Australia: ASIC tells debt collecting agency to pay up or risk $1.8m penalty

The Australian Securities and Investment Commission (ASIC) has issued an infringement notice of $10,800 to Capital Debt Solutions Australia Pty Ltd (Capital Debt Solutions), the regulator believing the agency made a false and misleading statement on its website.

Capital Debt Solutions' website made the statement that the company was 'trusted and recommended by more than 6,000 Australians'. ASIC alleged this statement was false and misleading (in contravention of subsection 12DB(1)(e) of the Australian Securities and Investment Commission Act 2001 (Cth), which gives ASIC similar powers to the ACCC but in the financial sector). The infringement notice issued by ASIC read that it had reasonable grounds to believe that the 6,000 figure was a reference to the number of inquiries Capital Debt Solutions had received about its services, not the number of people who had instead 'endorsed' the provider by engaging with them any further or that could be considered to trust or recommend Capital Debt Solutions.

The infringement notice gave the provider 28 days to pay the fine or risk proceedings being issued for the contravention of the above provision, the maximum penalty of which would be $1,800,000.

ASIC also announced that Capital Debt Solutions and Debt Assist Aust Pty Ltd had removed misleading statements published on their websites to the effect that their debt agreements (where the creditor agrees to accept a sum of money from the debtor as a settlement) were "Government Approved".

ASIC considered that the words "Government Approved" could be misleading to vulnerable persons (debtors) who might be led to think the Government had approved or endorsed the agreements the debtors were being asked to enter into. In fact, debt agreement proposals are lodged with the Australian Financial Security Authority, but do not receive any active approval from Government.

Bankruptcy Experts Pty Ltd also removed testimonials from its websites from customers where it could not substantiate the testimonials.

The actions are a good warning to anyone who makes statements in the course of its business that might be considered 'ambiguous' or mere puffery, particularly where an active regulator takes the view that such statements are otherwise capable of substantiation, or may affect a more vulnerable class of consumers. In the debt collection industry, this class of consumer is certainly more evident, and service providers should consider further precautions as a consequence.