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Supporting regulatory reform for Debt Management Firms

Earlier this year, I attended a roundtable discussion in Melbourne on the social and industry impacts of businesses that claim to provide financial service “solutions” to customers experiencing debt and credit problems.  These Debt Management Firms promise to help consumers in financial hardship or with a credit listing, through debt negotiation, repairing credit reports and developing and managing budgets, but often leave people worse off from a financial perspective and can be incredible stressful.

As an outcome of that discussion, a Debt Management Firms Communique was developed and sent to the Consumer Affairs Forum Ministers. It was also discussed at the meeting of Consumer Affairs officials (CAANZ). I understand that the issue was referred to an internal committee for further consideration and the work will be led by NSW and Victorian agencies.  

This is a serious issue and it is encouraging that it is now on the Government’s agenda. It is also attracting media attention, with ABC’s The Checkout recently covering the topic. Watch the program here.

Credit Repair Agencies are one form of Debt Management Firm that EWON deals with regularly. We often receive complaints from energy and water consumers who have engaged a credit repair agent to remove a default listing from their credit report after they discovered they had been listed for non-payment of a past bill.

Many of these consumers are financially vulnerable and are credit listed for debts they have struggled to pay due to financial hardship. In other cases, the customer is unaware that they even have an outstanding debt until they access their credit report, typically after a credit application is rejected. Often this debt can relate to an unpaid final bill on an energy account at premises after the customer has moved house. The customer may have failed to provide the retailer a forwarding address, inadvertently or otherwise. In other cases the default listing has been incorrectly listed. Default listings remain on a customer’s credit history for five years and can make it difficult to obtain credit, when customers apply for a mobile phone contract, a home loan or a small business loan.

The Energy & Water Ombudsman NSW (EWON) and other industry ombudsmen investigate disputed credit listings for unpaid energy and water accounts free of charge and it is vital that consumers are aware of this.

However, consumers continue to seek the help of ‘credit repair’ agents. These companies often charge large fees, often exceeding $1000 regardless of whether they are successful in removing the default listing. It is also common for these agents to bring their clients’ cases to EWON for resolution. We advise those customers of our free service, but often it is after they have already paid high fees. EWON often finds that these firms do not act in consumer’s best interests and their misleading and incongruous services leave vulnerable consumers in a much worse position.

We welcome the opportunity to contribute to the development of and be a signatory for the Communique alongside 40 representatives from consumer advocacy organisations, industry associations, ombudsman schemes, government agencies and regulators. We urge the government to implement a new regulatory framework to bring these businesses in line with other financial services in Australia through licensing requirements, required membership of an ombudsman scheme and regulatory obligations.

In the meantime, EWON will continue our work in educating consumers on how our service can help vulnerable consumers, independently, fairly and without a financial cost.

Janine Young, Energy & Water Ombudsman NSW