Ombudsman bans credit repair companies

The Credit and Investments Ombudsman has excluded two credit repair companies from using its services.

The decision was taken after the two companies were found to have obstructed CIO's dispute resolution process, had made "unreasonable decisions "on behalf of their clients and had "otherwise acted contrary to consumers' best interests".

The effect of the ban is that CIO will not discuss a complaint about a financial service provider with the credit repair companies, whose names have not been disclosed.

Affected consumers have been invited to deal directly with CIO.

CIO chief executive Raj Venga said his organisation was monitoring the activities of another four credit repair companies, with a view to taking similar action

Venga said the bans were not permanent.

"We have an obligation to provide access and we are prepared to review their conduct. We give them an opportunity to fix the issues and they have to convince us they have done that," he said.

Action against credit repair companies has been in the wind for some time. Last year CIO complained that credit repair companies, claims management companies and other agents representing consumers in disputes with their credit providers often charge consumers large fees to deal with issues that can be managed without charge.

CIO said credit repair companies also claimed to be able to have default listings or other negative filings removed from credit reports, when in most cases these records cannot be removed.

Last July, the Financial Ombudsman Service issued a consultation paper setting out proposed changes to its terms of reference, in which it said it would impose tighter rules on the activities of agents and would stop an applicant using an agent where it felt the agent was being unhelpful.

In its submission to the Financial System Inquiry, FOS said Australia's external dispute resolution system was in danger of being undermined by predatory claims management companies.

It said there were several problems with the claims management companies. They added costs for consumers and they tended make the EDR process more litigious, adding to costs and potentially extending the time taken to resolve a dispute.

The Consumer Action Law Centre has called for credit repair companies to be regulated, arguing that are more likely to entrench financial hardship than alleviate it.

"They charge very high up-front fees, sometimes thousands of dollars, for services that could otherwise be provided free of charge by an industry ombudsman, financial counselling service or community legal centre," CALC said.