Cat Newton Lachlan Edwards Policy Officer Solicitor 30 March 2017 Consumer Action Law Centre wwwconsumeractionorgau Welcome How you can spot a debt vulture How you can help your clients ID: 588632
Download Presentation The PPT/PDF document "Debt Vultures" is the property of its rightful owner. Permission is granted to download and print the materials on this web site for personal, non-commercial use only, and to display it on your personal computer provided you do not modify the materials and that you retain all copyright notices contained in the materials. By downloading content from our website, you accept the terms of this agreement.
Slide1
Debt Vultures
Cat Newton
Lachlan
Edwards
Policy Officer
Solicitor
30
March 2017
Consumer
Action Law Centre
www.consumeraction.org.auSlide2
Welcome Slide3
How you can spot a debt vultureHow you can help your clients
How you can advocate for changeLearning Outcomes Slide4
Spotting a debt vultureCase study 1 – credit repair
Case study 2 – debt negotiatorCase study 3 – debt agreement
Advocating for change
Session overviewSlide5
Live debt free!
Call now for a free consultation!
Money worries keeping you up at night?
Call us to enquire about debt relief
Clean your credit history!
Bad credit
?
We can help!
Take back control!
Defaults? Slide6
Debt vultures (aka debt management firms) are businesses preying on people in financial difficulty by selling high cost, low value or inappropriate debt “solutions
”Credit “repair”Debt
negotiation
Debt agreements
Budgeting services
Other
for-profit
services targeted at people with money,
debt, credit or creditworthiness
problems
Spotting a
debt
v
ulture Slide7
What’s the problem?Bad adviceUnsuitable options
Poor understanding of the law and consequencesConflicted adviceFeesOpaqueHighUpfront
High pressure sales tactics
Rarely refer to the
free
options
FCs and consumer lawyers
Ombudsman schemes
No uniform regulatory frameworkSlide8
What’s the alternative?Slide9
Credit RepairWhat do they do?Promise to ‘fix’ or ‘clean’ your credit reportProblems
High upfront fees for services that could be accessed for freeMisleading promises about what they can achieveNot required to be licensed, qualified, or a member of an ombudsman schemeSlide10
Debt NegotiatorsWhat do they do?Negotiate settlements of debts with creditorsProblems
High feesHigh risk strategies Advice without regard to overall financial situationNot required to be licensed, qualified, or a member of an ombudsman schemeSlide11
Debt AgreementsWhat do they do?Arrange or administer debt agreements (a form of personal insolvency)
ProblemsSuggest debt agreement as best/only optionDownplay consequences Non-refundable and hidden fees Limited regulation of administrators
Not required to be a member of a free ombudsman schemeSlide12
Budgeting / Money ManagementWhat do they do?Income redirected to company, which gives client a living allowance and pays bills / debts
ProblemsUpfront fee plus periodic fees
Unsustainable or unsuitable budgets
Pay themselves before creditors, keep interest
No responsibility for defaults
Not required to be licensed, qualified, or a member of an ombudsman schemeSlide13
Case study 1: Credit repairMick and Saul want to buy their first home. Mick’s not working at the moment but has some money from his late grandparents to put towards a deposit.
Big Bank refuse their mortgage application. Mick remembers a letter from Phone Co a few years ago about an unpaid bill and something about a credit listing. He searches “credit report” online, and the top link takes him to Credit Miracle Co’s website.
During his free telephone consultation, the friendly consultant says that Credit Miracle should be able to fix his credit report but will need to check. She calls back an hour later with goods news – they can help! If he pays just $1000 today, they can clear up his credit report, and help him on the way to buying a home. They read out some T&Cs. Mick agrees and gave his credit card details. Slide14
Case study 1: Credit repairWeeks later, Credit Miracle send a bundle of documents including a form to request his credit report and a guide to challenging listings.
Mick’s credit report shows a default listing in April 2012 by Phone Co for $480. Credit Miracle tells Mick to call Phone Co and apply to the Telecommunications Industry Ombudsman (TIO). Mick wonders why he’s doing all the work. The TIO decides against Mick, finding that the credit listing was validly made by Phone Co.
Mick demands a refund from Credit Miracle. The friendly consultant refuses, pointing to clauses in the T&Cs:
Credit Miracle does not make any representation or promise to rectify your credit report.
‘Our services’ means a report on your credit worthiness and information on how to challenge an incorrect listing.Slide15
Case study 1: Credit repairQuestions
What problems do you see with Credit Miracle’s conduct?What are Mick’s legal options?Slide16
Case study 1: Credit repair
SummaryMisleading and deceptive conduct (section 18 Australian Consumer Law)Unconscionable conduct (section 21 Australian Consumer Law
)
Guarantee that services be reasonably fit for
purpose (section
61 Australian Consumer
Law)Slide17
Case study 2: Debt negotiatorAlan and Anna are married. They own
their home mortgaged to Big Bank. Alan works earning a low income and Anna receives a pension.
Because of difficulty, they fall behind on their loan to Big Bank, who sues
them for possession of their home. At the same time, they receive numerous flyers in the mail offering to help them save their home from repossession.
Desperate
to save their home, they
call one of the flyer companies,
Home Saver, who offer to help refinance their debts to save their home.Slide18
Case study 2: Debt negotiatorHome
Saver say that Alan and Anna need to urgently speak with another company, Helpers, who can buy them more time so Home Saver can arrange the refinance.
Alan and Anna sign
an agreement with Helpers to stay the repossession by
60 days,
for a fee of almost $4,000
. This agreement was not explained to them, but they were pressured to sign in a rush. Helpers then
lodge a caveat on the title of their property
.
Without telling
Alan and Anna, to halt the repossession, Helpers make
a complaint
to an Ombudsman service, something Alan and Anna could have done themselves for free.
Helpers do not talk to
them about
this and do not respond to the Ombudsman when it asks for details about the case. Slide19
Case study 2: Debt negotiatorAlan and Anna hear
nothing until Home Savers contact them saying that to help with they refinance, they must urgently sign two more agreements with Helpers, one to clean their credit report
and another to
negotiate
to reduce their unsecured
debts. Each contain fees of between $2,000 and $4,000.
Hearing nothing from Home Savers for some time,
Alan and Anna receive
a notice to
vacate their home
from the sheriff.
They
then receive a bill for $12,000 from Helpers, who refer the debt to Debt Collectors.
Panicked
,
Alan and Anna find
their own way to save their home that does not involve Helpers or Home Saver. Slide20
Case study 2: Debt negotiatorQuestions
What issues do you see with Home Saver and Helper’s conduct?
What
Alan and Anna’s options
?Slide21
Case study 2: Debt negotiatorSummary
Guarantee of due care and skill (section 60 Australian Consumer Law)
Guarantee that services be reasonably fit for
purpose (section
61 Australian Consumer
Law)
Unconscionable
conduct (section
21 Australian Consumer
Law)
Unfair contract
term (section
23 Australian Consumer
Law)Slide22
Case study 3: Debt agreements
Lisa works as a carer, earning approximately $1,400 per fortnight. Lisa is 64 and likely to retire soon. She lives in a 40 year old caravan and owns a car worth $900. Lisa owes around $30,000 in credit card debt to two creditors.
Worried about her debts, Lisa called Debt Co after seeing an ad on TV promising that Debt Co 'would stop all interest and make it easier to pay.'
As a result of the call, a man came to her home on the same day. He was only there for about half an hour. He said that if Lisa paid $1800, Debt Co would negotiate with her creditors to stop interest and that she would be able to make payments to pay off the debts. He didn’t say how much the payments would be, and didn’t mention any fees.Slide23
Case study 3: Debt agreements
Debt Co did not mention any of Lisa's other options to manage her debts, like hardship, informal negotiations or bankruptcy. Lisa signed an agreement with Debt
Co's
and had to pay $300 per fortnight towards an $1,800 fee for its service.
Debt Co then provided her with a pre-filled debt agreement proposal. Under the proposal, Lisa would repay $21,569 to her unsecured creditors and pay Debt Co fees totalling $7,930.
The debt agreement proposal states that Lisa's uncommitted income is $244 per fortnight. Despite this, Debt
Co's
fee for preparing the proposal was $300 per fortnight – putting her budget into deficit for 5 consecutive fortnights before she even repays her creditors.
Lisa did not sign the proposal and saw a financial counsellor. Slide24
Case study 3: Debt agreementsQuestions
What problems do you see with Debt Co’s conduct?
What are Lisa’s
options?Slide25
Case study 3: Debt agreementsSummary
Guarantee of due care and skill (section 60, Australian Consumer Law)
Guarantee
that services be reasonably fit for
purpose (section 61,
Australian Consumer
Law) Slide26
Summary: Legal optionsNegotiate with traderIndustry ombudsman scheme
(some traders are members)Tribunal or CourtComplain to the regulatorSlide27
Seamless regulatory framework for all debt management firmsLicensing by ASICCompulsory membership of industry ombudsman schemeMeet conduct standards, such as a requirement to act in their client’s best interest
Better regulation of debt agreements What other changes would help your clients?
What needs to change?Slide28
Advocating for changeCase studiesRecording a client’s storyMediaVisit local MP with your clientComplain to the regulatorStay in touch!Slide29
Debt Vultures
Questions?Slide30
You can now spot a debt vultureYour clients have legal optionsYou and your clients are important in advocating for change
Stay in touch with our campaign Session reviewSlide31
Stay in touchConsumer Action Law CentreLevel 6, 179 Queen Street
Melbourne VIC 3000www.consumeraction.org.au
Cat Newton
Policy Officer
03 9670 5088
cat@consumeraction.org.au