How to lead insolvent people into credit - legally

It is illegal for a consumer to rack up debts they don't intend to repay. But the Australian government intends to accept credit card payments in the name of insolvent debtors as a method of payment for its up-front fee for debt agreements.

Before 2007 it was common for debt agreement administrators to encourage their clients to pay them an up-front fee from their credit card, which would then be added to the debts being put up to creditors for negotiation.

This led to the commissioning of bank legal advice, which was then circulated to government, which suggested debt agreement administration fees were effectively a fraud on banks.

Now this same legal issue has arisen again in relation to the government's own up-front fee on insolvent debtors - the DAP fee.

One way the government proposes the $191 DAP fee be paid is by using the debtor's credit card.

"I can't see the Government sticking with accepting credit card payments and putting insolvent people into more debt. That will have to be wiped out," said Brody Clarke, executive director of the Debt Agreement Professionals Association.

"However the fee is paid, by credit card, cash, money order, cheque or via a debt agreement administrator's account, it presumably must add to the financial burden of a citizen who has flagged their intent to declare themselves insolvent. That means they have declared that they are unable to meet their financial obligations whilst remaining fed and sheltered."