The debt consolidation industry needs to step up its game, with a new report from the corporate watchdog indicating non-compliance is rife.
The review of 82 files from 17 different licensed providers found in 30% of cases, businesses failed to record or keep sufficient information to identify pre-existing credit contracts, while there was “inadequate recording” of consumer’s requirements and objectives across all providers.
The ASIC review also found inquiries and verification of consumers’ financial situations were not being recorded properly, and that assessments of loan suitability are being made on different credit terms than the actual loan application.
Greg Kirk, ASIC senior executive leader, told SmartCompany this morning while debt consolidation can help consumers, “it’s not a one-size fits all solution”.
“There are risks associated with it,” he says.
“For providers, they need to comply with responsible lending laws and make sure they’re keeping adequate records of the sorts of advice they provider.”
ASIC has been cracking down on all sorts of industries this year. In April, the regulator wrote a report on property advisors and self-managed superannuation, saying there was some dodgy advice being given out.
The report on debt consolidation follows the establishment of the consumer credit regime in July 2010, which created new standards for credit providers.
In general, the report found, credit assistance providers aren’t documenting whether clients face significant risks, or whether debt consolidation had been discussed with consumers.
These risks are numerous, including higher long-term costs of repayment and leaving pre-existing contracts open.
“Our ability to undertake file reviews was affected by poor record keeping,” ASIC said.
“In 30% of files reviewed, we were unable to make a comparison between the consumer’s pre-consolidation position and their post-consolidation position, because the credit assistance provider failed to record or keep sufficient information to identify the consumer’s pre-existing credit contracts.”
ASIC said it saw files that only contained basic documentation, excluding information on why a transaction had taken place.
“We also found instances where information recorded by the credit assistance provider in preliminary assessments was contradicted by other information on file,” it said.
Kirk says more businesses need to ensure their record keeping is precise and that they are “keeping accurate details” on proposed consolidated loans.