client presented to our service. She was very distressed and was having suicide
ideation. She had been notified by Centrelink that she was to pay 100 per cent
of an $11 000 debt that was generated when she was employed by Queensland
Health as a nurse. As this client had no financials means to pay this, being on
the age pension and with minimum computer skills, the financial counsellor
advocated for this client.
What the financial counsellor had to
do in the first instance was connect her with a generalist counsellor because
she was suicidal, just to make sure that harm was minimised. She attended those
appointments. Then they sat down and investigated the debt. It was her debt; it
was a real debt for her. However, as this client was on the age pension, the
ability to pay back the $11 000 was a great concern. The other issue that
she was having was the online portal. She could not navigate the online portal.
She had limited computer skills, so therefore she need to connect with the
financial counsellor to understand how to connect with Centrelink.
Centrelink did say that they were
going to take a large portion of the client's fortnightly pension in order to
pay off this debt, which caused further distress because she was only just
making ends meet. After considerable time, effort, phone calls, letters and
advocacy to Centrelink, a debt waiver was put in and it was declined, and all
other advocacy by the financial counsellor was unsuccessful. At this stage, the
financial counsellor put in a payment plan of $15 per fortnight, which was the
absolute maximum this client could afford—and even then it was cutting
everything down to a bare minimum. This was deducted from her pension each
fortnight. However, every three months the financial counsellor still needs to
contact Centrelink to get this arrangement reinstated because, after three
months, it automatically falls off and the client is sent another bill asking
for the full amount, which causes further trauma to the client.
Some states have recognised recipients' reliance upon their payments in
Under Victorian law, Commonwealth payments cannot be used to satisfy a debt.
Mr Nelthorpe, Chief Executive Officer of WEstjustice observed that:
...Victoria has a particular law worth looking at, in this
context, which is the Judgment Debt Recovery Act. Under this act a private debt
collector cannot access Centrelink payments at all.
Consumer Action Law Centre recognised that this Act created something of
a conflict when it came to Centrelink deducting payments, saying:
It shows that there is a conflict between what is behind
those two laws. The Victorian law suggests that you need the whole of a
Centrelink allowance to live on. The Centrelink capacity to take funds assumes
that no matter how desperate you are they should still be entitled to take a
percentage of that money.
The committee received some evidence that payment plans were pushing individuals
into hardship. The Council on the Ageing Tasmania explained that some individuals
had to borrow money from friends to be able to sustain themselves:
He is illiterate and is unable to read or write and is in
very poor health. He is on a disability pension and receiving dialysis. He had
to borrow money back from a friend to pay $50 per fortnight, and he lives on
only $125 per week.
A similar circumstance was explained by the Welfare Rights and Advocacy
Service. It had a client with significant vulnerabilities who entered into a
payment plan to pay $20 per week to satisfy a $250 purported debt:
She is on a low income and cannot even afford $20 a
fortnight, but she is doing it to ensure that she has a payment arrangement in
The committee heard that even though they may not have much money, some
individuals feel compelled to pay the purported debt the department says they owe,
even if they do not necessarily believe that they owe it. Anglicare SA shared a
client's lived experience with the committee:
We have had a client who lives in Whyalla who received a
Centrelink letter saying that he had $1,600. He was unhappy. He saw our
financial counsellor based in Whyalla and he expressed that he was unhappy
about receiving this. He did not believe or understand how he could have
arrived at having that kind of debt, but he felt resigned to paying it—as many
people that we come across do. They feel resigned and often do not understand
how to interact with the system, with Centrelink, to have further accuracy
around how the debt has been accrued.
Writing off debts
In some cases, if the value of the purported debt is minimal, the department
is able to write the debt off because it is not economical to recover.
The purported debt is automatically written off if it is less than $50,
but if the individual ceases paying part of a larger purported debt, any amount
over $20 could be outsourced to an external debt collection agency.
The department undertook to provide the committee with details on how
many debts had been outsourced to external collection agencies for such small
amounts, but at the time of drafting this information had not yet been
The debts of current income support payment recipients are not written
off at any level because the department is able to withhold money from
In response to the committee's concerns regarding the impact of recovering
debts by withholding a proportion of payments to vulnerable Australians, the
department said that it works with recipients to determine the amount withheld
and that these amounts can start from as low as five dollars per week.
The committee understands that the department seeks to recover
overpayments from current and former recipients, but the committee is particularly
concerned about the impact that debt repayments are having on income support
recipients who are on very low incomes and former recipients who may be on very
External debt collection
The committee received some concerning evidence about the legality and
appropriateness of the debt collection that was outsourced to external
Though the department is not bound by debt collection guidelines or the consumer
law when it engages in debt recovery, the department requires its external debt
collection agencies—Dun and Bradstreet and Probe Group—to comply with these
laws. As the department confirmed to the committee:
The external debt collectors are required to meet all of the
guidelines, policies and requirements that are set out by the ACCC. That is
part of their contract.
This means that the debt collectors are required to comply with the debt
collection guidelines produced by the Australian Competition and Consumer
Commission (ACCC) and the Australian Securities and Investments Commission
The Consumer Law Action Centre told the committee that:
The [debt collection] guideline talks about how any contact
by a debt collector has to have a reasonable purpose. That is a key principle
in the guideline. That means, among other things, that they have a reasonable
basis that the debt exists—that they have evidence of a debt.
In the past it has been problematic. For example, debt
collectors have bought debts without basic information to substantiate a debt
around the contract or statements of accounting and that sort of thing. That
could be an analogy to this situation, where it is a question whether the debt
collector that is acting on behalf of Centrelink actually has a reasonable
basis that the debt exists.
As noted in the previous chapter, it may be difficult for the debt
collectors to satisfy themselves that the purported debt exists on a reasonable
basis unless they are able to determine how the department calculated the
amount owed. As noted in Chapter 4, if the purported debt is disputed, the debt
is referred back to the department for reassessment.
Cases recalled by the department
As noted in Chapter 3, the department sent 6 600 letters to
incorrect addresses or online accounts which resulted in approximately 5 000
individuals only discovering that they may have owed a purported debt when they
were contacted by an external debt collection agency.
The 6 600 debts were part of a larger tranche of 56 504 OCI purported
debts that were referred to external debt collection agencies between
1 July 2016 and 28 February 2017.
In mid-February 2017 the department recalled all OCI purported debts that had
been referred to external collection agencies.
When asked the reason why the debts were being recalled from external debt
collection agencies, the department did not provide specific detail, however
responded that is was 'part of our service recovery processes.'
Debt recovery fee
The committee has received evidence that individuals whose cases are
referred to external debt collection agencies have been asked to pay a 10 per
cent recovery fee.
Under social security law, the department is permitted to charge a
10 per cent recovery fee on 'so much of the debt as arose because the
person refused or failed to provide the information' unless the Secretary is
satisfied that the individual had a reasonable excuse.
Until July 2016, the letters issued by the department did not advise that an
individual could apply to have the 10 per cent recovery fee waived if the
individual had a reasonable excuse.
ACOSS expressed concern at apparent changes to departmental guidelines
around the application of the recovery fee, which do not appear to be in-line
with the provisions under social security law:
The government has also changed departmental guidelines
around the collection of a 10 per cent recovery fee where there is a debt. They
now no longer need information about the circumstances that led to a debt to
apply that fee. Normally this fee would only apply if the person knowingly or
recklessly provided false information or withheld information. Now the fee applies
wherever a reasonable excuse is not offered via the online portal, for
instance, including where contact is not made. This is in contrast to the
original intent of the 10 per cent recovery fee, which was to penalise
recipients who did the wrong thing as opposed to penalising those who made an
The Commonwealth Ombudsman's Office raised concerns with the department
that individuals may have been charged the 10 per cent fee even though they may
have had a reasonable excuse. In response the department informed the Ombudsman
...[the department] will no longer apply the fee automatically
where there is no contact from the customer, or the customer responds that they
had personal factors which affected their ability to accurately declare their
The department informed the Ombudsman that since the department
redesigned the system the penalty would be applied manually and only if the
individual has been provided with an additional opportunity to provide the
department with a reasonable excuse and has failed to do so.
Is the 10 per cent collection fee a
Lawyers that appeared before the committee questioned the ability of the
department to charge a collection fee. The reason for this was explained by the
President of the Law Society of South Australia, Mr Rossi:
The imposition automatically of a 10 per cent penalty is
inappropriate. The society notes that at common law the imposition of a penalty
would be unlawful. The society is not aware of any evidence provided by Centrelink
to justify an amount as significant as 10 per cent of the debt as representing
the true estimate of the cost of debt recovery.
Mr Rossi continued to say:
In simple terms: in general, someone would not be entitled to
recover more than the debt plus interest until court proceedings were actually
issued. It is unlawful, at common law, to charge a penalty because you have not
paid on time. A penalty is a payment which has no relationship to the loss that
you are suffering as a result of not having the money paid on time.
A similar view was endorsed by Legal Services Commission South
Australia, Welfare Rights Centre, Consumer Action Law Centre and National
Security Rights Network.
There was also a concern that the automatic imposition of a 10 per cent fee
may be inappropriate on administrative law grounds.
...the application of the 10 per cent penalty may be a breach
of administrative law because it would appear to be fettering an administrative
discretion. And, as we understand it, formerly a DHS officer would consider
whether this penalty should be added.
Welfare Rights Centre explained that what that means is:
...the 10 per cent penalty, which legally should require a
human decision and human discretion...is now being determined automatically.
As noted above, the department has redesigned the system to require the
10 per cent fee to be applied manually to address this issue.
Payment of external debt collection
The committee received evidence that the department remunerates external
debt collection agencies based on a commission. This can be contrast with other
government departments such as the Australian Taxation Office (ATO) who said:
...we do not remunerate our debt collection agencies based on
what they collect. We pay a flat fee for a referral and they are required under
that referral to make a number of attempts to engage the taxpayer and then either
seek payment or enter into a payment arrangement.
The external collection agencies did note that more contracts operate on
a commission rather than a flat fee basis, and the ATO contract of a flat fee
Consumer Action Law Centre argued that a flat fee may be better for
There are problems with commissions being used in debt
collection, particularly if the commission is collected on the basis of
promises to pay. For example, if the debt collector enters into an arrangement
with the debtor that they will pay, say, $500 a month over 12 months to repay a
debt and they get that commission up-front based on that arrangement, there is
a risk that it would encourage a debt collector to set an unaffordable payment
plan, because they will get the commission straightaway, whereas commissions
that are paid when the debt comes in the door, when it is actually paid, can
align the interests a bit closer. With some of the major debt collectors that
pay commissions to staff who collect debt, rather than having payments or
bonuses up-front for entering into payment arrangements, the commissions are
staggered over time and therefore there is a better incentive for the collector
to enter into an affordable arrangement. That said, there probably is a better
basis for a flat fee that does not create problematic incentives for debt
collectors to try to be too harsh in any event in collecting debt.
The committee was unable to ascertain the actual rate of commission paid
to the external collection agencies because the rate was commercially sensitive.
The department confirmed that the external collection agencies receive a
commission based on the amount they recover.
When asked the reason why the department pays a commission rather than flat-fee
to its external debt collection agencies, the department did not provide a
specific policy reason except that it 'has been the long-standing practice.'
The committee is pleased to see the department has amended the system to
ensure that individuals are not automatically charged a 10 per cent
recovery fee and for reviewing the debts that were referred to external debt
The committee is concerned that the department appears to be requiring
individuals to pay a fee to cover the costs associated with external debt recovery.
The committee considers that there is scope for the department to reconsider
how it funds its external collections.
The committee considers that there is merit in the department exploring
whether debt collection agencies should be engaged on a similar terms to those
used by the ATO, particularly if those terms may better align the interests of
the debt collection agency with those of the alleged debtor.
Actions of debt collectors
The committee has received a number of complaints from individuals and
organisations that have had interactions with debt collectors, including
allegations of inappropriate conduct. These allegations included threats and
demanding inappropriate repayments.
ACOSS reported that there were multiple media articles that debt
collectors may be demanding immediate repayment, threatening to seize
individuals' assets or threatening other recovery actions.
The Welfare Rights Centre South Australia told the committee of a case
where an external debt collection agency suggested that the client could sell
his only vehicle to satisfy the debt.
Basic Rights Queensland explained that:
The experience of being contacted by debt collectors is probably
the worst experience of all. I referred to that one where they had been
threatened—the first they knew of it was via a debt collector, and they had
been threatened: 'This is going to ruin your credit rating.
The committee is concerned by Phoebe's experience with an external debt
collection agency that requested immediate payment of an amount she could not
afford and continued to threaten to garnish her wages and require full payment
of the debt after the matter was placed under review by the department.
Phoebe's experience is below.
Case Study 5.2—Phoebe's experience
My name is Phoebe. In October of last
year I was notified via a text message of mail in my myGov inbox. When I logged
in I found I had three letters regarding a Centrelink debt that added up to
$14,567. I had not received any prior communication regarding this debt—in
particular, the initial letter informing me of the discrepancy between my
reported earnings and my taxable earnings. After only two weeks of receiving
the debt letters I was contacted by Dun and Bradstreet debt collectors,
demanding that I pay the debt in full. My response to this was that I believed
that I did not owe the debt and that I was submitting for a review with
Centrelink before I was happy to commence any repayments. However, they then
threatened to garnish my wages in full if I did not make a significant
repayment, which was considered to be a minimum of $500 on the spot, to which,
as any normal person would, I panicked and paid $500 on my credit card.
Whilst continuing to fight off debt
collector phone calls, who persistently threatened me with garnishing wages and
enforcing repayments that I could not afford, I was working with an accountant,
trying to gather pay slips from previous employers in order to prove that I did
not owe the debt. The debt spanned the period that I was studying and working
casually, as we have heard a lot today, and this went back to 2010, so as long
as seven years ago. As I said, I was working casually, as many university
students do, whilst I was studying. Any time I gained employment I informed
Centrelink of my new employer, and carefully and to the best of my knowledge
always reported accurately. After my accountant initially submitted all the
payslips that we had managed to gather together, I still had not heard anything
from Centrelink for two weeks. After that two weeks, I was informed that my
accountant had uploaded them to the incorrect platform—even though she uploaded
to the platform that Centrelink told her to upload them to. The following week,
I was told, by a Centrelink employee, that I had to upload these details myself
and was told to log on to the online platform. I then had to make another phone
call to gather my customer reference number and log in details, because at this
point I had not been receiving payments for, I think, three or four years. When
I did log in, the platform to upload the payslips to did not exist, and this
was confirmed by another phone call. This back-and-forth process between
Centrelink and me has been incredibly frustrating and is still ongoing.
I would estimate that I have spent
probably 100 hours, if not more, gathering payslips from multiple employers;
learning my rights about debt collectors, and what debt collectors can and
cannot threaten; and learning my legal rights surrounding inaccurate welfare
debts. I have spent hours on the phone to Centrelink, with many calls going
unanswered and cut off midway. This process has resulted in emotional and
physical stress, and increased sick leave from work.
I feel that these robo-debs [sic] are
targeting the wrong people, those who honestly and diligently reported
believing all they were doing was right. I am now a healthcare worker and every
day give back to the community yet to now be labelled as a welfare fraud could
impact my future and my career. My trust in the system is definitely shaken.
As Phoebe's case above shows, some individuals have used credit cards to
repay a Centrelink debt. The Victorian Council of Social Service told the
committee that many people used more expensive forms of debt in order to pay
their debt to Centrelink:
We certainly know people who have gone to payday lenders and
we know of people who have loaded up credit cards and used other mechanisms to
try to pay debts that—there is a fair chance—they simply did not owe in the
The debt collection agencies disagreed that complaints are a major
issue. External debt collection agency Dun and Bradstreet informed the
...we have approximately one complaint per 100,000. We
investigate them. The department investigates them. Our staff have got specific
obligations and training including the ACCC and ASIC guidelines to which you
referred. All communications are in a form agreed with the department. All
communications happen with a frequency permitted by the guidelines so a maximum
of three per week or 10 per month. When we hear of complaints and investigate
them or the department investigates them, we are satisfied that our processes
have been followed.
Use of departmental data
Another area of debt collection that some submitters expressed concern
about related to data.
The Australian Privacy Foundation expressed concern that the external debt
collection agencies may seek to use data provided by the department for their
own commercial advantage.
The committee received evidence that the external debt collection
agencies kept the department's data separate and that secure arrangements are
Mr Kagan from Probe Group assured the committee that only staff working
directly on behalf of the department had access to the information.
The Australian Privacy Foundation suggested that external debt
collection agencies should still be required to delete the department's data at
the conclusion of the contract to ensure the integrity of individuals' personal
At the committee's hearing on 18 May, the department undertook to confirm
whether this was already a condition of the department's contract with each
debt collection agency. However, at the time of drafting, the department had
not provided confirmation of this to the committee.
The committee notes that as part of the contracts with the debt
collection agencies, the department conducts a regular program of monitoring. The
department confirmed that the contracts with the external debt collection
agencies require multiple reviews to be undertaken at various intervals,
including some reviews that are conducted informally on a monthly basis
together with a program of formal quarterly reviews.
Ms Golightly from the department clarified that formal quarterly
reviews are conducted:
...against the framework that is in the contract and against
the policies and principles and law that the external collection agencies have
The committee notes that formal quarterly reviews may examine various
aspects of the collection agency's performance by using surveys of customers,
an evaluation according to specifications of the contract or evaluations of
The department clarified the monitoring of calls may include:
...a sample of calls, double-headsetting with them to listen in
to how they are handling customers, both customers who may be calling them and
customers they are calling.
The committee received evidence that this may not be the most effective
form of monitoring because the debt collectors are unlikely to demonstrate
inappropriate behaviours if they know they are being listened to. Consumer Law
Action Centre explained that another option for monitoring could include:
...shadow shopping or other sorts of things. It might be that
they would put an example into the marketplace, for want of a better word, so
that the debt collectors are required to contact someone that is not a real
debtor. They experience the situation—they see what it is like—to see if the
debt collection process is compliant with the standards that are required of
If any one does have concerns, the department told the committee:
Certainly they can ring the department. We have got a
dedicated line to deal with any debt inquiries, including any issues that
people may be wanting to raise about the debt collectors.
On notice, the department advised that individuals with complaints about
an external debt collection agency could contact the department 'online,
face-to-face, by calling 1800 132 468 or via mail'.
If contacting the department was not successful, a dissatisfied
recipient could also contact the Commonwealth Ombudsman or the ACCC for
The committee understands that being contacted by debt collectors can be
stressful. In February 2017, an article appeared in The Saturday Paper
titled 'Centrelink's debt recovery system "pushed him over the
The article's thesis was that a young Melbourne man was so badly harassed by
debt collectors about an OCI debt that he took his own life.
Ms Campbell, the secretary of the department told the committee
With the press story about the suicide—and this is a very sad
event, and we do not want to make it harder for families—this was a former
recipient, it was not a current recipient. That is why the debt collectors had
been used on that occasion. There are always different dimensions to stories
that appear in the media, as I am sure you are aware, and we have a different
take on what was reported, I think it is fair to say.
The committee recognises that being pursued by debt collectors is likely
to be very stressful. The committee is concerned about the number of reports it
received about debt collectors' inappropriate behaviour.
The committee considers that the department's monitoring regime could be
more rigorous and it calls on the department to do more to ensure that
collection agencies are complying with all guidelines and standards.
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