Financial counsellors welcome today’s commitment by the banking industry to better banking, including making financial hardship support programs more accessible and setting up a debt repayment service.
But the big question remains: why is there still no funding for financial counselling? Most of the clients seen by financial counsellors have debts with banks, yet the banking industry as a whole does not contribute one cent to financial counselling services.
The banking industry benefits significantly when it refers customers experiencing financial difficulty to community-based financial counsellors. These customers then get access to free and independent advice that helps them get back on track.
“There are around 2 million Australian households experiencing financial distress, but just 850 funded financial counsellors”, said Fiona Guthrie, CEO of Financial Counselling Australia. “Demand for financial counselling exceeds supply.”
Without access to financial counselling, thousands of people remain trapped in a cycle of debt or turn to for-profit debt management businesses. These businesses – credit repair agencies, debt negotiators, debt agreement administrators, bankruptcy advisors, budgeting services and the like – charge high set up and ongoing fees. They are often not the best option and can leave people in a worse financial position – a terrible outcome for the people affected, as well as the banks.
Financial Counselling Australia has been working closely with the banking industry in recent years on a number of positive initiatives: improvements to bank financial hardship programs, better basic bank accounts and as included in today’s announcement “a new debt repayment service to help people manage multiple debts”. The debt repayment service will be a new option for people in financial hardship and we are delighted that the banking industry is prioritising it.
“It is ironic that the banking industry will work with financial counsellors on initiatives like these, but funding for financial counselling seems to be off the table”, said Ms Guthrie.
We could dramatically increase access to financial counselling if the banking industry provided funding to a charitable trust. The trust, which would be at arm’s length from the industry to manage conflicts of interest, could then distribute funds to financial counselling services.
Financial counsellors have also been urging the Federal Government to follow the lead from the United Kingdom and impose an industry levy on financial services providers to fund debt advice/financial counselling.
The banks also need to accept that they are sometimes the cause of financial difficulty for some of their customers. While the most common causes of financial difficulty are external events in a person’s life, such as losing a job, relationship breakdown or illness, financial counsellors still see examples of inappropriate bank lending, particularly with credit cards.
We’ve been discussing various funding options with the banks for well over a decade and there has been very little progress.
 The Stressed Household Finance Landscape Report 2015, Digital Finance Analytics and the Monash University Centre for Commercial Law and Regulatory Studies, p7, http://digitalfinanceanalytics.com/reports.html.
This article has been reprinted from the Financial Counselling Australia website, available here