Stronger laws, capped interest rates and improved oversight of debt collectors have been recommended to protect ratepayers in financial hardship from heavy handed councils following a Victorian Ombudsman investigation.
During the probe, the Ombudsman examined how struggling homeowners would be treated if they fell into debt, and whether council practices were fair and reasonable.
The examination of Victoria’s 79 councils showed widely varying practices. Some offered easier ways to pay rates and demonstrated other good practices such as engaging with local financial counsellors, recognising family violence as a sign of hardship, and providing information in community languages.
But other councils had policies that were inaccessible, and in some cases, unfair and wrong.
Chris is an age pensioner in their 60s who has trouble communicating in English.
A community legal centre contacted the Ombudsman on Chris’s behalf in 2018 after Wyndham City Council bankrupted Chris over around $30,000 in unpaid rates. The community legal centre said Chris’s behaviour suggested mental health issues.
Chris was living alone in the house without electricity or gas or a telephone. The legal centre said Chris appeared not to understand the obligation to pay rates and could not read the bankruptcy notice.
It said a financial counsellor had prepared a hardship application and it wanted the Council to annul the bankruptcy and let Chris pay off the debt at $50 a fortnight. When the Ombudsman contacted the Council, it said Chris had not paid rates since 2005. It said it had tried to resolve the matter over 13 years:
• It had spoken with Chris many times, as well as with friends of Chris and a migrant assistance centre.
• Chris had agreed to seven payment plans. Chris had defaulted on six of them but was making payments under a current plan.
• It had invited Chris to make a hardship application in the past, but Chris had not.
• It had taken Chris to court twice and issued summonses for oral examination.
It said Chris only attended court after it sought a warrant for apprehension. It also executed a warrant to seize property from Chris but decided not to take anything from the house.
The Council said it had not decided to pursue the bankruptcy lightly. It said while its records show Chris had limited English, it believed Chris had some funds and simply refused to accept there was an obligation to pay rates.
It said it believed it would be unfair to other ratepayers to let the matter go and let debt accrue.
The Ombudsman did not pursue the complaint at the time because a court ordered the bankruptcy and only a court could overturn the order. Officers contacted the Council during this investigation to find out what had happened.
The Council said Chris’ bankruptcy administrator had not been able to engage with Chris and the Council, as the only creditor, decided to annul the bankruptcy and pay the administrator’s costs.
It said the Council had since granted hardship assistance in the form of a payment plan of $100 per month. Chris had made some but not all payments. The Council said ‘[t]he balance of the rates will be deferred until hardship consideration ends or [Chris] chooses to sell the property’.
The Council said: This was the first application for Bankruptcy proceeding that Council undertook in an effort to recover a significant amount of outstanding rates, where other legal action had been unsuccessful. … Council is very proactive in our attempts to provide support to those that are more vulnerable within our community.
Support is provided through hardship plans as well as referral to external support agencies where appropriate. We have seen this process achieve some positive results for residents in need.
Our policy and processes continue to be reviewed and refined to ensure that we engage as fully as possible to understand the circumstances of those in hardship and tailor solutions that may meet their needs.
The ongoing challenge for Council is to more effectively balance the need to ensure the payment of rates in an effort to be fair to all rate payers against the need to support individual rate payers in need of additional support.
An added difficulty which we recognise is that vulnerable residents may not always be in a position where they can communicate their need for support.
Tabling her Investigation into how local councils respond to ratepayers in financial hardship report today, Ombudsman Deborah Glass said councils had obligations to their whole community, not just those who could afford to pay.
“Too many people are told their only option is a payment plan, when the legal framework includes waivers and deferrals – which some councils have a blanket policy of refusing,” Ms Glass said.
“While councils should only be expected to waive rates rarely, discretion, not sledgehammer refusals, should be the order of the day.
“The public sector is expected to act in the public interest more than the private sector – but in dealing with hardship, local councils lag behind utility and other companies, including banks.
“We would be rightly concerned if our bank was doing more to meet its social obligations than our council.”
Ms Glass said many of the policies were inconsistent with good administrative practice, including litigation against people in crisis and the over reliance on debt collectors who caused further stress to those already in vulnerable situations.
“When it comes to hardship, too often we’re on our own,” she said.
“Charging penalty interest to people in hardship is also wrong – as well as punitive and counterproductive.
“Nobody wins from heavy-handed approaches, least of all the public interest.
“But the good practice we have seen, both in councils and elsewhere, show it is possible to do it better.”
Some of the key recommendations from today’s report include changing the law to have a clear definition of “financial hardship” and capping interest rates on payment plans or deferrals.
It also includes standards for rates hardship relief, including where rates debts are associated with family violence, requiring councils to have a hardship policy and a stronger oversight of debt collectors.