Tuesday 07 Feb 2017

Mis-selling of Debt Agreements

Financial counsellors and consumer lawyers are reporting cases where debt agreement administrators are signing consumers to debt agreements who have have limited income and no seizable assets. In these cases it is clear and unambiguous that this type of miss-selling should be banned.



Case study 1

The Client works as a carer, earning approximately $1400 per fortnight, and is approaching retirement. She has no assets that could be seized in bankruptcy. The client had approximately $30,000 in unsecured debt with two creditors. Worried about her debt, she called a debt agreement administrator (DAA) after seeing its ad on TV.


As a result of the call, a man came to her home the same day. He said that if she paid $1,800 the DAA would negotiate with her creditors to stop interest and that she would be able to make payments to pay off the debts. He did not say how much the repayments would be, and did not mention any further fees to be paid to the DAA. He did not discuss any of the Client’s other options, like informal arrangements or bankruptcy.


Under the Part IX proposal prepared by the DAA:

  • The amount of the fortnightly repayments towards the $1800 fee (being $1600 in set up fees and $200 lodgement fee) are greater than the DAA’s own assessment of her uncommitted income– putting her budget into deficit before she even made repayments to creditors.
  • The total amount to be paid under the debt agreement is more than her total debt.


The Client did not sign the proposal and saw a financial counsellor. Her financial counsellor's view is that informal arrangements with creditors would have been more appropriate than a debt agreement. (In our view, bankruptcy also would have been a better option than a debt agreement). None of her assets would be lost in bankruptcy, and she would not have to make repayments to creditors from her current income or when she retired and realised her modest superannuation.



Case study 2

A client was offered a DA who was receiving the Parenting Payment Single. She was escaping a family violence situation and as such was working on a casual basis whilst she focused on more pressing matters. Her unsecured debts totalled approximately $25K and she contacted a DA for assistance. Repayments on the debt agreement, following the upfront fee of $2K, proved unsustainable. She saw a financial counsellor who cancelled her debt agreement and is advocating hardship arrangements with her creditors.




These cases are not isolated examples. Put simply, a debt agreement was not the correct option and only served to cause undue stress and wasted time and money.


Debt Agreement Administrators should consider other options upfront, and where appropriate refer to the 1800 007 007 National Debt Helpline run by financial counsellors. For our part, financial counsellors in Victoria receive comprehensive training on debt agreements and refer clients to DAA where appropriate.


We believe the solution lies, at the very least, in a policy that states

1. Debt agreements be banned for those consumers whose sole income is a full or part pension or low wage, with no seizable assets.

2. Debt Agreement Administrators be compelled to consider other options for clients in this category, and, where appropriate, refer accordingly.



We have raised this issue with the regulator, government and industry peak body. Colin, Tom and Cat Newton (CALC) are meeting soon to work out next steps.

If you have had a similar case, we’d love to hear from you. Please email Tom McIntosh or call 03 9663 2000.