Anyone feeling debt stress in the lead-up or after Christmas, be warned that finance companies that offer to manage your debt or fix your bad credit rating may not be acting in your best interests.
Debt vultures are the focus of a Senate inquiry being undertaken by the Senate Economics References Committee. It starts today and will also tackle the impact of payday loans, rent-to-buy leases and ‘buy now, pay later’ credit.
The Consumer Action Law Centre (CALC) says that debt vultures target people concerned about bills, home repossession or the confusing credit reporting system. “They promise a quick fix ‘debt solution’ but the reality is that often these unqualified, unregulated firms charge exorbitant fees, can’t deliver on many of their promises, and leave financially struggling families with even less money,” it says.
There is little regulation around many of these companies, it says, and anyone with concerns is able to check his or her credit history at no cost.
The ABC reports that some companies specialising in debt management or credit repair have been charging vulnerable consumers an upfront fee of more than $1000.
In one instance, a Melbourne woman had paid a debt management company thousands of dollars to manage her debt, but ended up having to file for bankruptcy. The company had asked her and her husband to pay $910 a fortnight to negotiate her debt, yet after a series of payments, she had heard nothing from the creditors to whom she owed money.
“There is no way we could maintain $910 a fortnight; it’s just too much money,” she told the ABC.
Chris Green, from the Australian Securities and Investments Commission (ASIC), confirmed that individuals are often able to contact the company they have a default with, and get the debt cleared themselves.
“You can deal with the credit bureau or the credit provider yourself – for nothing,” he said.
CALC chief executive Gerard Brody said people struggling with debt were most susceptible to these small finance companies charging big sums to manage debt.
“There is incessant advertising by these companies, and people can get attracted to them and [feel] like they’re going to help,” he said.
“I think the Senate inquiry is a really good way to look at these businesses, because these businesses cause a lot of harm – if not more harm – to those Australians who are struggling with debt.
“Financial counsellors are irreplaceable, supporting and advocating for Australians doing it tough. They are expert and trusted and with more Australians than ever at risk of financial stress, we need both Federal and State Governments to provide additional funding for financial counselling.”
CALC says the best way to resolve debt problems is through the National Debt Helpline – a free financial counselling service – or through a community legal centre.
The Senate inquiry comes in the wake of the financial services royal commission, which was damning of the inaction of some financial watchdogs.
The Australian Prudential Regulation Authority (APRA) is now suing wealth manager IOOF and some executives for not acting in the best interests of superannuation members. It is APRA’s first court action in 10 years. Wealth manager IOOF has said it will vigorously defend the APRA action.
The Senate inquiry’s first hearing will be held in Melbourne today and the findings will be handed down in March.
Have you been a victim of a debt vulture? Do you know someone who has?