Caution urged when engaging budget and debt management services

Consumers facing financial difficulties are urged to exercise caution when approached by budget and debt management companies that charge fees for their services.

Complaints have been received by Consumer Protection from consumers who claim that they are charged fees for services, which were not delivered and some have signed contracts without realising that this would lead to a caveat being put on their home, preventing it from being sold.

Commissioner for Consumer Protection David Hillyard said some consumers were approached by budget and debt management companies after their names appeared on court lists, although it is unclear how these companies are getting consumers’ details.

“When financial difficulties lead people to facing court because they haven’t made payments on their debts, are about to lose their homes or have bills outstanding, the last thing they need is a company approaching them uninvited promising to be the answer to all their financial problems but putting them further into debt than they already are,” Mr Hillyard said.

“These consumers find themselves in a desperate situation and are vulnerable when approached by someone promising a debt-free and stress-free life by helping to solve their money woes.

“In some cases the consumers report that they are charged high fees, often many thousands of dollars, at a time they can least afford it but, once the contract is signed, the services promised do not resolve their debt issues and their financial situation is made worse, not better.

“It is particularly problematic when consumers don’t realise that the contracts they sign agree to a caveat being placed on their property so that their home can’t be sold, until the fees owed to the company are paid in priority to any other debts.

“This makes their situation even more precarious as it removes the option of selling property to pay off debts until the caveat is lifted.

“Budget and debt management companies can be aggressive and persistent communicators. We urge consumers to resist the pressure these companies put on them to enter into service contracts.

“Don’t be tempted into signing a contract with budget and debt management companies without reading the terms and conditions thoroughly and understanding the implications if you are unable to pay the fees on top of your other debts. Go and speak to your local community legal centre or a financial counsellor.”

Consumer Protection reminds people facing financial difficulties that there are free services available in the community that can assist them with financial counselling, legal advice, budget planning and negotiating payment plans with debtors.

“Numerous community legal centres operated and/or funded by the government offer free legal advice and may be able to assist consumers affected by these budget and debt management companies,” the Commissioner said.

“Consumers can also get free assistance from financial counsellors in both budgeting and managing debts. Consumers in financial trouble should explore these free options first before engaging a profit driven private company.”

A list of community legal centres in WA can be found on the Community Legal Centres Association website. The list includes the Perth-based Consumer Credit Legal Service (WA) Inc. Complaints against budget management companies can be lodged online on the Consumer Protection website or enquiries can be made by email by calling 1300 30 40 54. Further information is available on ASIC’s MoneySmart website.