State of Play: Getting on Top of Debt

Dominique Grubi…: Hi, there, and welcome to our State of Play. Today I am joined by the lovely Alicia Houston who is head of our DGI debt management team here. Hi, Alicia.

Alicia Houston: Hi, good morning. Afternoon, sorry.

Dominique Grubi…: So, Alicia has got a background in debt and we poached her from one of the big debt collection companies. So, Credit Corp, and Alicia’s now come to us with all of the knowledge from the dark side, and she’s able to implement that to help clients manage debt, negotiate debt, and ultimately get out of debt. So, I wanted to share some insider knowledge and tips and tricks today because there is a massive tidal wave of debt coming through. The whole industry has been affected by COVID and a whole lot of disruptive change. And there’s things that can give you a real competitive advantage because you can position yourself right now to get rid of the chains of debt.

Just nuisance debt, even if you can afford it, you can actually get rid of repayments when you’re paying and struggling with a credit card, and just making minimum payments every month, you won’t get as far and be able to seize opportunities that are going to come up right now. So, I wanted Alicia to share some of the things that she does for our community and things about debt from the other side that you may not know. So, first of all, a lot of people right now, Alicia, are going, “Oh, well, I’ve got to start paying again. And I’ve got to be really careful. And I can’t ask for any help because if I ask for help it’ll affect my credit score, and then I’ll find it really hard to get a loan going forward.” So, that’s not the case, is it?

Alicia Houston: No, that is definitely not the case. So, thankfully the ABA had-

Dominique Grubi…: So, ABA is the Australian Banking Association?

Alicia Houston: Sorry for my use of acronyms. Yes, the Australian Banking Association, ABA had back in March obviously expected that when the banks were hitting everyone with the possibility for deferrals because people couldn’t afford their loans that the comprehensive credit reporting actually means that the banks and lenders and financial institutions have to report onto your credit file when you make your payment, whether they’re on time or whether they’re late and how late they are.

Dominique Grubi…: So, this came in about this time last year, they’d brought in new laws in Australia and banks all complied. So, basically it said everything is now visible. So, like in America where your credit score defines you, we have the same thing here. So, banks will Mark your credit history and your credit report if you’re late in paying or you miss a payment or that sort of thing. So then when we had a massive wave of debt they said, “Well, it’s going to be a lot of people.” Like 900,000 loans affected to be precise. So, a lot of people would’ve got affected.

Alicia Houston: Yeah, that’s right. And so, the ABA had said, “Look, no reporting on late payments for the next six months for the deferral period.” And they’ve just recently come out and said, “We’re going to take that through to March, 2021.” So if you have a formal moratorium in place or a deferral of your loan, then they will not be able to mark your credit file, and have it negatively impact your credit score.

Dominique Grubi…: So, banks are going to be contacting people right now. So, there are over 450,000 loans that are coming up to the end of their six month deferral right now. So, banks are ringing, in fact, 260,000 mortgage deferrals are going to be assessed in the next month. So, the Australian Banking Association have said, if you’re assessed, and you’re a given further time because they’ve got up their sleeve another four months of deferrals that they may grant you, then that also won’t affect your credit reporting. So, your credit score won’t be touched and your report won’t show any different until March, 2021.

Alicia Houston: At this stage. Yes.

Dominique Grubi…: Yep. And that may be kicked down the road a bit further. And similarly, there’s a good… a bit of silver lining. If you’ve been making some payments or be it reduced, then it goes in your favor.

Alicia Houston: Yeah, it does. They’ve actually stated that as you exit the deferral period, if you have made any payments whether partial or full, which they’re saying is about 11% of people have been making a partial payment to their loan that have had a deferral approved, but it will positively impact your credit score. So, yeah, it will actually improve your repayment history.

Dominique Grubi…: Now, if you have asked for help. If you’re one of the 900,000 loans, or if anything has changed, they’re not allowed to blacklist you. So, you should check on that because we’ve had clients, quite a lot of clients that have had their credit report adversely affected, and they may not even know till they go to buy a mobile phone or something and get a plan. And then they don’t qualify. And sometimes you don’t know what you don’t know. So, some people don’t even know why they got knocked back for a loan, and they don’t know what their credit report says. So, we’re able to check that for you. So, what I’m going to offer to everyone in the State of Play and those who are watching the recording as well, I’ll put a link up in a moment in the comment section, and also in the description section of this. And you can reach out to us and we will get you a copy of that credit report.

It won’t affect your credit rating or your score or anything for us to order that for you. You can get it for free. So, if you wanted to order one for free per year takes [crosstalk] 10 days or so. We can get it now, and we can explain to you what it means. And if you have because it’s all in code and gobbledygook, you won’t understand, but Alicia will look at them and go, “Oh, they’ve marked you for payment or nonpayment,” or whatever. And it’s really easy to sort out with the bank, and I have to fix it now. So you’ve done… [crosstalk]. They did a lot of that. And the other thing that you may not know that’ll blow you away is that there is a market for your debt. So, there are debt buyers who buy second hand debt. So, can you explain a bit about that? Because that’s where Alicia came from, the biggest debt buyer in the industry from Credit Corp. So how does the system work?

Alicia Houston: Yeah. So, the banks, financial institutions, telco and utility companies will have a book of bad debt. They might send it out to debt collection companies to work on their behalf. So, they haven’t actually purchased it. That’s up to 90 days, up to 180 days in arrears, and 180 days in arrears.

Dominique Grubi…: Sorry to interrupt, Alicia. And that’s on sometimes a speculative basis. So, if you get some money and as a debt collector you can keep 20% of what you collect or something like that.

Alicia Houston: Yeah, yeah. For the most part, they either pay commissions of whatever you collect we’ll pay you on, or yeah, a [inaudible] service. So, however many debts we send through, and then they have to make a certain amount of calls and send a certain amount of letters, which is why you’ll get bombarded with those kinds of things if you have missed a payment.

Dominique Grubi…: Because there’s KPIs they have to make in debt collections.

Alicia Houston: That’s correct. Yeah. So, once it does hit that 180 days that the bank or the financial institution will say, “Look, we’re going to sell it off. There’s high likelihood that the customer isn’t going to pay us, and it’s not worth our time or we don’t have the resources to be able to find them or collect the debt or anything like that.”

Dominique Grubi…: Because their main business is lending money, not going around chasing the debt.

Alicia Houston: That’s right.

Dominique Grubi…: So, that’s why they outsource it. And then they go, “Okay, we’d rather just take a bird in the hand. Give us some cash.” So, they will sell it off four cents on the dollar. And can you just talk us through high level because I think for us it demystifies it, and it’s not as scary when we know it’s just part… We’re a tiny part of a big book of debt, and how the mechanics of the system work. So they’ll get debt that’s like, what do you say? 90 days, 180 days, or whatever past due. You know what, this person hasn’t made a payment in 180 days. Credit Corp or whoever have been trying to collect and the bank will go, “Look, can’t be bothered. Who’s going to buy this from us? What can we get for it?” And how do they do that?

Alicia Houston: Yeah. So, there’s a lot that goes into it, actually, and the debt purchasers are pretty clever. And they’ve been able to come up with some great predictive algorithms, if you may, that will predict how much they are going to be able to recover from them. It goes through things like the age, the state of the debtor, or the person who’s in arrears, when the last payment was made, what the average value of the debt is, whether it’s the type of debt that it is. So, a credit card is more expensive than a personal loan, a secure debt, like someone who’s got a motorbike or a car financed that they’re hiding away, and not making the payments on that. That’s probably a little bit more expensive.

Dominique Grubi…: Because the debt collector can track it down and sell the car, and they’re sure to get something for it. So what are we looking at? Let’s just say credit card debt, or how will they do that? They’ll bundle up a whole lot of… Like so here’s $20 million worth of face value of delinquent credit card debt. It’s all between 90 and 120 days late.

Alicia Houston: Yep.

Dominique Grubi…: And then what will they do?

Alicia Houston: And then they will sell it to the debt purchaser who will-

Dominique Grubi…: Just one?

Alicia Houston: Yeah. So, sometimes they can do an inventory sale, which might be like just a one lot, and they’ll sell it off. For the most part though, they like to hedge their bets, and they will sell it off to multiple different debt purchases. So, you might have a couple of the higher larger firms and then some of the lower ones that wanted to get in on the action as well. They will do that. And then they will sort of do a data dump every month for the debt collected or the debt purchaser for say 12 months or six months or something like that.

Dominique Grubi…: So, they combine $100 million book value, and then do they bid for it, or how does it work?

Alicia Houston: Yeah, sorry. They do. They will all put a tender in. Anyone who wants to buy-

Dominique Grubi…: So, when I bid, for example, we’ll go, “We’ve got 100 million. It’s all between 90 and 120 days. Who wants it? Go your hardest.

Alicia Houston: Yeah. That’s correct. So, they get a little bit competitive, and you have to think about, well, Credit Corp has a lot of money. Are they going to pay an extra half a cent or an extra cent, which might mean that we’ll lose out? And so, they’ll all put their bid in and then the bank will say, “Yeah, we’ll sell it to you.”

Dominique Grubi…: And what’s normal, like rule of thumb. I know the debt differs, and-

Alicia Houston: Yeah, and again, it also differs not only with the type of debt, but also what institution it’s coming from. For example, Latitude is expensive because they don’t do much in-house. So, it’s quite collectible. They’re at about 25 cents in the dollar. But you could get a credit card debt from ANZ for 16 cents, 16 or 17 cents.

Dominique Grubi…: And the difference is that ANZ have probably worked it harder in debt collection. And if so, they didn’t collect, then there’s less likely that you will. Whereas, Latitude or other lenders haven’t been touched, and maybe one phone call, and they’ll get paid.

Alicia Houston: Yes.

Dominique Grubi…: I get it. Okay, interesting. So, what you’re seeing if we study the biggest player, and they’re a publicly listed company. So, you’ve through what they’re doing, and this also plays out what you’re seeing in negotiating with them is that they’ve noticed some things have changed since March with what people are doing.

Alicia Houston: Yes. So, Credit Corp noted that the debtors, is what they refer to them as-

Dominique Grubi…: So, people who owe them money.

Alicia Houston: People who are owing them money had gone on a payment strike. So, they’ve decided to call it, which obviously is in line with when COVID hit and people lost their jobs. So, that was in March. It also said that there was some uncharacteristically high one-off payments by the end of June, which was their next report.

Dominique Grubi…: That’s probably you.

Alicia Houston: Yeah, probably. So, yeah, we do have… We did say that, obviously, lots of people going into deferrals and moratoriums where they didn’t have to pay anything. And then it was like, okay, let’s get in and offer them something so that we can get rid of this.

Dominique Grubi…: So, Alicia and the team are ringing up Credit Corp going, “Look, they’ve sold off everything that the kitchen sink, and everything that’s not now down. They’ve got a little wall chest here. They owe you 20,000. They can maybe give you 3,000 if you take it now.” And so, they’re seeing one-off payments, and that’s played out for you. They’re accepting cents on the dollar as well. And they’ve even written down the value of the collection book that they’re going after.

Alicia Houston: Yeah, that’s right. So, I mean, for someone like Credit Corp, their asset book is the debt. So, how they report on that is the value of the debt. And that all goes hand in hand with how old the debt is, when they purchased it, and obviously depreciates like anything else that you buy.

Dominique Grubi…: So, if I can’t collect money off you in the first three months when you’re out after two years, you’re going to be less and less likely to pay. That’s the idea.

Alicia Houston: Yes, yes, definitely. They’ve also spent money on trying to collect it and all sorts of things paying their staff to try and ring you and sending letters and all of that kind of thing.

Dominique Grubi…: So, they’ve gone, “Hey, it’s a slippery slope. This is going to be a lot harder to collect in the current climate with high unemployment and everyone doing it tough.” So, what was 540 million because remember it’s debt we see as a bad thing, but for debt collectors and banks, debt is a good thing. It’s an asset for them because it’s money that’s owed to them. Not money that’s owing. And so, they said 540 million allowing for the current market. They’ve taken 80 million off the face value of that. So, 10% reduction.

Alicia Houston: Yeah.

Dominique Grubi…: And the other thing that they’re doing is they’re going to go in and buy debt aggressively, they’ve said. But they’ve said the market, the seller needs to be realistic. It’s a buyer’s market basically.

Alicia Houston: Yeah. Absolutely. And it’s probably a couple of years ago much different. There’s a whole heap of debt purchasers out there. Well, the ones that you’ve heard of and the ones that you’ve never heard of. There’s some that I’ve never heard of.

Dominique Grubi…: Right. Okay. Shall we know them. Who are the big players? There’s Credit Corp.

Alicia Houston: Panthera, Pioneer. They’re probably your top three.

Dominique Grubi…: Yep. And so, if you’re getting letters from them, it means your debt’s being sold potentially to them. They’re collecting it. And there’s a whole lot of paperwork and assignment and documents and compliance that goes around that. So, a lot of levers and buttons that you can challenge, but ultimately they’re going to be paid. They’re planning to pay less for the debt that they buy. So the buyers out there are going to pull down the prices that the banks will sell for. So, last year Credit Corp spent 230 million on debt buying. They’ve only allocated a budget of 120 to 180 million this year. So, they’re going to buy more with less money.

Alicia Houston: With less money. Absolutely.

Dominique Grubi…: And what does this mean? How do you see that playing out for us and our clients, and the little guys who are owing that money? Where’s the silver lining for us?

Alicia Houston: Yeah. The silver lining is that firstly, the bank will be realistic in the fact that when they do sell it. When and if it does come to that time and they do have to sell it, they’re going to be selling it for less. So the value to them as well has dropped. The price has dropped. The other thing is that because it’s so competitive, and because it has been so competitive in the past is that Credit Corp will put in a bid, but then you’ve got the other Probe and Pioneer and those ones thinking, “Oh, I wonder how much Credit Corp are going to be able to afford to pay for this.” So they’ll increase their price a little bit.

And at the moment, no one’s going to be able to afford to do that. And the irony of the debt collection industry is that they’re also struggling. If people aren’t paying them, then they’re not making money. So, yeah. We’ll see… What I believe that we’ll see is that, like you said, everyone will pull back. The bids will become lower. The debt will become worthless to them because it’s unpredictable what they’re going to see in the next coming years. And no one really wants to take that risk. And also they’ve all taken a hit through this period, and are also losing money as well.

Dominique Grubi…: Yeah. So, first recession in 30 years. If you’re owed money in a recession, you got to be worrying. Donald Trump once said, “If I owe you $500 and I don’t have it I’m in trouble. If I owe you $500 million and I don’t have it, you’re in trouble.” And that’s, they’re owed a lot of money. And if they’re going to be in the debt business they’re going to be saying to the banks, for example, instead of paying 20 cents on the dollar and getting it… like you paying it out as a debtor for 30 cents. If they’re buying it for 15 cents, they might let you pay it out for 21 cents on the dollar or whatever. So, they’ll be far more negotiable. The cheaper they buy the debt, the cheaper they can let you as a debtor, someone who owes them money settle that debt.

So, yeah, fun times ahead. And we’re already seeing… I mean, we were getting results, and debt is always negotiable. It’s just that most people don’t know to ask. And the thing that frustrates me the most in the market having been in so much debt myself is that you’re told by the system and the insolvency experts and lawyers and accountants, if you can’t pay your debts, then you should wind up, go bankrupt. And there’s only two extremes. You’ve got a contract, you pay it. If you don’t pay it, then you’re insolvent, and you fall on your own sword and you go bankrupt or you wind up your company, or you go into administration, or whatever else. You can actually go direct to your creditors. People you owe money to and negotiate with them. And everyone’s negotiable right now.

So, to give you an idea of what’s possible because you don’t know what you don’t know, you don’t know what to ask for. You don’t know what can be done, and what’s possible. I asked Alicia to just get us a cross section of the recent things that she’s been able to negotiate for our DGI debt management clients. So first of all, and this would apply, there’s a lot of people out there with mining town properties. So they bought in the height of the mining boom. Maybe they paid $800,000 for a property that is now worth $400,000. If they sell it for $400,000, they borrowed 700 at the time there’s going to be a shortfall and they owe the bank $300,000. So, usual story, they go to lawyers, accountants, and they say, “Oh, well, keep paying. Wait for the market to come back. You can’t default because you’ll owe the shortfall of 300, and then you’ll have to go bankrupt. So people are just stuck between the devil and the deep blue sea treading water and throwing good money after bad on these properties.

So, what is possible and what Alicia and the team helped this client do recently was they sold the property. And yeah there’s a shortfall, but the bank would rather something. They want the property sold in a controlled way, but there was still a $255,000 short fall on that one. Was that with the bank or a mortgage insurer?

Alicia Houston: Yeah. This one originally was with the bank, and went through to the mortgage insurer. They didn’t hold onto it and claimed on their insurance, obviously. So, we find [crosstalk]-

Dominique Grubi…: I’ll just explain that. So, what happens is if the borrower has borrowed more than say, 80% of the purchase price, the bank will still lend to them, but they’ll make them take out what’s called lenders mortgage insurance to insure the bank. So, if there is a shortfall like this, the insurer will pay. So then the bank will say, “Okay, we lost 255,000 on that loan.” The insurer will pay the bank the 255. The bank will assign the right to sue or that debt to the insurer and the insurer then chases the borrower. So, sorry, go ahead.

Alicia Houston: Yeah. So then this one in particular, we had a quick turnaround, $40,000 we ended up settling it for.

Dominique Grubi…: So, $255,000 debt that someone could have just struggled just paying the mortgage on that place for 20 years. And you were able to move it around, sell the property, and pay out the debt for $40,000.

Alicia Houston: Yeah.

Dominique Grubi…: Good results. That’s correct. What about those of us with lots of credit cards? What’s possible there?

Alicia Houston: Look, we’ve got so many examples. I just really picked one out of the hat for the purpose of today, but yeah, I have a particular client, 29,000, just under $30,000 worth of credit card debt across five different credit cards with a couple of different institutions. And we were able to reduce that to a payout figure of just under 8,000, which was only 27% of the actual owing amount.

Dominique Grubi…: So, 27 cents on the dollar.

Alicia Houston: Yes.

Dominique Grubi…: Fantastic. And you had another, a lot of credit card debts just completely written off. The lender just said, “Okay, forget it.”

Alicia Houston: Yeah. That’s right. Well, we’ve got multiple scenarios here. Some customers we can’t just get everyone’s debt waived, but we know if we have an angle to play we’ll be able to pull out every single string.

Dominique Grubi…: So, compassionate ground [crosstalk]-

Alicia Houston: Compassionate grounds, compliance. Yeah, absolutely. And so, once we are able to gather all of that information, we can feed that back to the bank and say, “Look, unfortunately, a client can’t pay anything.” And yeah, in this case we’ve had two so far written off just under 12,000, 11 and a half thousand. [crosstalk].

Dominique Grubi…: Fantastic. And there’s more. So, you’ve split it up and that’s with one lender and you’re negotiating there.

Alicia Houston: That one was with two separate lenders, but there’s still more to come for this particular client.

Dominique Grubi…: So, you’ve taken all the hit credit card debts, and other debts and you’re negotiating them all with-

Alicia Houston: Yeah. And sometimes we’ll know who might accept a waiver first, so we’ll know what institutions we should go to first. And then we’ll use those letters when we send our offer to other institutions.

Dominique Grubi…: So, you’ll say this lender waived, and that lender waived [crosstalk]. Good idea. And another one was an actual mortgage. So the mortgage still exists. The lender just said, “Okay, we’ll keep paying. We’ll take $38,000 off your mortgage and you keep making the repayments.”

Alicia Houston: Yeah, that’s correct. This one in particular, the customer came to us because they were struggling financially. However, through a couple of red flags that we picked up on thought that we’d check for some of the compliance issues, and were able to find some faults, and the bank was willing to waive off yeah, 38,000. I mean just over 38,000

Dominique Grubi…: And another one, they knocked nearly $45,000 off a $101,000 business debt.

Alicia Houston: Yeah. So, business debt is a little bit different. Commercial loans don’t fall under the same regulations-

Dominique Grubi…: Consumer protections.

Alicia Houston: … as consumers do, but proof that everyone is negotiable because some of these were trade creditors and some of them were some of the bigger business loans, and that you see as well. So, yeah. So, it’s a fun time.

Dominique Grubi…: So, yeah. It’s always been negotiable on all fronts. It’s just that don’t be fooled into thinking, well, these are really, really troubled times. I’m carrying a lot of debt. That’s not just a problem for you. Everyone’s changing to adjust to this, including lenders and debt collectors. So there’s a lot that can be done, and you need to go in now and sort it all out because now’s the time that they’re really negotiable and they’re doing deals. So, for more information, or if you want to have a strategy session we’re putting that link up in the comment section and in the description section. So we can take it offline. Look at your situation. Look at your credit report. Look at the debt that you’ve got.

Even if you’ve been paying. If you’ve been paying every month, but it’s just like for me, I held a $20,000 credit card maxed up to 20,000. We held that for like five or six years, Kevin and I, and we never ever paid a cent, but we just kept paying the interest every month. And every time we sold a property, I think I’ll pay off that 20,000, but I just never did. So, I paid off the principal 10 times over. We were paying $500 a month every month for six years. So, it was ridiculous.

Alicia Houston: Yeah. It happens a lot.

Dominique Grubi…: I wish I knew then. But yeah, so go to that link there. We can take it offline. There’s so much that can be done that can be putting you in a much better position, not to just weather the storm and survive, but thrive right now. So thanks so much for sharing all that knowledge on what’s possible, Alicia. And don’t forget to follow us on Facebook to get regular updates and share this with your friends. I want everyone to know this. So, just tag them in the comment section. And if you’re watching on YouTube, don’t forget to like us, subscribe, and hit the bell so we can notify you when we release a new content. In the meantime, stay safe, take care, and we’ll talk soon. Thanks.