The regulatory loophole used by debt advisers

A Parliamentary committee has been told that debt management firms including personal budget services, debt negotiators, debt agreement brokers and credit repair companies need to be regulated.

The Senate Economics Committee inquiry into Consumer Protection in the Banking, Insurance and Financial Sector has been told that a regulatory loophole exists that is allowing these types of firms to operate.

Answering questions on notice from South Australian Senator, Nick Xenophon, the Financial Rights Legal Centre said that currently, and despite the recommendations of the Ramsay Review, such companies were not the subject of specific regulation.

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“They are all part of a regulatory loophole or series of loopholes,” the Legal Rights Centre said.

“A new regulatory framework is required to be introduced by Government. In short, all debt management firms should be required to hold a relevant licence, have minimum required standards such as a fit and proper person test and maintain membership of an Australian Securities and Investments Commission (ASIC)-approved industry ombudsman scheme.

The committee was told that the final report of the Ramsay Review into the financial system external dispute resolution (EDR) and complaints framework, has recommended that debt management firms be the subject of a regulatory regime.

Further it said the Government had indicated its acceptance of that broad recommendation.

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I agree with the article. I initially thought the article was to do with mortgage brokers recommending their clients take out loan protection insurance with no consideration for the clients existing insurance arrangements, no soa, whilst using poor quality products.

@ Claude,
They do that anyway via Allianze insurance with no disclosure of commission.
There's no Data Collection, no SOA and most mortgage brokers insure for the debt only and not family needs.
The irony is that the offer is for only 5 year level term cover for life insurance.
5 year benefit terms only are available for IP cover through the same insurance company.
Can you imagine what the level premium looks like after the first 5 years have passed, ? Try 80.0% increase from the original 5 year level rate to the new 5 year level rate.
How about a 5 year benefit term IP compared to a current one with benefits payable to 65 ?
The price must be compelling for many without advice and the consequences.
I terminated referrals a local mortgage broker who was marketing this stuff on the side.
You want to hope they have plenty of PI if there's a claim for under insurance.

Alleycat, I don't think FOS would accept a complaint if they are not licenced for financial advice and similarly their PI would not offer coverage as it is outside the terms of their expertise and coverage.

They also use ALI insurance - like allianz, its utter junk. I just cant understand how this is allowed to happen without licensing, or the normal advice processes which are followed by Planners. Two sets of rules.... You can bet there are far more complaints with this type of insurance compared to Insurance obtained through a Planner.

@ Claude,
First off the short term life and disability offerings are provided by a general insurance company that has a licence to offer those restricted life products by mortgage brokers who are not licenced to provide financial advice.
If someone did not under take into account the 2 basic tenements required of financial advisers just to make a sale, which is,
1. know your client,
2. know your product and then add the client best interest test for good measure.
Think about what FOS, the regulator would do, if the client was "short changed ?".
Many clients buy on premium and many advisers do not sell the benefits first and do not know who pays and who doesn't without going to ACA, 60 minutes or a good lawyer when there's a claim.
The morality of many life companies is questionable, otherwise why so many complaints (viz CBA).
Either way the door is open for civil action which is why they all should double their PI.

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