13th October 2013 – To mark Anti-Poverty Week, Financial Counselling Australia has highlighted five for-profit business models that target people struggling with debts – but instead of solving financial difficulty, can actually increase it.
These businesses – budgeting services, credit repair companies, debt negotiators, bankruptcy services and debt agreement administrators – have a few things in common. They all market their services as helping to solve financial problems, charge high up set up fees and to a greater or lesser extent, are not adequately regulated by our current consumer protection laws.
“Sadly, financial counsellors have all seen clients who have been made worse off as a result of advice from these type of for-profit businesses,” said Fiona Guthrie, Executive Director of Financial Counselling Australia. “A large part of eliminating poverty is ensuring that our consumer protection framework is adequate, so that people are not exploited. There is still work to do.”
“In a country as rich as Australia, it is a travesty that over two million people are living in poverty”, said Ms Guthrie.
Nelson Mandela, summed up the issue beautifully:
“Like slavery and apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings … Overcoming poverty is not a gesture of charity. It is an act of justice.”
The Five Poverty Traps
- Budgeting services. While the idea of outsourcing the day-to-day management of money might sound tempting for those who struggle to prioritise their bills, budgeting services charge high set up fees and have high ongoing costs. “For those people who are on a low, fixed income, the cost attached to a budgeting service is likely to be far more than they can realistically afford,” said Ms Guthrie. “Financial counsellors have seen clients where the resulting budget was completely unrealistic, not leaving enough money to buy food. Worse still, there are cases where the budgeting service did not pay some bills – and the consumer lost assets or was subject to legal action as a result.”
- Credit repair companies. “These companies charge consumers a fee to “fix” their credit report,’ said Ms Guthrie. “The reality is that you can get a free copy of your credit report yourself and it costs nothing to lodge a dispute if there is an incorrect listing.” Consumers should be aware however that, depending on their credit history, it is not always possible to “fix” a credit report – and they will simply be wasting their money with a credit repair company.
- Debt negotiators. Debt negotiators attempt to negotiate reduced payments or settle for less, but will charge a hefty fee to do so. “This is a service that financial counsellors can provide for free, so consumers should certainly check their options before handing over any of their scare funds to a debt negotiator,” said Ms Guthrie.
- Bankruptcy services. Cash-strapped consumers should avoid companies that want to charge a high fee to provide advice about bankruptcy as again this is a service that financial counsellors can provide free of charge.
- Debt agreement administrators. A debt agreement is an option available to consumers who are trying to deal with unmanageable debt, whereby they negotiate reduced repayment terms with their unsecured creditors. While a debt agreement can be a viable alternative to bankruptcy, it is not always the best option for consumers and will involve high set up costs. “Consumers should certainly speak to an independent – and free – financial counsellor first,” said Ms Guthrie.
Anyone who is in financial difficulty can contact a free and independent financial counsellor on 1800 007 007 or visit www.debtselfhelp.org.au.
For further comment please contact: Fiona Guthrie 0402 426 835