With ABS data showing that Australians are living with over $1 trillion of personal debt, consumer advocates are warning that an emerging industry of ‘debt vultures’ is making things worse.
Debt vultures (known by regulators and industry as ‘debt management firms’) promise to help Australians solve their money or debt problems, but consumer advocates say the promises don’t add up.
“The problem with these businesses is that they profit from you when you’re at your most vulnerable” says Gerard Brody, CEO of Consumer Action Law Centre.
“They use highly targeted and emotional marketing to promise a life free of debt, but the reality is that they charge exorbitant fees, can’t deliver on many of their promises and leave many families with even less money for basics like putting food on the table.”
The businesses offer a range of interconnected services – ‘repairing’ credit reports, personal budgeting, debt negotiation and management, and everything in-between. Community Legal Centres and financial counsellors regularly report helping Australians caught up in problems with these businesses.
The warning from consumer advocates follows a January report from ASIC and a meeting of over 40 industry and consumer representatives who have spoken out against the firms. An alliance of industry groups, ombudsman schemes and consumer representatives jointly released a communique from the meeting, which calls on governments to act.
“These businesses need to be regulated as a matter of urgency” says Kat Lane, Principal Solicitor at Financial Rights Legal Centre.
“They’re causing daily problems for community services, but also for ombudsmen services and the rest of the credit and debt industry. Worst of all is the impact on vulnerable Australians who often hand over thousands of dollars with very little benefit. We need consumer affairs ministers from all jurisdictions to act.”
A communique is being delivered to all ministers involved in the ministerial council for consumer affairs, known as the Consumer Affairs Forum today. The forum is headed by Federal Assistant Treasurer Kelly O’Dwyer. It is available for download here.
Gerard Brody and Kat Lane are available for comment.
ASX200 company Credit Corp Group Limited is a listed financial services provider with debt collection and consumer lending operations. For the perspective of financial services providers Credit Corp’s COO Matt Angell is available for comment on 02 8651 5500.
Image via Lip Kee