Australians are facing the perfect storm for increased financial insecurity in the next 12 months, making them vulnerable to dodgy insolvency advice. On the back of a tough few years of fire, drought, flood and the pandemic, rising interest rates and cost of living pressures mean that more Australians may struggle to pay their bills and mortgages.
The Australian Financial Security Authority (AFSA) has released a report highlighting the prevalence of untrustworthy advisors, particularly in an unpredictable environment where they can flourish more easily. People at risk of bankruptcy and those concerned about losing their assets and homes can be prime targets.
AFSA Chief Executive Tim Beresford highlighted the importance of being aware of scam activity.
‘Like all successful scammers, untrustworthy advisors are persuasive, and their solutions seem highly plausible,” said Mr Beresford.
‘The public needs to be aware that following untrustworthy advice may result in prosecution and possible imprisonment for both the individual and their untrustworthy advisor. AFSA has zero tolerance for untrustworthy advisors.’
The report explains that untrustworthy advice is hard to address because prosecution typically relies on the testimony of victims who may fear incriminating themselves, despite the fact that AFSA’s Cooperation Assistance and Support Policy encourages people to cooperate in regulatory actions.
‘While AFSA will continue to pursue untrustworthy advisors, we are also calling on the public and insolvency practitioners to help us disrupt their business and cut them out of the system,’ said Mr Beresford.
‘During the pandemic, Australians developed a different relationship with their creditors as banks and utilities offered payment holidays. We’re hoping that greater levels of trust will encourage people to talk to their banks or creditors early and negotiate a repayment plan.
‘The earlier people engage with creditors, the more likely they are to find a workable solution that keeps them out of the insolvency system.’
For those on the brink of entering insolvency, AFSA strongly encourages people to seek free financial counselling from the National Debt Helpline (1800 007 007) or engage with a registered personal insolvency practitioner – a Registered Trustee or a Registered Debt Agreement Administrator.
People should ignore ads with ‘too good to be true’ promises, such as getting people out of bankruptcy within a few months – for a fee that benefits the untrustworthy advisor and not the debtor.
‘People should be aware that searching ‘can’t pay my debts’ on the internet or similar phrases can cause fake advice ads to appear in social media feeds. These ads could be scams and should be treated as such,’ warned Mr Beresford.
’Be wary of advisors who create an unnecessary sense of urgency, suggest a bankruptcy or debt agreement won’t affect a credit rating or claim they’ve done this many times before and won’t get caught.’
People who believe they are being targeted by a dodgy advisor are encouraged to use AFSA’s online tip-off service.
Mr Beresford also called on insolvency practitioners to play their part in protecting the system.
‘Untrustworthy advisors often set up false debts to defraud actual creditors,’ Mr Beresford said.
‘Registered Trustees have the best chance of spotting these unlawful actions when reviewing proofs of debt. They also need to be wary of vote stacking and ask hard questions during meetings.’
Registered Trustees can draw on the coercive powers of AFSA’s Official Receiver Notices team to dig into evidence and potentially obtain funding from AFSA to investigate matters.
The report also notes that a minority of debtors are complicit in defrauding the insolvency system and actively seek out untrustworthy advice with the intention of avoiding paying their creditors. AFSA’s stance is clear in these cases.
‘Deliberate misuse of our personal insolvency system is not tolerated,’ Mr Beresford said.
‘People who know they’re doing the wrong thing should be aware that we work closely with the Australian Federal Police to investigate these cases, with penalties including jail time.’
The full report is available on the AFSA Website.