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Debt Factoring

What is debt factoring?

Debt factoring is the assignment of a debt from one creditor organisation to another either by arrangement (contract) or as a Debt Purchase.
Usually the factoring organisation will pay the creditor less than (or a percentage of) the face (collectable) value of the debt in order to collect the outstanding (total face value of the debt).

Debt factoring is advantageous for creditors who have large portfolios of debt, who wish to increase their cashflow or working capital by getting a portion og the balance of an account now rather than go thorough a collection process that they do not have the resources for.

Debt factoring or debt purchase (assignment) has been the case on occasion where a finance company has needed immediate cashflow to cover loss of investor confidence. Requiring the company to return a large percentage of the investors funds without the usual delay involved with lenders having their loans paid in full.

What is debt Assignment?

When a debt is assigned it is passed from one company to another.
This means little for the debtor, as their contract does not change, however the creditor changes.

For the creditor however, this is a very shaky ground, which seems not to have been covered in NZ Law Currently
Most credit contracts have an assignment clause, which states something such as 'CREDITOR X may assign its rights to any party ....'
If you have a loan which is assigned to a third party, you will still be required to adhere to the specific terms and conditions of the loan document you signed.

There are debt collection companies in New Zealand that are assigned debts (as a debt purchase). If you account has been sent to one of these companies, you do not have to accept the terms and conditions they impose, if they are a departure from the original credit contract, any variation for a credit contract is usually required to be advised in writing and acceptable for both parties (if it is a substantial change, such as adding fees that were not in the original contract).

Rights and responsibilities?

New Zealand seems to have overlooked this particular function of assignment
Although most creditors push their rights under the assigned credit contract, very few (2014) actually respect their responsibilities under the credit contract. At anytime a Debtor can ask for disclosure (as allowed by the CCCFA) in respect of their credit contract.

What happens if the debt is assigned to a debt collector for collection, rather than a finance company regulated under the Financial Advisor Scheme?
Good question, apparently nothing, (although the assignor or creditor may be required to be a registered financial advisor) a debt collector assignee does not have to be an advisor or part of an approved dispute resolution scheme.
Which means that there is a free reigh for the assignee (debt collection company) to say or do whatever they wish to coerce you into paying what they feel is what they should get.

Note: this may change in future if the CCCFA requries assignment between common entities, requires debt collection companies to be registered, or requires crystalisation of debt upon assignment. The CCCFA (2003) part 6 states that the credit contract transferee takes the contract, and must (in the writers opinion) be subject to that same contract

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