Guiding Principles on Debt Management Firms
16 February 2021
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.
ABA – [email protected]
Consumer Action Law Centre – Mark Pearce
+61 413 299 567 (media) | [email protected] |
“The Australian Banking Association (ABA) welcomes the agreement reached today on the proposed safeguard mechanism reforms, given it paves the way for the passing of a critical piece of legislation for Australia.
“This is about engaging with the entire banking ecosystem in order to ensure the accessibility of the sector’s services are best serving our diverse community now, and into the future.”
“What is underpinning this bank failure is a number of things, but not least of all, it’s a very niche bank with high exposure to one part of the economy. And that’s the part of the economy that’s been quite volatile and troubled”