Licensing debt management firms: Exposure draft regulations
While some businesses stepped up to help Australians to recover from the COVID-19 crisis, others have simply sought to profit from people’s desperate financial circumstances.
Debt management firms(DMFs -also known as “debt vultures”) are among the worst—promising a life free from debt but instead charging large fees, giving bad advice and leaving people in even worse financial strife.
It’s a dangerous mix: people struggling with bills as a result of COVID-19 but desperate to be debt-free, debt vultures promising to ‘help’ fix debt and credit report problems but absolutely no rules on how these companies act—even when their bad advice or eye-watering fees make debt problems worse.
We support the Federal Government moving to require some debt management firms to hold an Australian Credit Licence and join the Australian Financial Complaints Authority, which will improve access to justice. Predatory operators must be refused a licence to continue operating. We also strongly support the licensing requirement applying to firms that act behind the scenes, providing advice and making suggestions but not representing consumers in internal and external dispute resolution.
Licensing alone, however, will not fix the problem or ensure that people get high quality, competent advice they can trust. Time and again, our services see problems with DMFs that already hold an Australian Credit Licence. The Federal Government must introduce a robust licensing regime with specific conduct obligations to prevent harm. The community expects nothing less.
Consumer research from Quantum Market Research, available at Appendix A, confirms that Australians overwhelmingly want DMFs subject to a best interests’ duty, minimum education and training requirements, and a ban on advance fees.
Read the full submission (PDF) and Appendix A (PDF)