When Cathie and Demetrio Scarfone applied for a bank loan and were knocked back, they were shocked. They soon discovered incorrect credit default listings against their names.
In haste, they filled out an online "credit repair" form to have their names removed. They were charged $2200 by a debt management firm for a service they ended up receiving for free through the courts.
Debt management strategies
What will a Brexit mean for the market?
How to keep credit card spending in check
What are the odds of winning the lottery?
Explainer: Grexit and Australia
Why you shouldn't write your own will
Can TPG continue golden run?
Are rewards points worth it?
Debt management strategies
We have become accustomed to credit but what is the best way to reduce your debt and what is the difference between good and bad debt?
"I asked them for a refund because the local court had taken off my credit listing, not them. But they said I couldn't get my money back," said Ms Scarfone, a nurse assistant from Griffith, NSW.
"I'm really angry at them. I feel like they're robbers. I feel like I was scammed."
The Scarfones are among thousands of Australians who have been left worse off by debt management firms who promise to clean, fix, repair and wash default listings on credit reports for payment, when these services can usually be accessed for free.
The Australian Securities and Investments Commission's report on the burgeoning debt management industry concluded that too often excessive fees were being charged for "poor or inappropriate" services that left consumers worse off.
It found fees were "opaque", making it difficult for consumers to figure out whether the service was worth their money. It also found fees were "front loaded", or payable before services, increasing consumer commitment.
"Some sales techniques create a high-pressure sales environment. [Also] little information was given about important risks and some firms had a poor understanding of the relevant law," the report said.
ASIC's deputy chairman Peter Kell warned consumers the promise was always more prominent than the price.
He urged consumers to seek out alternatives that may be free, such as financial counselling services.
"[Concerns have been raised] about potential harms posed by firms that may provide unsuitable services, act in ways not in the best interests of clients, or at worst, engage in predatory conduct leaving the consumer worse off," he said.
With nearly 32 per cent of households financially stressed, the report said the market for debt management firms was significant.
Even though credit repairs can be conducted for free, a shadow shopping exercise of 24 calls to firms found none mentioned this fact.
Alexandra Kelly, a solicitor from the Financial Rights Legal Centre, said in the past half year, they had seen nearly a hundred distressed customers, with nearly half affected by a dodgy credit repair job.
"What we're seeing is they're adding to debt. Consumers are also becoming subject to legal proceedings because they've paid a debt negotiator instead of their creditors," she said.
"We have these unregulated entities putting up shackle boards, saying they'll fix your credit file and manage your money. But they're dudes with no training experience or knowledge, going out there like it's a cowboy arena," she said.
Gerard Brody, chief executive of the Consumer Action Law Centre, said the ASIC report highlighted the serious gaps that were letting "debt vultures" work in a regulatory void.
"We want to see these businesses properly licensed, a ban on upfront fees and charges, require them to have external dispute resolution, and oblige them to actually act in their client's best interests," he said.
Shane Tregillis, chief ombudsman of the Financial Ombudsman Service, said the free external dispute resolution scheme had seen a worrying jump in the number of consumers using paid agents.
The report found this increase had not led to more credit reporting related disputes being found in favour of consumers.
"We have streamlined our process, ensuring matters such as incorrect credit listings are addressed quickly and efficiently, making the need for paid representation unnecessary," he said.
Fairfax Media earlier reported the case of Rowena Lagana from Middleton Grange, who is still owed money from debt management firm Clickthru, despite an FOS win.
Gavin Symes, executive director of debt management firm Credit Repair Australia - which Choice handed a Shonky Award in 2013 - said he was pleased to see the sub-standard practices in the industry were gaining more attention.
"Credit Repair Australia whole heartedly supports ASIC's proposal for further regulation of the debt management industry," he said.
ASIC's report - Paying to get out of debt or clear your record: The promise of debt management firms - is available at this weblink.
ASIC's tips for consumers with debt problems
- Talk to your lender, telco or utility first about your financial hardship or credit listing.
- Talk to the free ombudsman scheme for help before you pay a fee to a debt management firm.
- Talk to a free and independent financial counsellor or community legal services for help
- ASIC has information and guidance for consumers about trouble with debt and credit repair on its MoneySmart website.