- Debt management agencies accused of preying on the vulnerable
- ABC - 7.30 Report
- Contributed by: Pikey ( 4 articles in 2017 )
Australian Broadcasting Corporation
Reporter: Lorna Knowles and Jodie Noyce
The number of Australians in financial distress is on the rise and a new, largely unregulated industry has sprung up to profit from people struggling with household debts.
LEIGH SALES, PRESENTER: The difficulty of finding affordable housing is one of the reasons the number of Australians in financial distress is rising.
Household debt is at worrying levels and a new, largely unregulated industry has sprung up to profit from people struggling to stay afloat. Debt management agencies offer to solve people's financial woes by taking control of their money and liaising with creditors.
But customers and financial advisors have labelled some of these companies 'debt vultures' who prey on the vulnerable. And now, lawyers are preparing to launch a $30 million class action.
This report from Lorna Knowles and Jodie Noyce.
LORNA KNOWLES, REPORTER: Noelene Mayne has struggled to make ends meet all her life. The single mother has lived in this caravan for the past 20 years. But last year, she hit rock bottom.
NOELENE MAYNE: At the time, I was supporting my 38-year-old son - or partially, the daughter who's living with me now, plus myself. And yeah, the money doesn't go that far.
LORNA KNOWLES: $31,000 in debt, the 64-year-old aged care worker was feeling desperate when she saw this ad on TV.
(Excerpt from television advertisement)
ANNOUNCER (TV ad): Debt Cutter has helped thousands of Australians through financial crisis by the use of a debt agreement. A debt agreement freezes interest on your debts, stops debt collectors from calling and combines all unsecured debts into one easy repayment.
NOELENE MAYNE: So it was when I had seen these ads, they said, you know, "We can stop this. We can stop the credit." And I thought, "Oh, that sounds good. I'll go down that path."
LORNA KNOWLES: Noelene Mayne contacted Debt Cutter. Within a few hours, an agent was knocking on her door.
NOELENE MAYNE: He had this bit of paper. He said, "You need to sign this." He told me it was going to cost $1,800 and I'd start paying $300 a fortnight.
LORNA KNOWLES: She was told, once she started paying the set-up fee, Debt Cutter would negotiate with her creditors to freeze the interest on her loans and stop the debt collectors calling.
NOELENE MAYNE: So I'd paid them $900. No interest had stopped. Still getting letters from the ANZ Bank; getting phone calls from the ANZ Bank; phone calls from Coles, who had the credit card.
LORNA KNOWLES: So they weren't managing your debt; they were just charging you fees?
NOELENE MAYNE: They had done absolutely nothing.
LORNA KNOWLES: So this is the debt management agreement?
NOELENE MAYNE: Yes.
LORNA KNOWLES (voiceover): Then Noelene received a formal debt agreement in the mail. Debt Cutter had negotiated her debts down to $31,000 to $21,500, but they wanted to charge her an additional $8,000 in administration fees.
(To Noelene Mayne) So how did this make you feel when you saw this?
NOELENE MAYNE: Just - yeah, just shocked, I think. I was just angry and got straight on the phone and said, "Listen, I'm not signing any more paperwork."
And they asked me why and I said, "Because you didn't tell me it was going to cost me this much."
LORNA KNOWLES: She cancelled the deal and got the $900 she'd already paid to Debt Cutter refunded.
NOELENE MAYNE: I just think they're under-handed. I think, you know, you see the ads: "Stop the interest, low payments," you know. And there's nothing about the behind-the-scenes charges.
RASAD MERCHANT, GENERAL MANAGER, DEBT CUTTER: This is the first complaint we've had. And that's the reason, hand-on-heart, we have refunded the money...
LORNA KNOWLES: Debt Cutter says it did disclose its fees and believed Noelene Mayne could have afforded to pay them if she tightened her belt.
RASAD MERCHANT: Certain places, we expect the client to move from a fancier, luxurious lifestyle to cut down and move to a more basic agreement-level structure, where she could possibly make that kind of money to then afford to repay that in the debt agreement.
LORNA KNOWLES: Financial advisors say they're seeing more people like Noelene Mayne.
ALEXANDRA KELLY, FINANCIAL RIGHTS LEGAL CENTRE: A lot of the budgets we see just aren't realistic. So what they're leaving consumers with is just not enough money to live on, just to pay for their day-to-day living expenses; or just unrealistic strategies to get out of the debt.
(Excerpt from MyBudget television advertisement)
TAMMY MAY, FOUNDER AND DIRECTOR, MYBUDGET (ad): MyBudget are experts at getting people out of debt and saving again. Our caring and understanding staff are always ready to help you.
KELVIN TURNER: When I see the ads, they make my cringe. They really do.
TAMMY MAY (ad): So call today for a free appointment or visit...
LORNA KNOWLES: Kelvin Turner approached MyBudget for help in 2013. He's now spearheading a class action against the company.
He called MyBudget when his marriage ended and he was struggling to pay his debts on a single income.
TAMMY MAY (ad): ...with no long-term lock-in contracts.
KELVIN TURNER: In their wording, it was like they were going to take control of, basically, your financial situation. So from that, I gathered that they would take your money and they would pay all your bills and all your debts and relieve you of the stress.
LORNA KNOWLES: Kelvin went to see MyBudget and they told him they could help. But the budget they'd designed for him was based on money he didn't have.
KELVIN TURNER: They advised me that there was a $5,000 shortfall, which I had to make up through whatever means. So...
LORNA KNOWLES: So that was $5,000 a year that you were short?
KELVIN TURNER: That's $5,000 over a year.
LORNA KNOWLES: In order to meet all your debts?
KELVIN TURNER: Yes.
(Answering phone) Yes, hello. This is Kel.
LORNA KNOWLES: For the first few months, he thought the bad times were over. But then the creditors started calling.
KELVIN TURNER (Speaking into phone): What do you mean it hasn't been paid?
(To Lorna Knowles) I started receiving phone calls from my creditors. They were just relentless. It was text messages or it was emails or it was phone calls.
LORNA KNOWLES: So these were all the creditors that MyBudget had said they would deal with on your behalf?
KELVIN TURNER: Yes, that's correct.
ALEXANDRA KELLY: A lot of consumers do contact us highly distressed, feeling like their situation is hopeless. And that has led people to needing to see their doctor about getting onto mental health plans.
We have had consumers who have indicated that they are considering self-harm. So it is a really difficult and an emotive area.
KELVIN TURNER: Did I have thoughts of doing anything silly or drastic? If I'm perfectly honest: yes, I did. But thankfully it didn't get to that point, because I thought better of myself in the end and I sought help.
LORNA KNOWLES: Kelvin turned to the Financial Rights Legal Centre in Sydney.
(Kelvin Turner attends a meeting at the Financial Rights Legal Centre)
ALEXANDRA KELLY: Good morning, Kelvin.
KELVIN TURNER: Hi. How are you going?
ALEXANDRA KELLY: Good, thanks.
So as a class action, you're our lead applicant.
KELVIN TURNER: Yes.
ALEXANDRA KELLY: And so...
LORNA KNOWLES: Alexandra Kelly is representing Kelvin Turner and other MyBudget customers in a class action against the company. They'll argue MyBudget unlawfully pocketed up to $30 million in interest, earned on customers' money.
ALEXANDRA KELLY: My Budget at the moment is skimming the pot and keeping that money for themselves. We say that they ought not to be doing that and that, as a trustee for consumers' money, that money should really be going back to the clients as part of their interest on their funds.
LORNA KNOWLES: MyBudget declined to be interviewed, but it denied acting improperly or illegally.
In a statement, the company said Mr Turner's budget was realistic and that it had raised bankruptcy as an option.
MyBudget also provided 7.30 with a letter Kelvin Turner wrote to the company when he ended his contract, in which he described its services as invaluable.
But he stands by his complaints, which will ultimately be tested in the Federal Court.
KELVIN TURNER: I just basically wanted to prove to people out there that going through people like MyBudget doesn't suit everybody and they don't help everybody.