With purportedly 32% of households financially stressed, the growing market for debt management firms is significant.
Following an in-depth investigation, on 21 January 2016 ASIC released a research report, Paying to get out of debt or clear your record: the promise of debt management firms (REP 465).
Debt management firms can generally be categorised into four groups: credit repair, debt negotiators, debt agreement brokers and personal budgeting services.
The ASIC report concluded that fees and costs of debt management firms were “opaque”, making it difficult for consumers to determine if the service was worth their money. It also found fees were “front loaded”, or payable before services, increasing consumer commitment and, at worst, leaving the customer worse off.
ASIC also noted that some sales techniques used created a high-pressure sales environment, little information was given about important risks and some firms had a poor understanding of the relevant law.
As ASIC points out, “there is no uniform regulatory framework for debt management firms and barriers to entry are low or non-existent.”
ASIC’s Deputy Chairman Peter Kell warned “The promise is always more prominent than the price. It is hard to find information about fees and they tend to be high, front loaded, and not refunded if the promise isn’t delivered.”
Gerard Brody, chief executive of the Consumer Action Law Centre, said the ASIC report highlighted the serious gaps that were letting “debt vultures” work in a regulatory void.
July 2016