Debt management firms promise to help consumers in financial hardship or with listings of payment defaults on their credit reports.
There is no uniform regulatory framework for debt management firms.
Different aspects of the services provided by debt management firms are regulated by the National Credit Act, Bankruptcy Act, Australian consumer law (ASIC Act and Competition and Consumer Act) and the Privacy Act 1988.
The debt management industry has been criticised as consumers can freely access their credit report and challenge an incorrect listing at no cost. Independent ombudsman schemes help resolve disputes with lenders, telcos and utilities providers.
ASIC’s report, Paying to get out of debt or clear your record: the promise of debt management firms (REP 465) sets out the results of its research.
But the report makes no recommendations.
Findings – qualitative analysis and mystery shop:
•fees and costs were opaque making it difficult for consumers, often in significant financial hardship, to assess the cost relative to the purported value;
•fees were often ‘front loaded’ – that is, fees were payable before services were provided thereby increasing consumer commitment through sunk costs;
•some sales techniques create a high-pressure sales environment;
•little information was given about important risks and some firms had a poor understanding of the relevant law and the consequences of particular strategies which may lead to unsuitable services for consumers.
Findings – Ombudsman survey data and analysis:
•a growing number of firms are representing consumers at external dispute resolution (EDR)—this is concentrated among a few large players, with an increasing number of small firms entering the market;
•the disputes brought to EDR schemes by debt management firms relate almost exclusively to arguments about the removal of default listings on consumer credit reports (despite the breadth of other issues that can arise for indebted consumers);
•while an increasing number of consumers are being represented at EDR by debt management firms, this is not leading to more credit reporting related disputes being found in favour of consumers.
