Australian banks pledge to stamp out dodgy debt vultures that are ripping off customers

Australian banks have pledged to stamp out dodgy debt management services that prey on vulnerable customers.

Australian banks have pledged to not deal with dodgy debt vultures. Picture: Joel Carrett/ AAP

Australian banks have implemented an industry-wide pledge not to deal with dodgy debt vultures that prey on vulnerable customers by making misleading claims of wiping away financial difficulty.

The Australian Banking Association (ABA) has updated financial distress guidelines, with the sector committing to not deal with debt management firms that are working against a customer’s best interests.

Debt management firms are third parties that advertise services to consolidate a customer’s outstanding debt.

An Australian Securities and Investments Commission report found that some services were worsening consumer outcomes by lobbing high fees on customers and making false and misleading claims about debt consolidation.

The ABA guidelines say banks will deal directly with a consumer if the debt management firm is not acting in the best interest of a client.

Australian Banking Association (ABA) CEO Anna Bligh said the updated guidelines would ensure customers were obtaining accurate information. Picture: Bianca De Marchi/ AAP

ABA chief executive Anna Bligh said the updated guidelines would ensure customers were obtaining accurate information from banks at the right time.

“These new guidelines ensure that where a debt management firm is not acting in the interests of a customer, banks may continue to contact customers directly,” Ms Bligh said.

“Given that regulators and consumer groups have raised concerns about some of these firms providing unsuitable services or engaging in predatory practices, it’s vital to ensure they are acting in a customer’s best interests.”

NAB was the first bank to say it would not deal with debt vultures. Picture: NCA NewsWire / Dan Peled

NAB earlier in 2020 said it would not deal with debt vulture firms that were taking advantage of vulnerable people. The ABA’s new guidelines are a pledge by the industry to stamp out questionable practices.

Consumer Action Law Centre research found that 8 per cent of Australians paid for a debt management service in the past year.

A person in financial distress can choose a third party to act on their behalf to manage outstanding debt.

The ABA said options were available to customers that did not incur additional fees for service.

ASIC also noted debt management firms were operating in an environment that was not properly regulated.

Originally published as Australian banks pledge to stamp out dodgy debt vultures that are ripping off customers