Debt fixers, credit repair companies face ASIC scrutiny after customers left bankrupt

ASIC will launch a review into debt fixers and credit repair companies, amid horror stories from customers who say they’ve been left in worse trouble than before.

Some credit repair customers have been left worse off than before.

Cowboy credit repair and debt management companies have left desperate customers bankrupt or facing bank foreclosure, with the shocking revelations sparking a probe by the corporate watchdog.

ASIC will review the business models in an industry of about 100 debt management and credit repair companies, which claim to help consumers make debt repayments and deal with creditors.

ASIC commissioner Alan Kirkland said the “disturbing” reports of debt fixers leaving people worse off, after charging high fees or failing to do the work they were engaged to do, were highly concerning.

“We have heard numerous accounts of debt management firms making promises to vulnerable consumers that may have not been kept,” Mr Kirkland said.

One woman told the regulator her debt manager wasn’t making payments to her creditors and she couldn’t get an explanation.

Mr Kirkland said she was told to enter bankruptcy with no further details, after she made several calls to the firm.

“Another man was at risk of having his car repossessed after his debt management firm failed to respond to default notices from creditors,” Mr Kirkland said.

“When he cancelled his contract and asked for a partial refund from the debt management firm, they said there was a no-refund policy.”

ASIC said it received “disturbing” reports of debt fixers leaving customers worse off.

Debt management companies are required to hold a credit licence, comply with the National Consumer Credit Protection Act and to be a member with the industry’s ombudsman, the Australian Financial Complaints Authority (AFCA).

ASIC’s review will investigate cases where firms failed to meet the terms of their debt management agreements, charged high fees for limited services or didn’t communicate adequately with clients.

Mr Kirkland said if ASIC detects unfair and unlawful practices in its review, it will take enforcement action.

It will publish its findings in a report next year.

Bruce Billson, the Australian Small Business and Family Enterprise Ombudsman, welcomed the review and said there had been complaints from business owners about debt managers “not doing the right thing by their client”.

He said some small businesses had sought help with repaying, managing or disputing debts.

“These clients come to those service providers already vulnerable, that’s why they’re there.

“They may turn to service providers like these who are really in no position to be of much assistance but may well take a fee for providing advice that isn’t very useful.

Australian Securities & Investments Commissioner Alan Kirkland.

“About a third of the small businesses that contact the Small Business Debt Helpline have been in business for over 10 years.

“So these aren’t new, inexperienced businesses. These are well-established, reasonably longstanding businesses that now find themselves with a debt burden that be overwhelming for them.”

He added businesses had also complained about alleged unlicensed debt managers or advisers which repaid “only a number of cents in the dollar of those debts”.

“What they don’t explain is that those processes for partial debt forgiveness usually involves a formalised small business restructuring process.

“So people take the money, offer advice that’s not able to be implemented, rack off and disappear, and the small business is left having paid money for advice that is of no use to them and still with significant concerns about debts.”

ASIC already has ongoing legal proceedings with Bakken Holdings, the operator of debt management business Solve My Debt Now.

Last month, the regulator refused Bakken’s application for a credit licence, blocking it from providing debt management services.

ASIC filed a lawsuit in the Federal Court against the company and its director Dr Merrilyn Mansfield in 2023, stating it had concerns of “substantial consumer harm”.

Solve My Debt Now offered to manage customers’ debt from personal loans and credit cards by collecting funds from them, on-paying creditors and negotiating to reduce their debt.

But ASIC claimed from April 2020 to June 2022 the company collected $3.6 million from customers and only paid about $1.1 million to creditors.

The regulator alleged about 64 per cent of customers didn’t have any debts repaid at all.

ASIC also alleged in many cases the fees the company charged exceeded the amount the debts were reduced by – leaving customers worse off.

ASIC has already commenced legal proceedings against a debt manager.

Bakken Holdings and Dr Mansfield have defended against the proceedings.

The matter has been listed for a case management hearing in August and an 11-day liability hearing in December.

The regulator also fined another debt manager, Chapter Two Holdings, for alleged misleading statements on its websites.

In April, ASIC issued two infringement notices totalling $37,560, claiming the company’s statements that it wiped $80 million in debt and saved customers $30 million in interest on its website were false or misleading.

ASIC said the company hadn’t substantiated the figures and there wasn’t a reasonable or evidence-based justification for the statements.

Chapter Two Holdings removed the statements from its website in March.