According to a new report released today by Consumer Action Law Centre, approximately 1.4 to 1.9 million Australians have paid for debt management or credit repair services in the last 12 months. These companies are known as ‘debt vultures’ as they often target people in financial hardship with poor quality debt advice and services.
The research found that debt management companies, which are almost entirely unregulated, are reaching a large proportion of Australians with their advertising, largely through TV and online advertising. Over half (55%) have seen or heard advertising in the past year from companies providing advice or services to people to help deal with debt problems or repair credit reports.
The report by Quantum Market Research on debt management firms is based on its AustraliaNOW weekly survey of attitudes and behaviour during COVID-19. A total of 2,005 people representative of age, gender and location were interviewed between 19 and 30 November.
“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,” said Gerard Brody, CEO Consumer Action.
“People are genuinely shocked when they discover the lack of rules and obligations on firms offering debt advice, debt negotiation, credit repair and money management services.
“The community expects the Government to introduce strong protections—that’s why 92% of Australians want the same protections against debt vultures as in the UK, where debt advice must be in your best interests and tailored to your individual circumstances.
“The Federal Treasurer has taken a good first step in committing to licensing part of the industry, but this report shows reform must go further by banning upfront fees, introducing a best interests’ duty and covering the whole industry. Anything less would leave gaping holes and undermine the effectiveness of the reform,” said Mr Brody.
Richard Frost from Quantum Market Research said “…through our research we have been observing that Australians are under a range of financial pressures, with the desire to be debt-free now the top sign of success in 2020.
“Once Australians are aware that there are no consumer protections in place for companies providing debt management advice, as many as 92% feel that it is important for protections (similar to those in the UK) to apply here.”
- Two out of five Australians are struggling to pay everyday bills such as energy (22%), groceries (19%), and council rates (11%). People aged 18-29 report being the most financially stressed
- Debt management and credit repair services are booming with 8% of respondents saying they have paid for debt management or credit repair services in the last year—approximately 1.4-1.9 million people. People in public housing or negatively geared are more likely to use these services
- COVID-19 has increased the market for debt vultures: For just under one in five (17%) Australians, the pandemic has increased the likelihood that they would seek out debt or credit repair services
- Being ‘debt free’ is now the top symbol of ‘success’ for Australians in 2020, the first time in Quantum’s survey this has been cited as an accolade of success
- Debt management and credit repair services are highly visible and active – 55% of respondents saw or heard an advertisement for debt help or credit repair companies online or TV in the last year representing approximately 10.5-11.3 million people
- Australians overwhelmingly support the notion of having UK-style consumer protections in place to protect consumers using debt or credit report services. In the United Kingdom, a company providing debt management services must make sure the advice it gives to people is: a) in their best interests; b) appropriate to their individual circumstances; and c) based on a full assessment of their financial circumstances. 92% of respondents felt that it was important or extremely important these protections be introduced in Australia
- Advance fees before delivering any useful services should be banned with 76% of respondents supporting this reform.
- The Federal Government has announced a limited licensing regime to protect consumers from the predatory practices of debt management firms by requiring them to hold an Australian Credit Licence when they are paid to represent consumers in disputes with financial institutions – but will not cover debts or credit report listings related to energy, telcos, or other debts that are not credit products
- The United Kingdom has introduced a robust framework for all debt management firms and credit repair companies that include detailed conduct obligations.
Media contact: Mark Pearce, Media and Communications Adviser, 0413 299 567, firstname.lastname@example.org