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How a man paid $2,500 to a credit repair agency to ‘do nothing’

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“Doing nothing” can be a lucrative venture for credit repair companies but financially crippling for Australians, a Senate inquiry into payday lenders and credit services has heard.

Established last year, the inquiry into credit and financial services engagement with at-risk Australians has already received a number of alarming submissions.

The Salvation Army raised the alarm over a rental service which sent a “burly” man to hound a domestic violence victim for her rented appliances, while the Financial Counselling Hunter Valley Project Inc has related the story of a man who was approved for thousands in payday loans despite holding six maxed-out credit cards.

But one submission has revealed how Australians are at risk of paying thousands of dollars for services which achieve nothing at all.

Credit repair agencies

In a joint submission to the inquiry, the Consumer Law Centre of the ACT and Care Inc. Financial counselling related the story of a client who was experiencing financial hardship and was homeless.

He approached a credit repair agency under the belief that the credit repair agency would “clear” his credit report and achieve a settlement on the debts which were adversely listed.

“The client entered into the contract over the phone and was not properly appraised of the circumstances surrounding credit reporting or what the credit repair agency could actually do for him,” Care Inc. explained.

“He signed up to the service and authorised direct debit deductions from his account under the apprehension that the payments would be applied to his outstanding account balances.”

However, a financial counsellor later informed him that none of his debts had been cleared and his payments, now approaching $2,500, had gone straight to the credit repair agency.

The financial counsellor referred him to the Consumer Law Centre which found that the client’s credit report had not been cleared and none of his outstanding debts had been paid.

“The credit repair agency had received around $2,500 for doing nothing,” the submission read.

Wait, so credit repair agencies can’t repair my credit history?

As the Australian Security and Investments Commission (ASIC) warns, credit repair companies can act on clients’ behalfs to challenge incorrect listings on your credit report. But their powers don’t extend beyond this, and agencies may struggle to achieve even this promise.

And while companies claim they can improve your rating by removing negative information from your report, default listings and correct information can’t be removed.

Additionally, when it comes to incorrect listings, you can generally have them removed yourself, removing the need to engage with a credit repair agency in the first place.

Continuing, ASIC warned that ‘debt fix’ services to get out of debt can have substantial consequences for you and your credit rating.

“You could end up paying a lot of money without being any better off,” ASIC said.

What happened next?

The agency pursued him for money owed to them under the contract, but the Consumer Law Centre disputed the debt with the agency and later took the dispute to the Credit Investment Ombudsman.

The matter settled at that stage with the client receiving a full refund.

“The combination of financial stress, general lack of understanding of credit law, and lack of knowledge of free alternatives means consumers are highly vulnerable to paying large sums of money to credit repair agencies and getting very little in return.

“This often has the consequence of making consumers’ financial position even worse,” the Consumer Law Centre and Care Inc. concluded.”

“Reform is critical.”

The inquiry will continue public hearings on 22 January this year.

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