ISCOVER
The consumer credit association’s CEO has highlighted how brokers can protect clients from “predatory” debt management firms.
The Australian Retail Credit Association (Arca) has outlined how brokers can help their clients better manage debt, after concerns that some credit repair firms may be engaging in misleading or dishonest conduct sparked a review into the sector.
Last week, the Australian Securities & Investments Commission (ASIC) announced it was probing the debt management and credit repair sector.
The review was welcomed by some in the industry, including the consumer credit association Arca, with the body’s CEO Elsa Markula saying: “Every Australian has the right to a free copy of their credit report and can have any incorrect information amended at no cost.
“Yet we continue to see operators charging exorbitant fees, giving poor advice, and in some cases, leaving consumers worse off.”
What can brokers do?
In exclusive comments to The Adviser, Markula outlined that mortgage and finance brokers are “uniquely positioned” to educate and inform consumers on their credit health.
Arca urged brokers to keep clients informed, as misleading operators continue to target vulnerable consumers, with some credit repair firms “charging thousands for services that are often unnecessary – or even harmful”.
Commenting on how brokers can help, Markula said: “Accurate information and directing them [customers] to free, legitimate resources can protect clients from predatory operators and unnecessary (and often very high) fees, often charged for a service that can’t do what it promises.”
Markula flagged several steps that brokers can follow to support clients.
Educate
Markula urged brokers that when they pull a client’s credit report, “use it as an educational tool”.
She explained: “Walk them through it, explain what lenders look for, and what the various items mean.”
Markula added that brokers can also educate clients on improving their credit health.
“The key is for them to make repayments on time, ask for financial hardship assistance if they can’t make repayments, close accounts, reduce limits on credit they don’t need and minimise applications,” Markula said.
Fix incorrect information
Brokers should emphasise that any incorrect information stored by credit providers can be fixed for free. Markula explained that consumers can directly contact the lender or bank that supplied the incorrect information, and if that fails, consumers can contact the credit reporting body directly.
If consumers are still unsatisfied, they can lodge a free complaint with the Australian Financial Complaints Authority (AFCA).
In addition, Markula provided the following advice:
Set realistic expectations
Brokers should advise clients that there is no “quick fix” for a poor credit history. Accurate listings, even negative ones like defaults, cannot be removed by law. A default remains on a report for five years, but paying it off is viewed positively by lenders and is a crucial step in rebuilding their credit health.
According to Markula, the most important thing is to communicate with the lender about your client’s circumstances.
Warn about red flags
Give clients tips to spot predatory credit repair services, Markula flagged. Tell them to be wary of any company that: asks for large fees upfront, guarantees they can remove accurate negative information, or advises them not to contact credit providers or bureaus directly.
Frame support as part of your service
By providing guidance, brokers are demonstrating their value beyond just finding a loan, Markula said. They are acting as a long-term partner in their clients’ financial wellbeing, strengthening their relationship and building trust.
[Related: ASIC launches review into debt management and credit repair]
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