Media Release - Credit Ombudsman slams unacceptable behaviour by credit repair firms

The Credit Ombudsman Service Limited (COSL) has today announced that it is proposing to no longer deal with representatives of consumers who behave badly. It has issued a consultation paper seeking the views of industry participants and consumer bodies.

COSL has previously warned consumers to be wary of 'credit repair', 'credit fix' or 'debt solution' companies that claim they can 'improve' their credit report. 

According to the Credit Ombudsman, Mr Raj Venga, credit repair companies offer to 'fix' a consumer’s credit report for a considerable fee. "We have seen instances of consumers being charged an upfront fee of up to $900, and then around $1,000 per default listing, even when the debt for which the consumer was default listed is under $500", said Mr Venga.

Credit repair companies routinely approach COSL (and other ombudsman schemes), whose services are free of charge to consumers, to have default listings removed. In other words, consumers are paying significant amounts of money to access a service that is already available to them without charge. In a number of cases COSL has seen, consumers were not even aware that credit repair companies and other similar types of service providers have made complaints to COSL on their behalf.

"Whether the complaint is made by the consumer using a credit repair company or to us directly, our finding on the merits of the complaint and its outcome can only be the same. For example, if the complaint is that a default listing should not have been made and we find that the default was correctly listed, we will not require the removal of the default listing. Conversely, if we find that the default should not have been listed, we will order the default listing to be removed," explained Mr Venga. 

"Our proposal will mean that credit repair companies will find it harder to 'game' the system, using the threat of our service fees to pressure financial services providers into removing default listings or making unmerited corrections to credit reports. The removal of default listings that are correctly listed compromises the integrity of the credit reporting body’s database. This is not in the public interest," added Mr Venga.

COSL has observed too many instances of credit repair companies behaving badly. For example, they often do not act in the consumer’s best interest and typically:

  • do not inform the consumer that the complaint can be dealt with by COSL (or other ombudsman scheme) at no cost to the complainant,
  • obstruct or unreasonably delay COSL’s facilitative dispute resolution process,
  • make unreasonable decisions on the consumer’s behalf – for example, a decision which may increase the consumer’s liabilities,
  • do not inform the consumer of all available options, offers of settlement, offers of hardship assistance or other proposals by the financial services provider or COSL,
  • engage in a deceptive or misleading manner in their engagement with the consumer, financial services provider or COSL,
  • ask COSL to enquire into or investigate matters that they know are irrelevant or lacking in any merit,
  • do not inform the consumer of the potential risks and consequences of a course of action they are pursuing.

More than 40% of all complaints COSL receives about credit reporting matters are from credit repair companies.

"Credit repair companies also typically do not inform consumers that if a default or other negative listing is correct, in most cases it cannot be removed from their credit records; or that the credit repair companies themselves might use free ombudsman services despite charging consumers a significant fee", said Mr Venga.

COSL will continue to invite consumers with complaints about credit reporting to lodge their complaints directly with COSL and at no charge. Consumers can also authorise an appropriate person (such as a community legal centre) to act on their behalf.

Editors please note:

Credit Ombudsman Service Limited (COSL) is an alternative dispute resolution scheme approved by the Australian Securities and Investments Commission to provide consumers with an alternative to legal proceedings for resolving disputes with financial services providers who are members of COSL. These include finance brokers, non-bank lenders, building societies, mutual banks, credit unions, financial planners, finance companies, debt purchasers, small amount short term lenders and mortgage managers.