Credit repair companies regularly mislead and exploit vulnerable consumers, according to a regulator’s report.
The Australian Competition and Consumer Commission (ACCC) has voiced “widespread concerns about the practices of credit repair businesses” in a new report on the debt collection industry.
Credit repair businesses sometimes charge consumers large fees for support that is freely available to them through industry ombudsman schemes and financial counsellors, according to the ACCC report.
Regulators, ombudsmen, retailers and consumer advocates agree “without exception” about the negative impact of credit repair activities on consumers and the integrity of the credit reporting system, the report claimed.
The ACCC said the issue was “perfectly captured” by the Credit and Investments Ombudsman’s annual report from 2014, which claimed there were “too many instances of credit repair companies behaving badly”.
“Credit repair companies routinely approach [ombudsmen], whose services are free of charge to consumers, to have default listings removed,” the 2014 report said.
“In other words, consumers are paying significant amounts of money to access a service that is already available to them without charge.”
The 2014 report noted instances of consumers being charged upfront fees of up to $900 and then fees of $1,000 per default listing, even when the debt was under $500.
It also said that credit repair companies typically fail to inform consumers that correct default listings often can’t be removed from credit records.
Princeville Credit Advocates lead adjudicator Merrilyn Mansfield said the credit repair industry contains its share of ethical and unethical operators, just like every sector.
Ethical credit repair companies are transparent about their fees and only take on work when there is a good chance of success, she told The Adviser.
“At the core of ethical credit repair lies the desire to improve a consumer’s financial circumstances,” she said.
Ms Mansfield said brokers should do their research before recommending a credit repair company to a client.
“Ask around, particularly in the mortgage broking space, to see who is doing a good job. Read and check testimonials,” she said.
“Make sure the credit repair company does not have a finance arm as they will probably place your client in a high-interest loan rather than remove adverse listings.”