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Debt Management Firms

Debt management firms offer fee-based services to represent consumers in negotiations with creditors and credit reporting agencies. Fees may be charged on a deferred basis, or as part of an ongoing contract with the consumer to manage payments to creditors. Unfortunately, debt management firms target consumers in financial hardship and may take advantage of vulnerable consumers who find speaking to the bank difficult or may not be aware of their rights concerning credit reporting.

Be aware that financial counselling is a free service that helps consumers deal with debt problems, including negotiations with creditors. A free financial counsellor can also help consumers to understand how to fix inaccurate credit reporting information.

Regulation of Debt Management Firms

The National Consumer Credit Protection Amendment (Debt Management Services) Regulations 2021 (Cth) prescribe a new type of credit activity to include the services offered by debt management firms. The credit activity caught by the regulations is limited to services provided to assist with consumer credit contracts and does not apply to business loans, consumer leases or utilities bills.

Lawyers who offer debt management services will no longer be able to rely on the exemption and must obtain a credit licence if they are to continue to offer the same type of credit activity [see reg 24 (4)].

From 1 July 2021, debt management firms must hold an Australian Credit Licence (ACL) and meet the same obligations as other credit licensees. Financial counsellors are exempt from the requirement to hold an ACL because they do not charge a fee for their services.

The obligations are set out in section 6 of the National Consumer Credit Protection Act 2009 (Cth) (NCCPA) and include:

  • Compliance with the credit laws including providing services efficiently, honestly and fairly;
  • Membership of the Australian Financial Complaints Authority (AFCA);
  • Ensuring that staff and representatives have the training and the necessary competency to provide services; and
  • Compensation arrangements to meet losses suffered by consumers

To obtain a licence from ASIC, the person applying must meet the ‘fit and proper person’ test under sections 37A and 37B of the NCCPA.

Regulated Services offered by Debt Management Firms

There are two types of services captured by the regulations - debt management assistance and credit reporting assistance which are commonly provided by debt management firms. The regulations do not apply to services offered in relation to utilities bills, consumer leases or business loans.

The regulations define debt management assistance as:

Assisting a consumer to, or suggesting that the consumer applies for

  • A deferral or debt waiver of a consumer credit contract
  • A variation of a consumer credit contract

Assisting a consumer to, or suggesting that a consumer

  • Complain to a credit provider about a credit contract
  • Complain to AFCA about a credit contract
  • Take any other action about a credit contract

This catches a debt management firm that negotiates with a credit provider on behalf of a consumer for a hardship variation under section 72 of the National Credit Code or a waiver of a debt such as a personal loan, credit card or other debt. A financial counsellor can help a consumer to undertake these activities for free.

The regulations define credit reporting assistance as:

Assisting a consumer, or suggesting that the consumer to

  • Apply for a change of information held by a credit reporting body about a credit contract; or
  • Complain to the credit provider, AFCA or ASIC regarding information held by a credit reporting body about a credit contract

Consumers sometimes think that it is possible to improve a credit score by removing listings from the report, but unless the information is inaccurate, generally the listing will stay for a certain period. A financial counsellor can help a consumer understand their rights in relation to credit reporting and these services are free.

Contact the National Debt Helpline on 1800 007 007 for further information and to get in touch with a financial counsellor.

Obligations of Debt Management Firms

Debt management firms have previously attracted criticism for not treating consumers fairly and charging excessive amounts of money for their services. The requirement to comply with section 6 of the NCCPA to deliver services efficiently honestly and fairly includes:

  • Avoiding high-pressure sales tactics and creating unrealistic expectations of the benefits offered by the service
  • Ensuring that the service delivers good outcomes for consumers
  • Tailoring the service to meet the needs of consumers, who may be vulnerable due to financial hardship or personal or family circumstances

Further information about debt management firms and conduct obligations is on the ASIC website [link opens in a new window].

Complaining about a Debt Management Firm

Membership of AFCA is mandatory for debt management firms. The option to access free dispute resolution is an important feature of the licensing arrangements for consumers unhappy with the debt management firm. For more information about how to complain to AFCA , please visit the Law Handbook chapter on COMPLAINTS.

Debt Management Firms  :  Last Revised: Thu May 6th 2021
The content of the Law Handbook is made available as a public service for information purposes only and should not be relied upon as a substitute for legal advice. See Disclaimer for details. For free and confidential legal advice in South Australia call 1300 366 424.