A parliamentary inquiry into the shadowy world of ‘debt vultures’ will expose an industry preying on struggling Australians, consumer advocates say.

The inquiry, which passed the Senate this week, will shine a light on financial service providers that escaped the scrutiny of the banking royal commission, including payday lenders, ‘buy now, pay later’ apps such as Afterpay, rent-to-buy leases and debt management firms, otherwise known as debt vultures.

Australians will be horrified by what the inquiry uncovers, consumer advocates warned.

It will expose service providers that have been “left free to prey on financially struggling Australians for too long”, Consumer Action Law Centre chief executive Gerard Brody said.

“If you thought from watching the royal commission that the banks, insurers and superannuation companies have been ripping us off, they’ve got nothing on the unregulated debt management sector,” he said.

What are debt vultures?

Debt vultures – also known as debt negotiators or debt management firms – are unscrupulous businesses that target vulnerable people in financial strife, including those at risk of home repossession, struggling to cope with mounting bills, or hoping to repair poor credit ratings.

They claim to be able to resolve a range of financial issues, yet provide services of little value while charging exorbitant fees.

“Debt vultures advertise incessantly online and on TV promising a ‘life free from debt’,” Mr Brody said.

Shockingly, these services remain unregulated in Australia, and are not subject to the ‘best interest’ duty required of many legitimate financial service providers.

“These so-called ‘debt management’ firms do not have to meet even basic professional and ethical standards, act in your best interests, or resolve your complaint,” Mr Brody said.

Debt vultures are taking advantage of a “known gap” in the law, he said.

“We need a robust regulatory framework for all debt management firms urgently.”

Calls for government to fund financial counsellors

According to Consumer Action, the best way to resolve debt problems, is through the National Debt Helpline – a free financial counselling service – or with help from a community legal centre.

Both Consumer Action and Financial Counselling Australia, which runs the NDH, called for the government to counter the rise of exploitative businesses by investing in free financial counselling services.

“One of the reasons these businesses have grown exponentially is the serious shortage of free, independent, community-based financial counsellors,” FCA chief executive Fiona Guthrie.

“Face-to-face financial counselling agencies have long waiting lists. Calls to the National Debt Helpline … are at record levels.”

Financial counsellors have “long been calling for stronger regulation of payday lenders and rent-to-buy companies”, Ms Guthrie said

“The government promised stronger regulation of this industry last year, but we are still waiting for the laws to be introduced.”

Ms Guthrie welcomed the Senate inquiry, saying it will expose businesses that “target people in financial difficulty, often causing harm in the process”.

“If the current royal commission had been extended to this part of the financial services industry, we have no doubt that the issues uncovered would have been profoundly shocking.”

If you’re struggling with debt, visit the National Debt Helpline at ndh.org.au or call 1800 007 007