ASIC launches probe into debt management, credit | Australian Markets

The company watchdog is launching a probe into the debt management and credit restore industry, saying it’s involved some companies are “leaving financially vulnerable consumers worse off”.

The Australian Securities and Investments Commission mentioned it was examples the place debt management corporations “may have failed consumers” by not assembly the phrases of their settlement, charged high charges for no or restricted companies, or failed to speak correctly with purchasers.

ASIC commissioner Alan Kirkland mentioned he was anxious some licensees — the sector is comprised of about 100 — could also be failing to interact in credit actions “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 mentioned.

In one occasion highlighted by the commissioner, a lady was unable to search out out why her debt management firm was not making any funds to her collectors. After quite a few calls to the firm, she was instructed to enter into chapter with no additional rationalization.

In one other instance, a man was at risk of having his car repossessed after his debt management firm failed to reply to default notices from collectors.

“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 mentioned.

“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 have a look at the various debt management and credit restore business fashions in operation and how they adjust to the law.

A licensing regime was launched in 2021 for debt management and credit restore corporations to guard customers from predatory practices.

The financial regulator has taken motion in opposition to a number of companies since then, together with suing Bakken Holdings, the operator of debt management business Solve My Debt Now, in August 2023 following issues of “substantial consumer harm”.

ASIC on the time alleged Bakken collected $3.6 million from its prospects however paid solely $1.1m of this money to collectors, and that 64 per cent of prospects didn’t have funds made to their collectors in any respect.

The company beforehand mentioned Solve My Debt Now didn’t pay purchasers’ money owed, however negotiated fee plans on their behalf.

ASIC refused Bakken’s software for an Australian credit licence in June this 12 months.

Meanwhile, it hit debt management company Chapter Two Holdings Pty Ltd with two infringement notices in April for alleged deceptive statements made on its web site relating to debt management outcomes.

ASIC mentioned Chapter Two’s web site included statements that the company had wiped $80m in debt and saved customers $30m in curiosity.

The watchdog is anticipated to publish insights from its review into the debt management and credit restore industry in a public report subsequent 12 months.