• LATEST NEWS
• SITE MAP
• LINKS
• CONTACT US

• about us
  • Introduction
  • Governance
  • History
• consumer issues
  • Introduction
  • Credit and debt
  • Standards australia
  • Utilities
• fact sheets
• get involved in our campaigns
  • Introduction
  • Direct Debits
  • Do Not Knock
  • Fair Fees
  • Motor Finance Wizard
  • Payday Lending
• legal assistance
  • Introduction
  • Credit and debt help in Australia
  • Consumer litigation practice
  • Education and training
  • Fact sheets
  • Free legal advice
  • National exchange defence kit
  • Support for community workers
  • Support for indigenous consumers
  • Support for rural and regional consumers
• media
  • Introduction
  • Consumer Action in the News
  • Media Releases
• previous updates
• publications
  • Introduction
  • Annual reports
  • Submissions
  • E bulletins
  • Historical reports and documents
  • On the wire
  • Other publications
  • Policy reports
  • Speeches and presentations
• volunteer programme
• links
  • Introduction
  • Australian consumer organisations
  • Australian government agencies
  • Community legal centres
  • Dispute resolution
  • Other
• site map
• contact us

Credit and Debt

Debt Collection

Debtors have rights too. There are laws controlling the behaviour of debt collectors and lenders. They do not have the same powers as police officers or court sheriffs.

The Australian Competition and Consumer Commission has collaborated with the Australian Securities and Investments Commission in releasing a guideline which sets out unacceptable and potentially unlawful conduct on the part of a debt collector. Consumer Affairs Victoria has also published a similar guideline, which clarifies the operation of the anti-harassment provisions of s 21 of the Fair Trading Act 1999 (Vic) in relation to debt collection activity.

For more information about your rights when dealing with debt collectors, have a look at our fact sheets, or contact us for free legal advice.

In 2002, Consumer Action's predecessor CCLS released a report into the practices of major Australian debt collection agency Collection House and their solicitors, ALR Lawyers. Leading up to the publication of the report, CCLS had received a considerable body of complaints from consumers in relation to Collection House and ALR Lawyers, including allegations of misleading and deceptive conduct, harassment, and unconscionable conduct. Changes in practices of financial institutions and structural changes within the debt collection industry had helped to set the scene for the emergence of these problems.

You can download a copy of this report, Selling Their Customers Out – Consumer Problems with Debt Collection Outsourcing in Australia, and others, from our publications page.

Debt Consolidation

Do you have a number of loans or are thinking of taking out a new loan to pay all your existing loans? Some companies advertise their services in assisting with consolidating debts, and promise to save you big bucks in the process. Unfortunately, sometimes their services can cost big bucks as well. Sometimes, the promised savings do not eventuate at all.

If you are thinking of debt consolidation as an option, visit our publications page and download Fact Sheet Number Nine: Will consolidating my debts help?

Mortgage Minimisation

Also marketed as debt reduction plans, some misleading claims by lenders and brokers suggest that you can cut years off your mortgage – and save thousands of dollars – by using a line of credit or off-set account. Many consumers find that rather than save money, these deals are often expensive and unnecessary.

As home loan players race to secure greater shares of the mortgage market, the risk of clients being on the receiving end of over-enthusiastic marketing campaigns naturally increases. And perhaps nowhere is this more the case than with mortgage reduction schemes.

Terms such as "mortgage reduction" or "mortgage minimisation" are commonly used by some in the finance sector. While there is no clear definition of these terms, our casework suggests that they refer to a financial plan that involves:

• Refinancing of a mortgage (usually with a line-of-credit);
• Paying salary into the line-of-credit;
• Increasing payments on the mortgage (whether this is drawn to the borrower's attention or not); and
• In some cases, consolidation of other debts.

For more information, read the 2004 article Debt reduction schemes – guiding your client through the pitfalls by Consumer Action co-CEO Carolyn Bond. Consumer Action's predecessor CCLS also produced a report investigating industry practices in the mortgage minimisation industry.

Also, visit our publications page and download Fact Sheet Three: Mortgage Minimisation and Fact Sheet Nine: Will consolidating my debts help?

If you'd like to see options for paying off a number of loans, check out ASIC's multi loan calculator: Multi-loan calculator

Fringe Lending

"Pay day" lenders are now a familiar sign in many Australian shopping strips. Despite their tendency to resemble bank branches, they lend money over short periods (one or two months), and charge high fees. If expressed as an annual percentage rate the cost of such credit can, in some cases, exceed 1,000 %pa). Payments are "secured" by direct debit, and if there are insufficient funds in the account, a number of attempts to debit the payment can lead to high bank penalties. Consumers are rarely aware that they are able to cancel the direct debit through their bank.

Another type of fringe lender, offering loans over a longer period (6-12 months), take a mortgage over the consumer's household furniture. Necessary household property is not available to creditors in bankruptcy, and in Victoria is not available to the Sheriff, however these lenders claim a right to seize under the contract. Often termed "blackmail" securities, the aim is to enforce payment (under threat of losing your fridge or your bed!) rather than offer real security for the lender. These loans are usually provided to low income consumers, and consumer advocates regard these mortgages as unfair.

Although Victorian law prohibits loans over 48%, and prohibits mortgages on loans over 30% interest, fringe lenders simply express most, or all, of the charges as fees rather than interest.

Government acted quickly to close a loop-hole in the Uniform Consumer Credit Code to ensure coverage of pay day lending, however further regulation is required.

States that cap interest rates on consumer credit, such as Victoria, should ensure that those caps can't be avoided by charging fees rather than interest (as most payday lenders do) and mortgages over necessary household property should be prohibited.

For more information, read our report, Payday Lending in Victoria.

Case Study

Ms G, a single unemployed mother receiving Centrelink benefits, entered into a credit contract for $1,300, part of which was used to pay out an existing loan with the same lender. The establishment fee was $350 and annual percentage rate 30%, bringing the total amount to be repaid to $1,841.76. The loan contract secured a mortgage over most of her household goods and her car (despite the car being subject to a Bill of Sale under another credit contract).

Due to difficulties in making payments, and despite her requests not to direct debit her account due to a lack of funds, the credit provider continued debiting her account and she incurred bank dishonour and credit provider default fees (including phone call, letter and "field call" fees).

Following bankruptcy Ms G was harassed by the credit provider and she signed a direct debit authority agreeing to pay $25 per week to avoid seizure of household goods by the lender. The matter was subsequently resolved through the assistance of a financial counsellor and CCLS (Vic).

Finance/Mortgage brokers

A growing number of consumers are using finance brokers to arrange mortgages or other loans. Regulation of finance brokers varies from state to state, but is grossly inadequate to deal with problems ranging from misinformation about the loan to unconscionable conduct. Surprisingly, finance broking remains largely unregulated, in stark contrast to the licensing requirements imposed upon other intermediaries such as insurance brokers and financial advisors.

Some consumers use a finance broker to save time shopping around, or because they hope to get a better deal. Others are attracted to brokers who claim they can get a loan for those finding it hard to get credit. In the latter situation, the fees are usually high, and the credit obtained is often expensive and unsuitable. In some cases the borrower's home is placed at significant risk.

Despite many borrowers believing the broker is acting in their interests, brokers are often driven by commissions from lenders.

The range of problems experienced in relation to some finance brokers include:

• excessive fees and charges;
• uncertainty about the nature and price of the service;
• referral for loans that are inappropriate or high risk;
• misinformation about aspects of the loan;
• inadequate disclosure of fees and commissions by some brokers;
• inconsistent documentation from brokers;
• obtaining declaration from consumer that loan is for business purposes (therefore avoiding coverage of the loan and broker agreement by consumer credit laws).
• in a small number of cases, fraudulent activity such as manipulating loan applications.

The involvement of a finance broker often reduces the protection offered by consumer credit laws, because lenders are able to claim that they were unaware of the borrower's circumstances or representations made by the broker. For example, it may be more difficult for a consumer to use unjust credit contract provisions against the lender if a broker is involved in the deal.

For further information on finance broker problems, read A report to ASIC on the finance and mortgage broker industry, by the Consumer Credit Legal Centre (NSW) Inc.

Credit Reporting

Consumer organizations throughout Australia that advise and assist consumers with credit and debt problems have concerns regarding the handling of credit reporting disputes. The identification and addressing of systemic issues is also of concern.

A paper presented at a 2002 consumer forum by our co-CEO Carolyn Bond, outlines some problems with the credit reporting system.

Some members of the finance sector are calling for changes to allow more information to be held on our personal credit files. Read our Fact Sheet on credit reporting and responsible lending, which debunks some common industry-perpetuated myths. Also, read what the Consumers Federation of Australia and the Australian Consumers Association say about full file credit reporting in this press release.

For more information about dealing with credit reporting problems and disputes, such as how to get a copy of your credit report, and how to rectify inaccurate information on your credit report, look at our collection of fact sheets

Vendor terms

Consumer Action, in conjunction with the Gippsland Community Legal Service and South-West Legal Centre in Warrnambool, is undertaking a study of vendor terms mortgages or wrap financing.

The study will examine the nature and operation of vendor terms mortgages in the current Victorian market, with a focus on the experiences of low-income and vulnerable consumers, as highlighted by case studies of individual consumers. As part of the study, stakeholder interviews with government, industry and consumer agencies will also be conducted.

The study will analyse the current regulatory framework for vendor terms mortgages in Victoria and include a comparison with their regulation in other Australian jurisdictions.

Ultimately, the final report will make recommendations regarding the future regulation of the industry.

We thank the Victorian Consumer Credit Fund for funding the vendor terms study.