National, territory and state law regulates debt collection in Australia. The statute of limitations is the law that sets the time limit based on a specific starting period in which legal action to collect debt is permissible.
In other words, creditors can only take legal proceedings to recover debt if they meet requirements within the time period set by the statute of limitations in the applicable state or territory.
Limitation periods by state
The limitation periods for each state or territory are as follows for simple contract debts such as unsecured personal and credit card loans, and for debts that occur after a court judgment.
• Australian Capital Territory — simple contract: 6 years. Court judgment: 12 years
• New South Wales — Simple contract: 6 years. Court judgment: 12 years
• Northern Territory — Simple contract: 3 years. Court judgment: 12 years
• Queensland — Simple contract: 6 years. Court judgment: 12 years
• South Australia — Simple contract: 6 years. Court judgment: 15 years
• Tasmania — Simple contract: 6 years. Court judgment: 12 years
• Victoria — Simple contract: 6 years. Court judgment: 15 years
• Western Australia — Simple contract: 6 years. Court judgment: 12 years
Start of limitation period
The statute of limitations applies to the period starting on the date in which the “right of action” begins. In some cases, this start date is difficult to assess, however, normally it begins either when the debt becomes due. The due date can arise either because of the contract term date or because the borrower fails to meet the contract’s payment obligations.
In some cases, the limitation period can restart from the beginning. For example, if a creditor is the third year of a six-year limitation period, the limitation will restart giving the creditor another six years to take legal action.
Limitation periods restart if the debtor either makes a payment on the debt, or submits an acknowledgment of the debt in writing.
For an acknowledgement to reset the limitation period, it must meet all of the following requirements:
• The acknowledgement must be in writing and signed
• It must come from the borrower or from an authorised agent
• It must clearly acknowledge the debt’s existence and unpaid status
Resetting of the limitation period can occur repeatedly in Queensland, South Australia, Tasmania and Western Australia, and the limitation can even restart after the expiration of a previous limitation period. In Australian Capital Territory, New South Wales and the Northern Territory, the limitation period does not restart after expiring.
Additionally, limitation periods can vary for debts that involve special rights. For example, a debt that arises from a deed rather than a simple contract will have different limitation periods. A secured mortgage is another type of special contract debt.
In New South Wales, the statute of limitations law completely cancels the debt after the limitation expires. In all other states and territories, the debt continues to exist after the limitation expires, but the creditor no longer has any legal recourse to recover the debt. In such cases, the debtor can file a defence pleading expiration in order to prevent any judgment on behalf of the creditor.
In order to determine which state or territory’s law governs a particular debt case, the following factors come into consideration:
• If the debt comes under Consumer Credit Code regulations, then the jurisdiction is that where the debtor ordinarily resided when entering into the loan contract.
• If the debt does not involve Consumer Credit Code regulations, then the jurisdiction is usually that in which the parties entered into the credit contract.
• Some contracts will specify the jurisdiction of the contract; however, such clauses are invalid in cases regulated by the Consumer Credit Code.
Many creditors still collect on statute-barred debt
Despite the existence of legislation, it is not uncommon for creditors to take legal action on statute-barred debt.
A number of reasons contribute to these actions:
• Many agencies have no policy for identifying debts that fall beyond the limitation period.
• Misunderstanding of the law – Agencies are often ignorant or confused about statute of limitation laws. Often they rely on word-of-mouth and may have never read the applicable statutes. For example, some collectors believe that if they have been unable to make contact with the debtor during the limitation period, then the limitation automatically does not apply.
Some agencies continue to collect statute-barred debt, while others have policies in which they do not undertake collection on such debt. As noted, New South Wales cancels any debt after the limitation period expires.
In collecting statute-barred debt, the creditor or collection agency cannot threaten legal action against the debtor. Depending on the state or territory, there may be additional restrictions regarding collection of statute-barred debt.
• The collector may need to inform the debtor about the expiration of the limitation period and to provide an explanation of what the means if requested.
• In New South Wales, the creditor must not provide misleading information that the debt is still ongoing when, in fact, the law extinguishes the debt after expiration of the limitation period.
• The creditor cannot make deceptive, false or misleading statements that might lead the debtor to believe that the creditor still had legal recourse to recover the debt.
Regulation of the statute of limitations
The Australian Securities and Investments Commission (ASIC) Act provides ASIC with responsibility on regulating statute-barred debt collection with regard to the following types of conduct:
• Unconscionable conduct
• Misleading or deceptive conduct
• False or misleading representations
• Physical force, undue harassment or coercion
Similar regulations are present in the Trade Practices Act 1974, regulated by the Australian Competition and Consumer Commission (ACCC). Additionally, each state and territory has regulations of a similar or equivalent nature.
The legislation that governs the statute of limitations in each state and territory are as follows:
Australian Capital Territory – Limitation Act 1985
New South Wales – Limitation Act 1969
Northern Territory – Limitation Act 1981
Queensland – Limitation of Actions Act 1974
South Australia – Limitation of Actions Act 1936
Tasmania – Limitation Act 1974
Victoria – Limitation of Actions Act 1958
Western Australia – Limitation Act 1935
The Collection House v Taylor case clearly defined how statute-barred debt collection regulations apply in the real world. For example, the simple fact that the debtor submits a payment for a statute-barred debt can be sufficient evidence suggesting wrongful action on the part of the creditor. In such cases, the burden falls on the creditor or debt collector to prove that the transaction was fair, just and reasonable.
How creditors and debt collectors can improve compliance
Frequently, agencies are not aware of the applicable jurisdiction and, therefore, they do not understand which limitation statute applies to a specific debt case. Since many collection agencies now are national in scope, they must take the effort to familiarise themselves with state and territory laws.
Agencies should implement policies that ensure staff are aware of how to conduct fair and reasonable communication with debtors. They must avoid making statements to debtors that are false, misleading or deceptive. In particular, agencies should avoid taking advantage of debtors’ lack of knowledge of the limitation period and applicable laws.
Staff should always provide accurate information when requested by the debtor or when it is apparent that the debtor should have such information. They should not take advantage of the debtor’s unfamiliarity with the law to induce or coerce them into making a payment or sending in a written acknowledgement that would reset the limitation period.