ASIC cracks down on debt management firm ads as personal insolvencies jump

The Australian Securities and Investments Commission has debt management firms in its sights as it looks to crack down on misleading conduct by companies that claim to be able to help with bankruptcy advice and debt consolidation at a time when personal insolvencies are up 10%.

ASIC put the debt management sector front and centre on Wednesday, reporting one business, Capital Debt Solutions Australia Pty Ltd, has paid an infringement notice of $10,800 in relation to misleading claims, while two other companies, Debt Assist Aust Pty Ltd and Bankruptcy Experts Pty Ltd, have removed testimonials and claims from their websites over concerns they were misleading to customers.

This includes the claim from Capital Debt Solutions that it was ”trusted and recommended by more than 6,000 Australians”, although it was found there was no basis for this claim, while Capital Debt Solutions and Debt Assist Aust removed claims that their services were “Government Approved”.

According to ASIC, Bankruptcy Experts has taken customer testimonials off its website because the testimonials could not be verified.

ASIC Deputy Chair Peter Kell pointed to the importance of fact-based marketing in the sector, where providers offer services including debt agreement proposals. These arrangements involve creditors agreeing to debtors paying a certain sum to settle an overall debt, and they are lodged with the Australian Financial Security Authority (AFSA).

However, ASIC says just because these services are regulated by government bodies, it doesn’t mean these companies can make any claims they like about their services.

“Recommendations and statements like ‘Government Approved’ can have a strong influence when vulnerable consumers in financial hardship are seeking help with their debts. Firms must ensure their marketing materials and promotional statements are based on fact,” Kell said in a statement this week.

However, founder of Capital Debt Solutions, Colin Gray, whose company was issued the $10,800 infringement notice for claiming it was “trusted and recommended by more than 6,000 Australians”, says ASIC did not claim his company’s marketing had an impact on customer decision-making.

“They said [the claim] had no actual financial impact,” Gray tells SmartCompany.

Gray says his business always communicates fairly with customers, and concerns about claims made in the sector are overblown.

“We have testimonials, and when we get calls … when we help people, the comment has always has been, ‘we’d recommend it [our services]’,” Gray says.

He says he’s frustrated at the idea a small business like his could be fined for a statement that did not have an impact on customer decision making.

“It’s picking on the small businesses and they’re the easiest target, it’s always going to be that way … we’re just a family business.”

Personal insolvencies rise, businesses warned of slow action

Scrutiny on the debt management sector coincides with the release of AFSA figures that show personal insolvencies are on the rise, with business-related personal insolvencies also an area of concern.

In the March 2017 quarter, there were 7,900 new personal insolvencies, a 10.8% increase on the prior year’s quarter. Business-related personal insolvencies also rose close to half a percent compared with last year, with 16.5% of debtors entering a business-related personal insolvency over the past three months, compared with 16.1% last year.

There was also a significant jump in the number of individuals entering debt agreements, with 20.8% more agreements than this time last year.

Founder of Healthy Business Finances Stacey Price says there are many sole traders out there that don’t have a “plan B” and face tough times when they invest significant amounts of their personal wealth in their business ideas. This can make them vulnerable to leaving it too late to ask for help, and then simply doing a web search to find someone to help them with debt, rather than finding someone they trust.

“A lot of sole traders, they’re investing every cent they have in the business. Like, we see people get a redundancy package and then put all of it into the business, and they don’t have a plan B. I mean, we hope their businesses work, but it’s so important to have a back-up,” she says.

When it comes to the claims made by debt management firms and financial advisors online, Price says she would never trust any testimonial that is written down, and instead business owners should go by recommendations and people they know. However, when business owners hit tough times, they can inadvertently choose to reach out to businesses that may not be right for their needs.

“A lot of people get caught up in things, and they’re not in a pleasant situation as it is. I think some people just think, ‘I want someone who will make it all go away,'” Price says.

However, when dealing with any business that makes claims it can help manage or reduce your debts, it’s worth remembering it’s not possible to instantly ‘wipe out’ all liabilities, Price says.

“It’s probably true people get caught, people are in such dire straits — maybe they can ‘wipe out’ a debt, but what they’re probably going to do is consolidate it,” she says.

SmartCompany contacted Bankruptcy Experts for comment but did not receive a response prior to publication. SmartCompany was unable to contact Debt Assist Aust prior to publication.

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