Mistakes, Failure Cases and Official Sources
Dodgy debt management firms: licensing rules and 10 warning signs before you pay
How debt management and debt help firms are regulated in Australia, ASIC credit licensing and AFSA registration, typical fee models, ten warning signs and how to check a firm.
Firms that offer to "fix" or "manage" your debts in Australia have to meet two separate sets of rules: businesses that provide debt management services for consumer credit debts generally need an Australian credit licence from ASIC (a requirement since 1 July 2021), and anyone who administers debt agreements as a business must be a registered debt agreement administrator with AFSA. Even licensed firms charge for work that free financial counsellors do at no cost, and some earn their money from fees taken out of your debt agreement payments. Before you pay or sign, check both registers, ask for every fee in dollars, and compare with a call to the National Debt Helpline (1800 007 007). The ten warning signs below describe common patterns; they are not allegations about any particular business.
This guide is part of debt help mistakes to avoid.
Who regulates what
| Service | Who regulates it | What to check |
|---|---|---|
| Negotiating with credit providers on your behalf, for a fee (debt management) | ASIC, under the National Consumer Credit Protection Act 2009 | Australian credit licence or authorised credit representative number on ASIC's professional registers |
| Preparing and administering debt agreements | AFSA, under the Bankruptcy Act 1966 | Registered debt agreement administrator on AFSA's register |
| Acting as trustee in bankruptcy or controlling trustee in Part X | AFSA | Registered trustee on AFSA's register |
| Credit repair (disputing credit report listings) | ASIC licensing can apply where the firm provides credit-related services; the Privacy Act governs credit reporting | Licence; never pay to correct an error you can correct yourself free |
| Legal advice on debts | State legal profession regulators | Practising certificate |
| Free financial counselling | Funded community organisations; counsellors are generally members of Financial Counselling Australia's state bodies | Free; no commission |
Licensed debt management firms must meet general obligations as credit licensees, including acting efficiently, honestly and fairly, having internal dispute resolution, and being a member of AFCA. That gives you a free complaint path if things go wrong.
How debt firms are typically paid (illustrative)
| Model | How it works | Watch out for |
|---|---|---|
| Upfront fee | A fixed fee before any work | Paying before anything is lodged or negotiated |
| Fee from debt agreement payments | The administrator takes a share of each payment | Total cost may be thousands of dollars over 3 years |
| "Success fee" on reduced debt | A percentage of the amount saved | Inflated "savings" based on interest you might never have paid |
| Monthly management fee | Ongoing fee while the firm "manages" your debts | Fees continue while debts grow |
| Referral commissions | A firm refers you to an administrator or lender and is paid for it | Advice biased to the product that pays |
These are generic patterns, not the fees of any firm. Ask for a written statement of every fee and the total you will pay.
Ten warning signs
- Government-sounding names or "scheme" language for a private business.
- Pressure to sign today, or calls that keep coming after you said you would think about it.
- No mention of free alternatives — hardship requests, financial counselling, waivers.
- Promises to "wipe" debts or "remove" accurate defaults from your credit report.
- Advice to stop paying everything without explaining the consequences for your home, car and credit file.
- Upfront fees before any proposal is lodged.
- Vague total cost: percentages without a dollar figure.
- No licence or registration number on the website or paperwork, or a number you cannot find on ASIC's or AFSA's registers.
- Downplaying a debt agreement as "not bankruptcy". A debt agreement is an act of bankruptcy and is recorded on the NPII for at least 5 years.
- Asking you to sign blank or incomplete forms, or to let the firm lodge documents without showing you.
How to check a firm in 10 minutes
- Search the firm's name and ABN on ASIC's professional registers for an Australian credit licence or credit representative number.
- Search AFSA's registers for a registered debt agreement administrator or registered trustee.
- Check that the firm names AFCA as its external dispute resolution scheme.
- Ask for the total cost in dollars, in writing.
- Call the National Debt Helpline to compare what free help can do.
Worked example: free versus fee-based help
Illustrative example: Luis owes $22,000 on two cards and a personal loan. A firm proposes a debt agreement with $520 a month for 36 months, $18,720 in total, of which an assumed $3,700 goes to the administrator. A free financial counsellor instead obtains a hardship arrangement on one card and an interest freeze on the other debts; Luis repays $22,000 over 4 years at about $458 a month, pays no fees and has no NPII record. In this example the debt agreement costs less in total dollars, but it adds a public NPII record and a credit report listing that each last at least 5 years. Which is better depends on Luis's priorities — and he can only choose well if he hears both options.
If you have already signed
- Ask the firm for copies of everything you signed and everything lodged.
- Check with AFSA whether a proposal has been lodged in your name.
- If the firm has not lodged anything yet, ask whether you can cancel and what refund applies.
- Complain to the firm in writing, then to AFCA if it is a member; report unlicensed conduct to ASIC and debt agreement administrator concerns to AFSA.
Frequently asked questions
Are debt management firms illegal?
No. Licensed firms can lawfully charge for their services. The issue is whether the service is worth the cost compared with free help, and whether the firm is licensed and behaves fairly.
Do financial counsellors really cost nothing?
Yes. Financial counsellors at community organisations are free, and they do not take commissions or a share of payments.
Can a firm remove a default from my credit report?
Only if the default is incorrect, and you can request the correction yourself at no cost. Accurate defaults stay for 5 years.
Sources
- ASIC — professional registers and credit licensing
- Australian Financial Security Authority — registered debt agreement administrators and trustees
- Moneysmart — debt management firms
- Financial Counselling Australia — the peak body for financial counsellors
- National Debt Helpline — free help, 1800 007 007
