About FCAN

The History of Financial Counselling in New South Wales

Financial counselling in Australia is still a relatively young profession that only developed in its present state from the late 1970s to the 1980s. From the mid 1960s, a number of budgeting services existed, but these concentrated on teaching clients to handle their money, often taking control of the debtor’s finances and making the payments to creditors out of the income on the debtor’s behalf. This was based on the model of service delivery being developed in the U.S.A. and Canada. These overseas services did not undertake an advocacy role, did not handle bankruptcy or give bankruptcy advice, were not involved in changing industry practices and their clientele were predominantly limited to low income earners and government benefit recipients.

Very little training was undertaken before the 1980s and the perception was that it was not needed. The International Consumer Credit Association of St Louis U.S.A. stated in an undated brochure written before 1980 that:

“Counselling debtors is the application of good horse sense along with some knowledge of basic credit fundamentals and the economic facts of life. Armed with this knowledge, and a suitable form for interviewing, counselling is not a difficult job.”

With the upsurge in the use of consumer credit in the 1970s, people in every socio-economic group started to experience difficulties coping with their indebtedness. In fact, because their borrowing capacity was greater, there was more potential for problems arising from middle and upper income groups. When financial crises occurred and they were forced to rethink their priorities and make changes in their lifestyles in order to cope, the affects on their lives was often more dramatic.

Consumers were powerless in the hands of the finance industry. The legal system was limited in its capacity to overcome the financial problems increasing in the community. There was no Credit Act or Credit Code. Not only was consumer protection in the finance industry limited, but also there was a reluctance to increase it, particularly in the area of responsible lending and debt collection harassment. The finance industry was moving steadily towards greater deregulation and was therefore strongly opposed to increased legislation of their practices. The A.L.P. state government, the welfare sector and community legal centres were concerned that the final effect of new laws to protect the majority, might in fact deprive the lower income groups from obtaining credit at all or, at best, force up the cost of credit to consumers with a higher risk profile. Robyn Duck, in her report on financial counselling services in NSW and ACT in 1980 stated:

‘To tighten credit legislation could further diminish the limited access of income families to consumer credit and may in fact protect the few but deprive the many.

By the late 1970s, overseas countries were beginning to recognise the need for stronger consumer protection as new and unrestricted forms of consumer credit evolved. Until the 1970s, the type of credit available for most consumers was lay-by, hire purchase and a limited range of store accounts. Hire purchase was the most commonly used option. Consumers purchased goods with a minimum deposit but did not obtain ownership of the goods, as the name implies, until the final payment had been made. Even if there was only say half a payment left to finalise the contract, the creditor could repossess the goods.

With the introduction of credit cards, the availability of unsecured personal loans and the increase in the number and type of store accounts, the attitudes to credit changed. From being a service commodity, it became a product in its own right – a product that was actively and aggressively marketed. The OEDC report stated:

“Steps need to be taken to supervise the volume of credit and to regulate down payments and interest rates … only in the last two decades have governments generally come to recognise the need for measures specifically designed to protect the interests of consumers who require credit.”

In May, 1980, a group of people interested in financial counselling met and decided to form an association. At this stage, there were only two agencies operating. Goulburn Financial Counselling run by Betty Weule and the newly established Redfern Legal Centre Service with Clare Hogan, Iris Collins and Thelma Waters. The Institute of Financial Counselling was officially established in August, 1980 with 14 members. The first President was Faye Gornell, Treasurer David Howard, Secretary Betty Weule. By the end of the year, six agencies were represented: Credit Line, Redfern Legal Centre, Penrith Advisory Service, Careforce Financial Counselling, Creditworthy Wollongong and the Smith Family Canberra.

The first training programme was run by Betty Weule in August 1980. This ran one night per week for 12 weeks. The first association course was run in February 1981 and was one night per weeks for six weeks. At the end of this course, a system of accreditation was established similar to the one that exists today.

The first task of the Institute was to develop a casework model for financial counselling. This involved ongoing, in depth casework, utilising strategies such as the full assessment of the financial situation, negotiation and mediation, advocacy, consolidation, referral, consumer rights and responsibilities, available resources, pro-rating, money management skills, income maximisation, relief schemes, bankruptcy, court representation and identification of associated social problems. The model was tested in a series of professional workshops set up in June, August and October 1981. At the conclusion of the workshops, a series of service objectives were agreed on. These were:

To help people to realistically appraise and understand their financial difficulties;
To develop the financial management skills of consumers;
To facilitate access to credit for low income/high risk families;
To provide information on community resources;
To promote consumer credit information;
To collect empirical information to be used to assist government in changing policy and law related to consumer credit and income security;
By crisis intervention, assist with presenting financial problems.

Financial counselling, therefore, initially became a response to the need generated by the credit revolution – the growth towards a cashless society where credit is universally available and debt is incurred on a steeply increasing scale. It changed and continued to evolve over the years as social and economic needs changed. Each stage of the economic cycle needed a different approach. The attitude and practices of industry varied greatly and different tactics needed to be developed. With the economic recession in the late 1980s and early 1990s and the dramatic increase in bankruptcy numbers, a more time-intensive, individualist style of counselling developed. Emphasis was placed on early intervention and crisis control to allow the pressure on the debtor to be lifted. Often this lifting of the financial pressure gave the debtor the opportunity to focus on job seeking and more confidence when approaching interviews. A different style of counselling again was needed, for example, to cope with the Homefund disaster in NSW in the 1993-1996 periods – techniques that would cover the large numbers, the geographic spread and specialised knowledge needed to assist the clients. This involved running intensive running programs state-wide, setting up travelling teams of counsellors which visited all areas of the state to provide the necessary specialised Homefund counselling and setting up a client hot line manned by a team of staff with general counselling qualifications. Adaptations to financial counselling were needed to cope with increasing client numbers and diversity of problems within ethnic communities. Counsellors needed to understand cultural differences, to learn to work with interpreters and to develop a knowledge of the economic system in their clients’ countries of origin. The counsellors had to develop techniques and strategies to handle informal ethnic based lending systems and the threats of violence sometimes associated with them. The continuing rise in consumer bankruptcies, which is well beyond predicted projections, will need further changes to meet this unprecedented need. The changes in bankruptcy legislation, such as the introduction of compulsory contributions, the introduction of Part IX Debt Agreements also brought changes to the way financial counselling is carried out.

The first attempt to look at the effectiveness of financial counselling in New South Wales was a study by Michael Howard in 1981 commissioned by the government funding body, Youth & Community Services. Using a lengthy questionnaire filled out by financial counsellors at each interview and follow up interview on each of their clients, it attempted to evaluate the effectiveness of financial counselling as an anti poverty strategy. The questionnaire was designed by Sutton from the Social Research and Evaluation association, a private organisation, and was designed specifically to be used with low-income clients living below the poverty line. However, Howard decided the questionnaire was to be administered to all financial counselling clients, his perception being that it would be consumers living in poverty who would seek the assistance of financial counsellors. To ensure a good response to the questionnaires, completion was made a condition of funding. The research had very definite limitations. Despite representations from the financial counsellors to do so, no client contact was made. In addition, the results relied solely on the counsellors’ own appraisal of their own work – even though continuing funding relied in their appraisal being positive. Howard drew conclusions that supported his hypothesis that financial counselling was an effective strategy.

The conclusions of Howard’s research were re-evaluated by Brian McGahen later the same year. Using the same research data, he concluded the financial counselling services were little more than de-facto debt collection services whereby the counsellor rearranged the client’s budget and procured all sorts of welfare handouts to allow the debts to be paid off. The repayment terms, according to McGahen were seldom better than would have been achieved by a court hearing – an assumption not born out by the research data collected by Howard and re-analysed by McGahen. Howard’s research showed that in fact when financial counsellors became involved, not only could repayments be set according to the amount the clients could afford, but also in many cases interest and charges were waived. McGahen, unlike Howard, failed to take note of how the discretionary income to offer to creditors was arrived at. A comprehensive family budget was prepared which took into account not only essentials such as rent or mortgage payments, food, utilities, clothing, schooling and travel costs but also pocket money for both adults and children, birthday and Christmas gifts, hair cuts, magazines, pet expenses, church contributions, alcohol, smoking, and family outings so that a reasonable quality of life could be maintained. He also did not take into account that the client’s choices were always paramount. Again, no contact was made with the user clients or with the financial counsellors. McGahen’s bias against church sponsored agencies was partly illustrated when he titled his paper “Jesus Saves … So Can You”. Objections from Youth and Community Services resulted in its re-publication under the title “Do not pass go …Do not collect $200”.

From six small agencies with eight paid full time counsellors and approximately twenty volunteer counsellors in the early 1980s, financial counselling grew rapidly and within ten years of its establishment in New South Wales had established strict criteria for the accreditation, training and supervision of financial counsellors whether they are paid or unpaid. This was an important step in obtaining recognition of financial counselling as a profession in its own right and in its acceptance by the State and Federal Governments, Creditors and the Insolvency Trustee Service of Australia.

Funding of financial counselling has been the single greatest problem for financial counsellors in New South Wales. The first funding grant was made by DOCS in 1980 – an amount in total of $70,000. This was shares between Credit Line, Redfern Legal Service, Penrith Advisory Service and Careforce. Following lobbying by the Institute, the funding was transferred to Dept of Consumer Affairs in the mid 1980s. By that time, the funding had been increased to only $100,000 for the whole state, making NSW one of the worst funded states in Australia. At that time, Victoria were receiving $2.3M for casework and received more to run their state association that the whole of NSW received for casework.

With incorporation, our association was required to change its name and the name Financial Counsellors Association of NSW and ACT was chosen. Later ACT decided to set up its own association and “ACT” was dropped from our name.

The Association ran continuous campaigns for funding. The most notable one occurred in 1986 when it placed an add in the Sydney Morning Herald that read “ARE YOU IN FINANCIAL DIFFICULTIES? DO YOU NEED FINANCIAL COUNSELLING? IF SO RING …..’ The phone numbers were the Minister and the Premier’s direct lines. They were inundated with calls. The Premier was amused by the add – Minister Peacock was furious and publically cancelled the entire funding programme. The intervention of the Australian Finance Conference, the Commercial Tribunal and ITSA finally resulted in the restoration of the funding – minus the cost of the add that we had paid for from our own pockets anyway!!

The Homefund work put financial counselling on the map. The Government realised how much we were needed. Funded increased and has gradually built up. However, we remain well below the funding levels of Victoria and Western Australia.

The challenges for our Association remain and there are still many battles to fight both on a casework level and policy level. For example, NSW has one of the worst debt recovery systems in the country. Our ongoing imput is needed into bankruptcy policy. Positive reporting is about to become a reality. We need to fight for independence, standards, freedom from conflict of interest and for best industry practices. We need to fight for better pay and conditions for members and better support systems.

The achievements of FCAN over less than 30 years is remarkable. Let us make a commitment to support our association to continue to grow and achieve.