The Australian Banking Association supports the Federal Government’s proposed licencing regime for debt management firms and has called for further changes to protect consumers.
Debt management and credit repair services are targeted at Australians at risk of financial vulnerability and can exacerbate or even cause financial hardship.
There is a clear benefit to the community and the economy in ensuring that consumers do not fall victim to unsuitable or predatory credit practices in the debt management industry.
“Stronger compliance measures and regulation of the debt management sector will help to prevent Australians being ripped off”, said ABA CEO Anna Bligh.
“Banks are encouraging the Government to ensure that customers are adequately protected from unscrupulous operators”, Ms Bligh said.
Banks have been working with the Consumer Action Law Centre and other consumer bodies to ensure the proposed changes are effective.
“Stronger compliance measures and regulation of the debt management sector will help to prevent Australians being ripped off”
ABA CEO Anna Bligh
“Debt management firms promise a life ‘free from debt’ but instead charge large fees, often for poor advice which can leave people in even worse financial strife”, said Consumer Action CEO Gerard Brody.
“We agree with banks that licensing debt management firms is a good first step, but even licensed firms show faults. The regime should be strengthened and targeted rules need to be enforced to ensure people receive the quality advice they can really trust”.
The ABA’s submission in support of the proposed changes calls for further amendments to strengthen the legislation.
As ASIC has noted, “Debt-management firms operate on a for-profit basis and charge consumers fees for their services, either upfront or on a ‘success’ basis. Fees can be very high, and the services can sometimes leave consumers already in financial difficulty worse off.”
To prevent these practices, the ABA suggests that the proposed licensing regime is strengthened to allow ASIC to supervise the debt management industry for fee structures that place Australians in financial vulnerability, including charging large upfront fees or placing caveats on people’s property for minor services rendered.
The ABA has also called for further consideration of the regulation of “pre-insolvency advisors” to small businesses, as well as compliance and enforcement action from regulators to prevent misleading advertising and unfair contract terms used by debt management firms.