record numbers, page-4

Thank you volm27 and whats next. I spotted the following ABC radio interview yesterday about debt agreements that mentions Fox Symes. Just a bit of background information.

BRENDAN TREMBATH: There's been a spike in the number of people in financial trouble looking for help.

Figures released today show a record number of Australians signed up for debt agreements through private financial advisors in the final months of last year.

It's prompted renewed warnings from consumer groups that such agreements can often make matters worse.

Here's business reporter Pat McGrath.

PAT MCGRATH: Debt agreements were introduced almost two decades ago as an alternative to personal bankruptcy.

Ian Ramsay from the Melbourne University Law School says they're a good way for people on low incomes to manage serious financial problems.

IAN RAMSAY: There was stigma attached to becoming a bankrupt, and, therefore, was perfectly appropriate to offer an alternative to bankruptcy that had a similar goal to bankruptcy, to allow people a fresh start, to move on with their life, but it didn't have all of the same disadvantages as bankruptcy.

PAT MCGRATH: It's becoming an increasingly popular alternative to consolidated debt loans, which can amass large interest fees.

IAN RAMSAY: We certainly are seeing many more people enter into debt agreements. We've never seen the high numbers before.

PAT MCGRATH: Today's figures from the Financial Security Authority shows more than 2,500 Australians entered debt agreements in the December quarter.

Last financial year, almost 10,000 people signed up.

Under the Federal Government's rules, people who find themselves unable to cover their debts can enter an agreement to pay a nominal amount.

If the creditor, such as bank or power company, accepts the proposal, then the debt will be off over an agreed period.

But if you decide to enter a debt agreement, you will be recorded as having committed an act of bankruptcy, something that will remain on your financial record forever.

Penelope Hill from the Consumer Action Law Centre says that's something that isn't always made clear when people turn to the private sector for help.

PENELOPE HILL: They do have their place, debt agreements. But the problem is that a debt agreement is an arrangement under the Bankruptcy Act, just like a bankruptcy is an arrangement under the Bankruptcy Act, and sometimes people don't appreciate that.

So their name is put on a register that's held with the government department, AFSA (Australian Financial Security Authority), for the rest of their life.

PAT MCGRATH: She says there are signs some companies are acting in a predatory manner to get a fee.

PENELOPE HILL: People facing unmanageable debt are particularly vulnerable, and they're looking for hope. And I think sometimes they're given unrealistic expectations.

Debt agreements and bankruptcy actually share many consequences. So for some debtors, entering into a debt agreement can be financially worse than going bankrupt because they're locked into a payment over a particular period of time.

PAT MCGRATH: Fox Symes describes itself as Australia's largest provider of debt solutions.

Its executive director is Deborah Southon

DEBORAH SOUTHON: Naturally we tell them they're going to be credit impaired for seven years, and that is something that really is a deterrent for some people. But I guess the thing that's really positive about a debt agreement is that it allows someone to pay back their debt. They know what the payment arrangements are for a specific period of time, so they can then actually organise their other payments. They're not tempted by the credit cards because, once you're in a debt agreement, you will not be able to get credit.

PAT MCGRATH: Of course they won't be accruing debt, but they will be accruing fees. What kind of fee would somebody expect if they took out a debt agreement with your company?

DEBORAH SOUTHON: There's no set fee. It really depends upon the person's affordability. So, on average, I'd say it's around about 22 cents in every dollar is retained by an administrator to do a debt agreement.

But you need to be sensible about that and think well OK, the fees are one thing, but the person saving all the interest - and the fees are nothing compared to the interest. The fee is fixed up front, so it is known to both the creditors and the to the debtor and it cannot be increased.

PAT MCGRATH: Twenty-two cents in the dollar; so if somebody owes $10,000, then your company would make $2,200.

DEBORAH SOUTHON: On average, yes, but that's over a five year period.

PAT MCGRATH: Deborah Southon says debt agreements usually end up costing much less than the alternatives.

DEBORAH SOUTHON: Most people are paying 18 to 22 per cent and if not more on their credit cards. And in some cases, on personal loans they're paying up to 30 per cent plus, so no it's not predatory. And it's a flat amount; it's a fixed amount and the person going into the debt agreement, as well of the creditors, is aware of that fee up front.

So nothing's hidden, and it's certainly not a predatory tool. It's a remedy to help people who are in debt.

BRENDAN TREMBATH: Deborah Southon, from Fox Symes Debt Solutions, ending that report from Pat McGrath.