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Unlicensed finance companies that offer to fix your bad credit rating or manage your debt will face a senate inquiry this week, amid claims they have been charging exorbitant fees for little or no service.
Key points:
- Customers of credit repair companies say they have been charged large up-front fees and kept in the dark
- The Consumer Law Centre says there is little regulation around many of these companies
- Experts say you can check your credit history yourself at no cost
Companies that specialise in debt management or credit repair have been charging an upfront fee of more than $1,000 to vulnerable consumers, some of whom say they have not received what they have paid for.
Queenslander Lachrisha Holloway was planning to buy her first house, and turned to Clean Credit Australia when she found out a defaulted Virgin mobile bill was stopping her from getting a loan.
"I asked them if they could remove my default, and if they couldn't, could I get a refund.
"They said they would not take my money if I could not get a default," Ms Holloway said.
"They asked a lot of money — $1,100 up-front."
But Ms Holloway said since handing over the hefty fee, Clean Credit Australia has not delivered on their promise to get her debt removed, and the company has kept her in the dark.
"I'm absolutely gutted with them. In my situation, that is a lot of money that they've taken from me, and a lot of my time wasted.
"Especially [that I was] chasing them up instead of them keeping me informed, I always had to chase it up myself."
Credit repair an expensive affair
Lachrisha Holloway is not alone.
Melbourne woman Vanessa, who has asked the ABC not to use her last name, handed over thousands of dollars to a debt management company, Debt Negotiators, only to later realise she had to file for bankruptcy.
The company asked her and her husband to pay $910 a fortnight so they could negotiate her debt.
But since starting the payments, Vanessa said she has heard nothing from the creditors who she owes money to.
"There is no way we could maintain $910 a fortnight, it's just too much money," she said.
After paying thousands of dollars to Debt Negotiators, Vanessa has now engaged a financial counsellor to make a formal complaint against the company.
"[Debt Negotiators] should have looked at it and said this is not going to work."
Taking matters into your own hands
Chris Green from the Australian Securities and Investments Commission said there is a misconception about debt clearing, and in many cases individuals are able to contact the company they have a default with, and get the debt cleared themselves.
"There's no guarantee that your credit history can be cleaned," he said.
"The credit history may be correct, but more importantly, you can check your credit history yourself for no cost.
"You can deal with the credit bureau or the credit provider yourself, again for nothing," he said.
Gerard Brody, the Chief Executive Officer from the Consumer Law Centre, says people struggling with debt are most susceptible to these small finance companies.
"There is incessant advertising by these companies and people can get attracted to them and seem like they're going to help."
In March, Clean Credit Australia, owned by the Malouf Group, was fined $1.6 million by the Federal Court in proceedings commenced by ASIC for unlawful consumer behaviour and making misleading statements between 2014 and 2015, describing its tactics as "disturbing and unconscionable".
The owner, Jordan Malouf, has told AM the company removes 45 per cent of negative listings.
Mr Malouf told the ABC if a client asks for a refund, Clean Credit Australia will review the file, and if they cannot come to a resolution the company will offer a partial or full refund.
But that is not the experience of Lachrisha Holloway.
"I'm pretty disgusted with them actually. They said that in my criteria I passed, and they should be able to remove my credit file.
"I possibly could have done this all myself."
She has now finally cleared her bad credit history after going through a separate company, and said she regrets going through Clean Credit Australia.
Senate inquiry gets under way
A Senate inquiry into credit repair companies comes at a time when the finance industry is under more scrutiny than ever.
The inquiry has been welcomed by The Consumer Law Centre, which says there is little regulation around fringe financial groups such as Clean Credit Australia and Debt Negotiators.
Gerard Brody, chief executive of the Consumer Action Law Centre, said people struggling with debt are most vulnerable.
"There is incessant advertising by these companies, and people can get attracted to them and seem like they're going to help," he said.
"I think the Senate inquiry is a really good way to look at these businesses, because these businesses cause a lot of harm — if not more harm — into those Australians who are struggling with debt," Mr Brody said.
The inquiry's first hearing will be held in Melbourne tomorrow.
The findings will be handed down in March next year.
The ABC has contacted Debt Negotiators for comment.
Topics: fraud-and-corporate-crime, money-and-monetary-policy, australia
First posted