Why improved consumer protections for default judgment cases are needed

A recent report from the Consumer Action called for changes to Magistrates Court procedures to protect consumers from inaccurate law suits and inappropriate judgments. Each year 30,000 to 40,000 Victorians sued in the Magistrates Court for small debts fail to lodge a defence, allowing the side bringing the case to be granted a ‘default judgment’, meaning it succeeds without allegations being fully scrutinised—that’s a staggering 80 per cent of all small money claims.

Many people being sued for alleged debts in the Magistrates Court are particularly vulnerable—they may be being chased by multiple creditors, have low literacy levels, or be intimidated by our legal system. They may simply have missed the Court’s deadline. But current processes mean that if you fail to lodge a defence, a creditor can apply for a default judgment.

Since the report’s release in July our legal team has assisted another Victorian whose case illustrates why we’re seeking improved consumer protections in default judgment cases.

Case study

Approximately 16-17 years ago Sam[1] had a credit card with a bank which he was unable to pay. After obtaining a default judgment, in 1999 the bank went to the Magistrates Court and obtained a further “attachment of earnings” order which meant $200 would be taken from Sam’s wages per fortnight and directed towards the debt.

When the bank stopped garnishing his wages about a year and a half later, Sam assumed the debt had been repaid and thought nothing more of it. Not until earlier this year that is, when he was served with a summons claiming that he now owed $13,090.87, which was supposedly made up of part of the original credit card debt, $700 in costs and a whopping $7,589.52 in interest.

Sam was understandably shocked at claims the debt was outstanding given he believed he’d paid off the debt over a decade earlier. He was also surprised to find that he was now being chased for much more than the original debt was worth. And it seemed a little unusual to him given that he had held the same Tax File Number and Drivers’ Licence Number the whole time, yet he’d heard nothing from the bank for around 13 years.

It’s at this point that Consumer Action began representing Sam, and it soon became evident that the other side couldn’t provide evidence of the debt. We were successful in having the new round of Magistrates’ Court proceedings withdrawn and were able to get the alleged debt waived. But the case raises a number of important questions:

  • If the original garnishee order was never completed, why wasn’t it?
  • Why did it take around 13 years to resume debt recovery action?
  • Why was our client being chased for a debt the other side couldn’t prove, and would the Magistrates’ Court have requested this proof on Sam’s behalf had he not had legal representation? and
  • Why did the opposing lawyer claim under oath that the debt was owed despite being unable to prove the debt, and would the Magistrates’ Court have relied on this lawyer’s statement?

It is because of this type of case that Consumer Action will continue to engage with the Magistrates’ Court to help build better consumer protections and ensure undefended Victorians aren’t exploited.

Australians being threatened with legal action over unpaid debts can call MoneyHelp, a free telephone financial counselling service, on 1800 007 007.

[1] Not client’s real name

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