5th February 2014 –  The critical role of financial counsellors in alerting regulators to unconscionable and unfair business practices was highlighted in yesterday’s announcement by ASIC of enforcement action against unlicensed rental companies.

ASIC has entered into enforceable undertakings with companies including Home Essentials Pty Ltd and I Love My Water Pty Ltd and the companies’ principals. The companies were involved in the hire and sale of over-priced water coolers and first aid kits, using “rent to own” agreements (see ASIC Media Release 14:021 here).

Problems with these contracts and the targeting of vulnerable Indigenous consumers in the remote Pilbara and far north Queensland were first reported to ASIC by financial counsellors. Financial counsellors also assisted ASIC investigators in contacting affected consumers and arranging interviews.

“Financial counsellors are trusted by their local communities. This is why in the Pilbara for example, the local financial counsellor was the first to hear about problems with the door-to-door selling of overpriced goods and the misleading representations surrounding the sales”, said Fiona Guthrie, Executive Director of FCA. “And it is why the Indigenous Consumer Assistance Network in Cairns was able to provide ASIC with information about the same practices in their local area.”

“This is a fantastic outcome for consumers who will now receive refunds or other redress”, said Ms Guthrie.

“The enforcement action also includes a payment by the companies of $250,000 to be split between the Pilbara Community Legal Centre and ICAN. The inclusion of this type of remedy in an enforceable undertaking is a very sensible approach. PCLC and ICAN will use these funds to help improve financial literacy in their local communities.”

FCA remains concerned however about the practices of rental companies more broadly. In the last 12 months, ASIC has taken enforcement action against a number of rental companies: Rent the Roo (November 2013), Mr Rental (October 2013), Zaam Rentals (August 2013), Ray Rentals (August 2013), Mobile Rentals (February 2013) and Mr Rental Australia Pty Ltd (February 2013).

“There is a systemic problem with the way the rental industry is operating”, said Ms Guthrie. “Financial counsellors see many clients with unaffordable rental contracts. We also continue to see the targeting of vulnerable consumers, including Indigenous consumers, by rental companies. While ASIC action is welcome, it can take a long time to get a result. There are hundreds of rental companies and ASIC can’t look at them all.”

What is also worrying is the use by rental companies of Centrepay, a government-backed bill paying system for people in receipt of Centrelink benefits. Centrepay is a mechanism for prioritsing some bills over others. A bill that is part of the Centrepay system is processed first and the remaining funds are then transferred to a person’s bank account.

“Rental companies want Centrelink clients to use Centrepay rather than the direct debit system because it means they get paid first”, said Ms Guthrie. “This can mean that payments to rental companies are priortised over food. It is hard to see how that is in the best interests of consumers.”

An independent review of Centrepay, released in August 2013, recommended the introduction of codes of conduct for Centrepay providers, with stronger obligations for rental companies. This was designed to address some of the poor practices in this industry. To date, that recommendation has not been actioned.

Financial counsellors: community-based professionals providing information, support and advocacy for people in financial difficulty.

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