Alternatives for consumers in financial difficulties
This chapter looks at what schemes exist to assist consumers with credit
complaints or financial hardship. It also examines products that could act as
alternatives to high cost credit options considered earlier in the report.
The Australian Financial Complaints Authority
The Australian Financial Complaints Authority's (AFCA's) role is to
'provide consumers and small businesses with fair, free and independent dispute
resolution for financial complaints'. It also has responsibilities to identify
and resolve systemic issues and it reports serious contraventions to the
AFCA can hear complaints only about member companies. Membership is a
condition of holding a financial licence, so many small amount credit contract
(SACC) providers are covered. Complaints can be about such matters as allowing
consumers to overcommit themselves, because this could involve a breach of the
responsible lending obligations. So, potentially, it can be of great assistance
It is not compulsory for buy now pay later operators to be members of
AFCA, although eight of them, including the biggest ones, have voluntarily
AFCA does not cover most debt management functions.
AFCA hears complaints about specific transactions rather than examining
a consumer's total financial situation, except where that is relevant to an
investigation. Many consumers would struggle to be able to access its services.
Still, as a free service, AFCA performs a useful function:
...for many consumers who are in financial hardship it is
simply not a realistic option for them to ever be able to go to court and
litigate. It's really by bringing matters through to an independent ombudsman
service that is free for them—that is actually the only remedy that many people
have other than going to the financial firm itself.
The usefulness of financial
The committee received considerable evidence regarding the effectiveness
of financial counselling.
The Royal Commission into Misconduct in the Banking, Superannuation and
Financial Services Industry noted that:
services laws will always involve a measure of complexity. Asymmetry of
knowledge and power will always be present. Accordingly, there will likely
always be a clear need for disadvantaged consumers to be able to access
financial and legal assistance in order to be able to deal with disputes with
financial services entities with some chance of equality of arms.
The committee received contributions from financial counselling
organisations which were providing a range of services, from assistance with
budgeting through personal support to legal representation. Occasionally
services will refer clients from one service, for example budgeting, to
another, like a legal service if it appears there has been improper conduct by
a lender. For example, the Consumer Credit Legal Service describes itself as
working collaboratively with financial counsellors. In this chapter, unless otherwise indicated, all the services are treated as a
The Salvation Army submission presented evidence on the usefulness of
financial counselling, referencing a number of studies. For example, one study
quoted showed a positive impact on debt resolution, wellbeing, financial
capability and advocacy; while another found:
...that Moneycare has helped community members in addressing
their financial hardships, building financial resilience, improving their
mental health, and their overall wellbeing and spirituality. Seventy-nine
percent of respondents reported improvement in their financial resilience and
67% reported improvement in their mental health within the first three months
of connection with Moneycare.
The Consumer Action Law Centre also reported positive evaluations
carried out by the University of Melbourne.
The Royal Commission pointed out that financial counselling was not
confined to service for individuals:
The legal assistance sector and financial counselling bodies
are also recognised by ASIC as playing an important broader role in the
financial services sector, for example by bringing issues to the attention of
the regulator or providing a balancing consumer voice in policy development.
Financial counselling is highly skilled, resource intensive work. A
witness referred to a case which had involved at least 100 hours of 'solicitor represented'
work. Care Inc said there was an urgent need for a greater investment in the training
and skills of financial counsellors:
Many of our client group have complex financial situations
usually compounded by challenging life circumstances which can include domestic
violence, mental health issues, addiction and loss of employment. The presence
of so many high cost financial products and predatory lenders such as payday
loans and consumer leases contribute to the complex financial lives of so many
of our clients.
To adequately address the needs of clients, financial
counsellors need to be highly skilled and knowledgeable. There is an urgent
need for a greater investment in the financial counselling sector to address
this need and ensure we can work effectively to improve the financial
circumstances and longer term financial capability of people in financial
Extent of unmet demand for
Several submissions suggested there was unmet demand for financial
counselling. Several forecast increasing demand with the increasing use of
short term, high interest credit products. Most called for greater resources.
In many cases those calls were linked to calls for better regulation of credit
in order to reduce demand.
Financial Counselling Australia reported that they had recorded 582 turn‑aways
since July this year [i.e. to December 2018]:
We did an unmet needs survey as part of our submission for
this inquiry, and that showed, for the services that were able to collect this
data, that, for every five people who came to see a financial counsellor, three
could get assisted and two were turned away, and that really worries us...
A counsellor from the same organisation gave a specific example:
She had been trying to get an appointment with a financial
counsellor in my area for a couple of months and hadn't been able to, so last
week she got a Zip money loan, and that's unfortunate. She's already stressed
about that. She could have applied for a NILS loan, and I would have been able
to advise her about that had I been able to fit her in...
Meanwhile, the Salvation Army notes that it does not promote its
Moneycare services for fear of being overwhelmed. A representative told the committee:
We'd love to work with people much earlier. Unfortunately,
most people come to us when it's very late in the process, things are too far
down the track and there are fewer options. We would love to have a promotional
campaign, 'Come and see a financial counsellor,' but, because of the large
demand on our services already, we can't handle any more people than we are
handling at the moment....
We could readily double in size and that demand would be
taken up quite quickly.
The Financial Counsellors' Association of New South Wales estimated that
there are 950 financial counsellors in Australia, and 2.5 million people living
in households of high financial stress. It further pointed to some coming
sources of new demand: the drought, and the National Redress Scheme for
survivors of child sexual abuse recommendation that survivors have access to
financial counselling, for which no new funds have been provided.
AFCA supported better funding of financial counselling:
We believe that a proper, sustainable funding model for
financial counsellors is critical. We see, on a daily basis, situations where
consumers have tried to access these services but the delay is too long or
there are gaps in provision.
UnitingCare Australia pointed to an increasing number of applicants for
assistance being found to be ineligible because they are not receiving a social
security card or a healthcare card, and suggested that tests for assistance are
Unmet demand may be worse than it appears. The Australian Financial
Security Authority reports that more than half of bankrupts with registered
trustees and debtors in debt agreements were unaware that they could have
accessed free financial counsellor services.
The Royal Commission noted that 'the legal assistance sector and
financial counselling services frequently struggle to meet demand, which is
Funding arrangements for financial
Funding for financial counselling services is provided by the
Commonwealth, state governments, some community benefit funding included in
ASIC enforceable undertakings, and some community funding.
The Department of Social Services provides funds for several counselling
programs under the Financial Wellbeing and Capability program:
- Commonwealth Financial Counselling and Financial Capability,
which supports 44 providers of direct case work;
- the National Debt Helpline (NDH), a telephone financial
counselling service and website that provides free, confidential and
independent information, advice and referral for people experiencing financial
difficulty—it is co‑funded by state governments; and
- Commonwealth Financial Counselling for people affected by Problem
Gambling, which funds services provided by 33 services.
The program has been the subject of a tender process which was referred
to in several submissions. Consultations began in February 2017. In January
2018 the program was extended to December 2018, and further consultations took
place. Applications for grants were invited in July 2018. Applications for
funding under the Commonwealth financial counselling and financial capability
programs closed on 22 August 2018. Despite the long time taken for the
process, the final tendering and selection processes were conducted in a
compressed time frame. A number of community groups indicated their frustration with tender process.
The outcome of the tendering process for the NDH has been controversial.
Since its establishment, the NDH has been delivered by a separate organisation
in each state, including the Consumer action Law Centre in Victoria and the
Financial Rights Legal Centre in Victoria, which between them received 45 per
cent of all calls to the Helpline. Financial Counselling Australia co-ordinated
the operation. In New South Wales and Victoria, state governments provide 70–75
per cent of the funding.
The result of the Commonwealth's tender process was that new providers
will receive the Commonwealth funding in New South Wales and Victoria (but it
appears the existing providers were re-funded in the other states). Consumer
Action Law Centre and Financial Rights Legal Centre will still operate the
Helpline, but there are unanswered questions as to how the 1800 007 007 phone
number, which is owned by the Commonwealth Department of Social Services, will
be used and how new providers will be integrated—especially as they do not
appear to incorporate legal expertise.
Mr Gerard Brody, of the Consumer Action Law Centre, commented:
...it appears that there still may be a very confused and
inefficient service model as the Department of Social Services is insisting on
there being more than one service provider here in Victoria, and in New South
Wales and Western Australia. We consider there must be a joined up approach to
funding the National Debt Helpline between states and the federal government,
and that existing arrangements should be maintained until that has been
Mr Brody, Chief Executive Officer of the Consumer Action Law Centre
...they [the Commonwealth] didn't understand the co-funded
nature of the model. I don't think they engaged with the state governments
throughout the tender process about what this would mean for the operation of
the helpline after the tender process.
The National Association of Community Legal Centres and Financial
Counselling Australia put to the Royal Commission a proposal for funding of
$157 million per annum to create a properly funded network of community
financial counselling and community legal services. This would comprise $1
million for the National Debt Helpline, $130 million for 1000 financial
counsellors, and $26 million for an additional 200 community financial
advisers. It is proposed to fund it by an industry levy, as is done in the UK.
The Royal Commission did not comment on where the funds should come
from, but noted that:
...the desirability of predictable and stable funding for the
legal assistance sector and financial counselling services is clear and how
this may best be delivered is worthy of careful consideration.
It would be easy to think that if people understood what they were
getting into they would be more cautious with credit products. This often leads
to calls for more education in financial literacy. Many of the professionals in
the field were not convinced.
A representative of the Queensland Council of Social Service said:
I think financial literacy is really important, and having it
delivered and tailored to the needs of the community would be really critical
as well for it to actually have an effect, but that's not really going to solve
all of the problem. In our submission we also highlighted
that some of the structural inequities in Australia. The level of Newstart, for
example, means that people just can't afford to make ends meet.
A legal worker said:
My view is that financial literacy will always have a place;
but, in this space, what we're dealing with is a cohort who are in crisis and
in extremely vulnerable situations who are not going to take that information
in. What I would say though about the financial literacy of that group is that,
in my experience, they're some of the best money managers around—they're
certainly better than me—because they've usually stretched what is a very
finite amount of money in the most extraordinary ways, and then they've hit the
point where they can't do it anymore and they can turn to these products.
An academic with experience in financial counselling wrote:
To assume that low income earners are less financially
literate than the general population is to make the mistake of confusing
circumstances with behaviour and knowledge. By way of example, to label a
single parent who is receiving no, or minimal child support, who is unable to
work full time as they need to be available for parenting duties, is paying
market rent as they do not qualify for public housing as 'not financially literate'
because they have little savings and are borrowing from a small amount short
term lender is an incorrect assumption.
Microfinance as an alternative
Microfinance services are generally provided by community organisations.
Funds for lending are provided by banks, and some funding for administration is
provided by the Department of Social Services and state governments. Examples
are the scheme run by the Brotherhood of St Laurence with funds from ANZ bank,
and the scheme run by Good Shepherd Microfinance with funds from Westpac.
Essentially, microfinance services provide appropriate loans at a lower
price than the market price. Some are No Interest Loans Schemes (NILS), and
some charge low interest.
The Good Shepherd Microfinance NILS model operates through 178 community
organisations at 628 locations across Australia. In 2017–18 it made over 27,000
loans. Loans are available for a limited range of purchases: fridges, washing
machines and furniture, education and medical expenses. They can go up to $1,500.
They are available to people who have a healthcare or pension card or who have
an income of under $45,000. There is no credit check, but the borrower must
have a willingness and a capacity to repay the loan.
Good Shepherd Microfinance's Step-Up Loan program offers loans of
between $800 and $3,000 to people on low incomes. Around 78 per cent of the
loans are to purchase a second hand car or for car repairs.
Good Shepherd Microfinance's Speckle loans are small loans from $200 to $2,000
with repayment periods ranging from three months to one year. Interest rates
and fees are half the cost of major payday lenders, and dishonour fees and
default fees are far lower. Borrowers have to have an annual income of $30,000,
excluding government benefits. The product is a direct competitor in the SACC market:
We chose to test the theory of, 'Can you offer a responsible
payday loan?' I think we are pleased to say that you can. Working with
consumers, we have priced it at half the regulatory rate—of two per cent, in
terms of fees—and we have a very different fee structure, in terms of when
people run into hardship.
Contributors to the inquiry commented that some of the value in
microfinance is that the loans are often delivered with a financial literacy
and education component. Also, they are:
...delivered through the community sector, and the community
sector know their clients; there is a trusted relationship there.
There were suggestions that there was insufficient funding to meet the
demand for microfinance:
Clients we speak to are often unaware of the microfinance
product, and that's partly because it's not widely advertised, and that's
partly because there's not an awful lot of money to lend in that microfinance
But representatives of the Queensland Council of Social Service believed
that the problem was not a lack of capital for lending, but a lack of
administrative funding to support enough local centres:
This is especially a problem in Queensland because the
delivery of the NILS products to the community organisations is that a lot of
it is mainly volunteers. Relative to other states, we are not as well funded in
the delivery of NILS products—and even step-up loans, for example, and those
types of products. There are large parts of Queensland that haven't gotten NILS
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