ASIC launches probe into debt management, credit repair industry
The Australian Securities and Investments Commission said it was looking at examples where debt management firms 'may have failed consumers' by not meeting the terms of their agreement, charged high fees for no or limited services, or failed to communicate properly with clients.
ASIC commissioner Alan Kirkland said he was worried some licensees — the sector is comprised of about 100 — may be failing to engage in credit activities 'efficiently, honestly and fairly, leaving financially vulnerable consumers worse off as a result'.
'We have heard numerous accounts of debt management firms making promises to vulnerable consumers that may not have been kept,' Mr Kirkland said.
In one instance highlighted by the commissioner, a woman was unable to find out why her debt management firm was not making any payments to her creditors. After numerous calls to the firm, she was told to enter into bankruptcy with no further explanation.
In another example, a man was at risk of having his car repossessed after his debt management firm failed to respond to default notices from creditors.
'When he cancelled his contract and asked for a partial refund from the debt management firm, they said there was a no-refund policy,' Mr Kirkland said.
'Stories like these are disturbing and if we detect unfair and unlawful practices, we will take enforcement action to protect consumers.'
ASIC's review will look at the varying debt management and credit repair business models in operation and how they comply with the law.
A licensing regime was introduced in 2021 for debt management and credit repair firms to protect consumers from predatory practices.
The financial regulator has taken action against several businesses since then, including suing Bakken Holdings, the operator of debt management business Solve My Debt Now, in August 2023 following concerns of 'substantial consumer harm'.
ASIC at the time alleged Bakken collected $3.6 million from its customers but paid only $1.1m of this money to creditors, and that 64 per cent of customers did not have payments made to their creditors at all.
The company previously said Solve My Debt Now did not pay clients' debts, but negotiated payment plans on their behalf.
ASIC refused Bakken's application for an Australian credit licence in June this year.
Meanwhile, it hit debt management company Chapter Two Holdings Pty Ltd with two infringement notices in April for alleged misleading statements made on its website regarding debt management outcomes.
ASIC said Chapter Two's website included statements that the company had wiped $80m in debt and saved consumers $30m in interest.
The watchdog is expected to publish insights from its review into the debt management and credit repair industry in a public report next year.
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