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Debt consolidation providers in Australia are at risk of not complying with their responsible lending obligations, according to a review by ASIC.
The industry watchdog is concerned about the standard of record keeping by Australian credit licensees who provide these services.
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ASIC reviewed 82 client files from 17 licensed providers and found that in 30 per cent of cases, the credit assistance provider failed to record or keep sufficient information to identify the client’s pre-existing credit contracts.
The review also found that “credit assistance providers in general did not appear to document in their client file whether potential significant risks and costs of debt consolidation had been discussed with consumers”.
There was also “inadequate recording of consumer’s requirements and objectives” and some assessments of loan suitability were made on credit terms “that were different from the eventual loan application”.
ASIC deputy chairman Peter Kell said debt consolidation is not a one-size fits all solution to financial difficulty.
“Consumers that seek a debt consolidation provider usually do so in an attempt to turn their financial difficulties around. However, while debt consolidation services can be beneficial, they are not appropriate for all borrowers,” Mr Kell said, adding that ASIC would continue to monitor the sector closely.
