Debt consolidation providers under ASIC review
The Australian Securities and Investments Commission (ASIC) has raised concerns about the standard of record-keeping practices of a number of Australian credit licensees.
As part of its review of debt consolidation providers, the regulator flagged 82 client files that were reviewed across 17 licensed providers.
In 30 per cent of files, the licensee failed to record or keep sufficient information to identify the consumer’s pre-existing credit contracts.
In general, providers did not appear to document whether potential significant risks and costs of debt consolidation had been discussed with consumers, along with inadequate recording of the consumer’s objectives and financial situation.
According to the review, there were also discrepancies on some assessments of loan suitability and the eventual loan application.
ASIC Deputy Chairman Peter Kell said consumers should be aware that debt consolidation, while it can be beneficial, is not appropriate for all borrowers.
This is specifically due to the risks and costs that come with extending the term of a loan, moving to an interest-only loan without an appropriate exit strategy, and the transferring of default risk of previously unsecured debt onto the family home, he said.
“It is essential that providers ensure the debt reduction strategy they are proposing meets the consumer’s requirements and objectives and is affordable both in the short and long term,” he said.
“We will continue to monitor this sector closely and will take action where we see adverse outcomes for consumers.”
Recommended for you
Two commentators have shared why cultural alignment can be the biggest deal breaker when it comes to advice M&A and how to ensure a successful fit.
Formal education has played a large role in enhancing the advice profession over the last decade but, with the bar now so high, two advisers debate whether it is necessary to complete additional study.
With an abundance of private market options coming to market, due diligence becomes increasingly important as advisers separate the wheat from the chaff, adviser Charlie Viola has said.
The Treasury has launched a consultation into how the $47 million special levy for the Compensation Scheme of Last Resort will be funded.
