Credit Trouble & Scams

How to avoid common money traps

and what to do if you fall into one

Financial Ombudsman Service Credit Trouble & Scams

1 of 18

contents
introduction ...........................................................................................3
case studies ..........................................................................................4
1. An internet scam ................................................................................................... 4
2. Taking out a loan for someone else ...................................................................... 5
3. I didnt pay for this! Charging back credit card transactions............................. 7
4. Getting into debt .................................................................................................... 8

your credit file ..................................................................................... 11

What is a credit file? ................................................................................................. 11
What happens if I have an overdue (unpaid) account?.................................................... 11
How do I get a copy of my credit file?....................................................................... 12
What if something on my credit file is wrong? .......................................................... 12

useful resources ................................................................................. 13

General .................................................................................................................... 13
Credit cards .............................................................................................................. 14

glossary ............................................................................................... 15
if things go wrong . ......................................................................... 18
Our contact details ................................................................................................... 18

Financial Ombudsman Service Credit Trouble & Scams

2 of 18

introduction
Credit card debts can be crippling. This booklet shows the sorts of problems that can
occur for young people with credit card contracts and debts. We havent used real
names, because the cases that come to us are treated confidentially. But the case
studies give examples of the kinds of disputes the Financial Ombudsman Service
looks at, how we approach them and the outcomes that can be achieved.
If something has happened that is not your fault, its important to know that there are
a number of places, including FOS, where you can go for help in sorting it out. This
will involve having the issue looked at independently and may result in you getting
some compensation or reaching another acceptable arrangement with the service
provider. FOS is free to access and you dont need a lawyer.
If you need general advice about how to manage your finances or avoid getting into
strife with your credit cards, take a look at the websites listed in the Useful
Resources section. Your state consumer affairs or fair trading agency should also be
able to help you sort out problems with retailers and other companies. There are lots
of places that can help, so dont hesitate to ask.
We would like to thank the following for their contribution to this publication:

Consumer Affairs Victoria, Education & Information Branch

David Thomson, Schools Consultant, Victoria Law Foundation

The Victoria Law Foundation

Caulfield Grammar School students

Rebecca Delmenico.

Financial Ombudsman Service Credit Trouble & Scams

3 of 18

case studies
1. An internet scam
Scams have been around for a long time. You see an offer that sounds too good to
be true and then you find out to your cost that too good to be true is exactly what it
was.
Scams are designed to steal money from you. Scammers are very inventive and new
scams seem to appear every day! Scams vary from self-employment scams to
million dollar winning tickets in lotteries you have never entered. You may have
received emails from someone who wants to use you bank account to transfer
millions of dollars overseas from an African country or who says they need your bank
account details and password to fix a computer problem at the bank. The simple rule
is never give them your bank account details.
Some scams (money-laundering scams) are designed to get stolen money out of the
country using your bank account to pass the money through one of the warning
signs for this sort of this scam is that you get more money than you should be getting
and you are asked to pass some of it onto someone else usually someone in
another country. Theres good information about different kinds of scams, and how to
protect yourself from them, on www.scamwatch.gov.au.
Tim
Tim saw an ad for casual employment on a job hunting website. Tim visited the
companys website and applied for a job. He didnt realise that the job and the
website were part of a sophisticated scam.
The company
The companys website said that it was an international organisation with over
80,000 employees. Each employee had to have a bank account with one of the
companys partner banks. The company said it made a profit by transferring money
between partner banks. The website was pretty convincing.
What was Tim asked to do?
Tim had a bank account with one of the banks listed on the website. The work he
had to do was to check his account to see if any money had been transferred in and,
if it had been, to send that money onto another employees bank account. He was
told that each time he transferred money he would be allowed to keep some money.
For Tim, this seemed like an easy way to make money.

Financial Ombudsman Service Credit Trouble & Scams

4 of 18

After a few days, Tim received an email saying that $1,500 had been deposited into
his account. Tim was told to send this money to a person in Estonia. Tim checked
his account using internet banking and saw that he had received the money. He then
withdrew $1,350 in cash and sent the funds via a money transfer to Estonia. He kept
the other $150.
What went wrong?
The bank had put the money into Tims account, believing that it had been sent by
the person who owned the account it came from. In fact, it had been stolen from that
persons account by the people behind the company. These people wanted to get
the money out of the country and, by paying it through Tims bank account, were
able to make it look legal. This is called moneylaundering. When Tims bank found
out that the money had been stolen, it paid the money back straight away. Tims
account was overdrawn.
The next day Tim received a letter from his bank saying that the transfer of $1,500
into his account was due to fraud and that it had been reversed. Tim was out of
pocket by $1,350 and his bank said that the had to pay back that amount.
Tim tried to get in touch with the company that he thought he worked for, but did not
receive a response. The companys website had also been removed from the web.
Tim felt that it was unfair that the bank took $1,500 from his account without his
permission. In his view, the bank should not have put money into his account if it was
fraud. Tim went to see a lawyer who assisted Tim to make a complaint to FOS.
What was the outcome?
Normally, Tim would have to repay the overdrawn amount as well as the $150 he
thought he earned. This is because you cant usually keep money that has been paid
to you by mistake. However, because in this case FOS accepted that Tim had only
done what he thought he had to do under his employment contract and genuinely
believed that the company and its operations were legal, he was able to rely on a
legal defence that he had paid away the money in good faith and so he didnt have
to pay the bank back the $1,350. Tim had to pay back $150 that he had kept. So he
was back to where he started. If FOS had found that Tim knew that there was
something dodgy about the scheme, he would have to pay back all of the money.

2. Taking out a loan for someone else

You should think very carefully before you agree to borrow money for someone else,
even if you have a good relationship with them and they tell you they will pay it back.
It can be the fastest way for a good relationship to go bad so never feel pressured
to agree.

Financial Ombudsman Service Credit Trouble & Scams

5 of 18

Ask yourself why isnt that person able to borrow the money themselves? Maybe
its because they dont have enough income to make the repayments or perhaps
they have borrowed money and not paid it back in the past. If the bank or credit
provider believes that it is too risky to lend that person money then you probably
should too! If you do take out a loan for someone else in your name, be realistic.
That person may let you down and you will have to make the repayments. Think
about it can you afford to lose that much?
Liyen
Liyen was 19 and had been working full time for 10 months. Her boyfriend Ken
persuaded her to take out two $5,000 loans and give him the money. He said that he
would make the repayments.
Applying for the loans
When Liyen applied for the first loan, she told the bank she was going to use the
money to buy a car. Instead, Liyen put the money into her bank account and
whenever Ken needed money, she gave him her debit card and PIN number and he
withdrew it from her account.
Before the money from the first loan had completely run out, Liyen applied for the
second loan. She told the bank that she was going to use the money to buy a better
car. Liyen also said that she was still working full time. The truth was that Liyen had
been fired and would finish work a few days later.
What happened to the money?
The money from the first loan was mainly spent by Ken. When Liyen applied for the
second loan, the bank wanted to pay the money directly to the seller of the car Liyen
said she was buying. Liyen gave the bank Kens name and said that he was the
seller. Liyen then gave the cheque from the bank straight to Ken.
End of the relationship
Not long after Liyen gave Ken the cheque, the relationship ended. Ken did not pay
back the money. Liyen was left with a big debt with nothing to show for it. Because
she had no job, Liyen could not meet the repayments on the loan herself.
Liyens complaint to FOS
Liyens father made a complaint on her behalf. In the complaint, Liyens father said
that it was irresponsible and bad practice for the bank to have lent Liyen $10,000,
because she was just 19-years-old and had only worked full time for a short time.
Liyens father said that Liyen should not have to repay the money.
What did the bank say?
The bank said that when Liyen applied for the first loan, she was earning enough
money to cover the repayments and her other living expenses. When she applied for
Financial Ombudsman Service Credit Trouble & Scams

6 of 18

the second loan, Liyen had lied to the bank about the fact she had been fired. This
meant that the bank could not properly work out whether Liyen could afford the loan.
The bank also had no way of knowing that Liyen was giving the loan money to Ken
and was not using it to buy, and upgrade, a car for herself.
What was the outcome?
FOS said that the bank had assessed Liyens loan applications properly, taking into
account the information she provided to the bank as well as information about her
income provided by Liyens employer. Therefore, Liyen was responsible for
repaying the debt. After FOS sent out its decision, Liyens father asked the bank if it
would accept $5,000 to settle the debt. The bank agreed.

3. I didnt pay for this! Charging back

credit card transactions
If you have a credit card and find that you have been charged for something you
didnt buy, or if you have been charged twice for the same thing, the bank may be
able to charge back the transaction. A chargeback is when a payment that has
been made to a shop or business is reversed and the money paid back to the credit
card holder.
So, for example, if you notice on your credit card statement a purchase that you
didnt make you should contact your bank and ask it to charge back the transaction.
You will need to fill in a form with truthful information and you will need to do it
quickly, because the bank can only process a chargeback within certain time limits.
The bank probably wont charge back a transaction if the only problem is the quality
of what you bought. That is usually something you need to sort out directly with the
shop or business. If you need help doing that you can contact the Government
Consumer Affairs or Fair Trading office in your State/Territory. You can find their
contact details on the internet or in the phone book.
Rebecca
Rebecca noticed there was a $2,000 charge on her credit card statement. The
payment had been made to a business in a town in Thailand. Rebecca, who lives in
Western Australia, had never heard of the town or the shop where the purchase was
made. Rebecca was certain that she had not made the purchase and she rang the
bank and reported it straight away.
Reporting the unauthorised transaction
Once Rebecca reported the transaction, the bank sent her a charge back request
form to complete and return. Rebecca did not return the form until four months later.

Financial Ombudsman Service Credit Trouble & Scams

7 of 18

The bank said that because of Rebeccas delay in returning the form, it could no
longer charge back the transaction, because it had to contact the other bank within
three months. The bank told Rebecca that she had to pay the $2,000.
Rebecca was not satisfied and complained to FOS.
FOS investigation
FOS asked the bank to provide details about the $2,000 transaction on Rebeccas
statement. The bank said that the purchase was done by internet. When a credit
card purchase is done by internet, a document called the Electronic Funds Transfer
Code (or EFT Code) applies. The EFT Code has a lot of rules which set out when a
customer is liable for a transaction that he or she didnt conduct.
Rebecca said that she had never bought anything from a business in Thailand and
had never been there. She said that she had not given her card to any person.
The EFT Code says that where a transaction is made using just a card number and
the expiry date on the card, but no PIN, the card holder is not liable if the transaction
was not conducted or authorised by them.
What was the outcome?
Rebecca did not have to pay the $2,000 and all of the interest that the bank had
charged on that amount had to be refunded. Rebecca was happy with this outcome.

4. Getting into debt

Just because the bank is prepared to give you a credit card doesnt mean you can
afford it in the long run. Buying new clothes, upgrading your mobile phone, paying for
concert tickets can feel good at the time but paying off the debt can be a long and
painful process.
When a bank gives you a credit card, the bank doesnt make you pay your entire
credit card balance in full every month. Instead the bank asks that you make at least
a minimum monthly repayment. For a debit of $500, that can be as little as $7.50 a
month. You might be able to afford to make the minimum repayment but if you want
to avoid high interest charges you need to be able to repay the whole balance each
month.
The Australian Securities and Investments Commission has a credit card calculator
on its consumer website www.fido.gov.au if you enter your account balance,
interest rate, repayment amount and the amount of credit you owe, it will calculate
how long it will take you to pay off your credit card and how much interest you will
pay over that period. For example, if you owed $2,000 on a card with a 16.5%
interest rate and you were required to make a minimum payment of 2% of the

Financial Ombudsman Service Credit Trouble & Scams

8 of 18

balance, or $20, whichever is the greater, it will take over 16 years to repay the
$2,000 plus interest of over $2,900 assuming you only pay the minimum amount
(and never use the credit card again!).
So before you use a credit card to buy something just check can you repay the
whole amount by the next due date? If not, add credit card interest to the price it
might not be such a good buy and the debt might be hanging around for a long time.
Marco
Marco was 22 and working full time as a metal worker. In order to get to and from
work, he decided to buy a second hand car. When Marco applied for the car loan,
the bank also invited him to apply for a credit card. Marco wrote on the credit card
application that he wanted a credit card limit of $600 but the bank gave him a limit of
$10,000.
Problems with Marcos car loan
Soon after buying his car, Marco had a car accident and the car was written off. He
received a payout from his insurance company but instead of using this money to
pay off the car loan, he put it into his savings account. He used some of it to make
payments on his car loan and his credit card, but he spent most of it on clothes, food
and entertainment. Marco still needed a car to get to work so he bought another car.
To do this, he got a loan through the car yard where he bought the car.
Marco loses his job
A few months later, Marco lost his job. He couldnt meet the repayments on his car
loans and he had maxed out his credit card buying expensive clothes, catching taxis
and eating out at restaurants. Marco lived with his family, and he was embarrassed
about the constant calls from the bank and the car finance company asking him
when he was going to repay his debts.
Marcos complaint to fos
Marcos father made a complaint on his behalf about the credit card. Marcos father
said that the bank should have given Marco a limit of $600 because that was what
Marco requested. Marcos father also thought it was irresponsible to give Marco a
$10,000 limit when he had only been working full time for a few months and, before
that, had been unemployed for 12 months.
The banks response to Marcos complaint
The bank said that when it received Marcos credit card application, it worked out
that he could afford the minimum monthly repayments for a $10,000 limit. The bank
told Marco that his limit would be $10,000.
Marco said that he didnt receive this letter and thought his credit limit was $600, but
the bank pointed out that within a few days of receiving the card, Marco had spent

Financial Ombudsman Service Credit Trouble & Scams

9 of 18

well over $600, including $750 in one purchase at a clothing store. The bank said
that Marco did not contact it to ask for a lower limit.
The banks offer
The bank agreed that it did not take into account Marcos request for a limit of $600
and made an offer to reduce his debt by half and to refund all of the interest, fees
and charges that he had paid. Marco decided not to accept the banks offer and
asked FOS to investigate the matter.
What was the outcome?
FOS investigated the dispute and said that the bank had not acted properly in giving
Marco a $10,000 limit. The bank should have taken into account Marcos request for
a $600 limit and his erratic employment history. FOS said that the bank should
refund all interest it had charged on Marcos credit card for any amount over $600.
However, Marco was still responsible for repaying the bank all the money he had
spent. In the circumstances, the banks offer was a better outcome for Marco. Marco
was not happy with the decision and asked the Ombudsman to review it. The
Ombudsman completed a review and decided to uphold the original finding. Marco
would not accept the banks offer and his case was closed. Marco has the option of
taking action against the bank in a Court.

Financial Ombudsman Service Credit Trouble & Scams

10 of 18

your credit file

Before banks lend you money, or phone companies enter into a mobile phone
contract with you, they will probably look at your credit file to make sure you dont
have a bad credit record.

What is a credit file?

A credit file is a report which records information about your credit history. It includes
your personal details, credit applications you have made over the past 5 years and
overdue accounts which have been listed against your name. If you have applied for
credit, or purchased goods or services where payment is deferred by a minimum of 7
days, for example, telephone, gas and electricity connection, credit providers are
allowed to access your credit file.
The information on your credit file helps credit providers decide if you are a good or
bad credit risk (i.e. are you likely to pay your bills on time).
If you have never applied for credit you may not have a credit file yet. As soon as
you apply for credit for the first time a credit file will be opened by a credit reporting
agency (such as Veda Advantage). Credit files are maintained by credit reporting
agencies.

What happens if I have an overdue (unpaid) account?

If you have an account which remains overdue for 60 days or more, the credit
provider may put a record of the overdue amount on your credit file. Before the
provider lists the debt, it must have asked you to pay the outstanding amount.
Even if you later pay the account in full, the fact that you didnt pay the account until
well over the due date will remain on your credit file for 5 years.
If you are in a dispute with the provider about the account, you can request that the
default listing be investigated by the credit reporting agency. The listing will be
marked disputed until the matter is resolved.
An overdue account will only ever be removed from your credit file before the 5 years
is up if it has been listed in error.

Financial Ombudsman Service Credit Trouble & Scams

11 of 18

How do I get a copy of my credit file?

You can obtain a copy of your credit file for free within 10 working days by contacting
Veda Advantage at www.mycreditfile.com.au (alternatively, you can pay a fee to
have your credit file delivered more quickly).

What if something on my credit file is wrong?

If you believe that a bank or phone company has unfairly listed an overdue account
on your credit file, you should contact them and ask for an explanation. If you are not
happy with the explanation you receive, call the FOS or the TIO.

Financial Ombudsman Service Credit Trouble & Scams

12 of 18

useful resources
General
All State and Territory governments have fair trading and consumer affairs
departments which provide useful information about your rights as a consumer,
handy hints and educational resources. They are a good place to start to look for
help if you have a problem with something you have bought or a complaint about a
service provider. There is a list of these departments at www.consumer.gov.au.
Other websites that offer information for students and young consumers include:
Australian Consumers Association
www.choice.com.au
Independent information on credit cards and consumer rights generally.
Consumer Youth
www.b4usplashcash.ocba.sa.gov.au
Check out this South Australian Government site before you splash your cash! It
includes budget, loan and credit calculators to help you manage your money and a
guide to smart shopping.
Money Stuff
www.moneystuff.net.au
This website from the NSW Office of Fair Trading contains lots of information about
buying cars, computers and mobile phones, obtaining credit, renting and your
working rights and responsibilities. Test your knowledge in various interactive games
and challenges.
Reach Out
www.reachout.com.au
This website, dedicated to inspiring young people to help themselves through tough
times, provides information on dealing with difficult life decisions, moving out of
home, standing up to bullies, dealing with peer pressure, looking for work and
dealing with stress and relationships.

Financial Ombudsman Service Credit Trouble & Scams

13 of 18

SCAMwatch
www.scamwatch.gov.au
Identity theft scams, internet scams, mobile phone scams and competition scams
are just some of the many types of scams you can read about on this site. Youll also
find advice here on how to protect yourself from scammers.
Youth Central
www.youthcentral.vic.gov.au
On this website set up by the Victorian Government you will find information on
topics ranging from working and studying to managing your money and knowing your
rights.

Credit cards
Australian Securities and Investments Commission
www.moneysmart.gov.au
ASIC is the government agency responsible for regulating financial services. Its
consumer website fido has information about choosing and managing your credit
card, dealing with debt and a list of financial counselling organisations you can
contact if you get into trouble. To The Max is a downloadable comic-format story
about getting mobile phone and credit card debts back under control.
Consumer Credit Code
www.creditcode.gov.au
The Consumer Credit Code requires credit providers such as banks, building
societies, credit unions, finance companies and businesses to tell you what your
rights and obligations are in any consumer credit arrangement including the interest
rates, fees and commissions which apply. You can access a copy of the Code on
this website.

Financial Ombudsman Service Credit Trouble & Scams

14 of 18

glossary
contract

A legal agreement. People who enter into a contract

agree to do certain things. For example, if you enter a
loan contract, your bank agrees to lend you money in
return for your agreement to pay the amount back
together with interest. Dont sign a contract until you have
read and understood it.

credit card

A card that lets you buy things but pay for them later.
Credit cards usually have quite high interest charges.

credit card balance

The full amount that you owe on your credit card. This will
be shown on your statement.

credit card limit

The amount of credit that your bank has decided you can
have on your credit card. Usually, you can spend up to
your limit, but after that, you wont be able to use the card
until you make a payment.

credit provider

A bank, telecommunications provider or other company or

person who gives you a loan or a service that you dont
have to pay for immediately.

credit file

A file held by a credit reporting agency, which contains

details of credit that you have applied for and, if you
havent paid your bills, any defaults or court judgments.

debit card

Sometimes called an ATM card. It allows you to withdraw

money and buy things using money from your account
(such as a savings account).

debt collector

Sometimes a company gives the job of getting you to pay

your bill (if you havent been paying) to another person or
company and asks them to try to get you to pay. This
person is called a debt collector or mercantile agent.

debt collectors fee

If a debt collector tells you that you have to pay a fee on

top of what you owe the company, be very wary! Tell
them that you want written proof that you have to pay
their fee.

default listing

A note on a credit file that says that you have not paid a
debt that is more than 60 days overdue.

Financial Ombudsman Service Credit Trouble & Scams

15 of 18

defence

An answer to a legal claim that is made against someone.

For example, if someone claims that you owe them
money under a contract and you can show that you have
a receipt for payment of that amount, you have a defence
to the claim.

fees and charges

Most accounts have various fees and charges that can be

charged to you either regularly (such as an account
keeping fee) or in certain circumstances (such as a late
payment fee, if you make dont pay your minimum
monthly payment by the due date on your credit card
statement. Your bank must publish its fees and charges.
When you open an account, you should ask for details of
the fees and charges that apply to it.

interest

When you borrow money from a bank or other credit

provider, usually you will be charged an additional
amount called interest until the debt is completely paid
back. This will be added to what you owe.

liable

legally responsible.

minimum monthly
repayment

Credit card accounts dont require you to pay back the full
amount that you have spent each month. Instead, the
bank sets a minimum amount that you must pay. This
might be 2% or 3% of the total amount you owe. Over
time, if you only pay the minimum monthly repayment
amount, you wont reduce your debt very much at all and
you will probably pay a lot of interest.

money transfer

A service offered by some companies, where you hand

over cash and make arrangements for that amount to be
paid in cash to someone else (often overseas).

notice of demand

A letter from someone who claims you own money to

them, telling you how much you owe and demanding that
you pay it. Usually, the letter will tell you what will happen
if you dont pay the amount demanded. This might include
going to court, or making a default listing on your credit
file.

overdrawn

The amount of funds that you have in your savings

account is called the balance. Usually you will only be
able to withdraw that much. If you (or someone else)
withdraws more than the balance, the account is
overdrawn. The overdrawn amount is the amount below
zero.

Financial Ombudsman Service Credit Trouble & Scams

16 of 18

payment
arrangement

A payment arrangement is when you agree to pay off a

large debt over time, paying a set amount every week or
fortnight. The amount needs to be something you can
afford to pay regularly, and you need to stick to your
arrangement.

PIN

Personal Identification Number. This is the code that you

enter into an ATM or EFTPOS machine when you
withdraw cash or buy something using your debit or credit
card. Never reveal your PIN to another person or allow
them to use your card and PIN.

statement

A document provided by your bank, which tells you how

much money you have in your account (if its a savings
account) or how much money you owe (if its a credit card
or loan account), plus fees and charges that you have
been charged. Some accounts have statements sent to
you every month. Others might have statements sent only
once every six months or less frequently.

terms and conditions

These are the rules of a contract. Sometimes they are

printed on the back of a form that you sign to get a
product or service. Sometimes they are in a separate
booklet or on a webpage. You should read them if you
buy any product that requires you to pay money.

waive

To forgo. If a bank offers to waive your debt, it means that

you wont have to pay it back. Make sure you get the offer
in writing!

Financial Ombudsman Service Credit Trouble & Scams

17 of 18

if things go wrong .
When a problem concerning money arises, it can be difficult to know what to do. It
might be tempting to ignore it and hope it goes away, but problems tend to just get
bigger if you dont deal with them quickly. Here are some tips for dealing with a
money problem:

If your problem is about a loan or a debt that you owe (or that someone says
you owe), contact the company straight away to talk about it. Ask for the details
of the Customer Relations area if it is a big company. The people in those
areas are trained to deal with customer problems.
Before you contact the company, make a short list of the things that you need
to discuss. As you deal with them, you can tick them off and make sure you
havent missed anything.
Keep all your contracts and letters and make sure you have them handy when
you contact the company. You may need to refer to them.
Stay calm and treat people you speak to with the same respect that you expect
from them. Yelling, swearing or abusing staff wont make anyone want to talk to
you for long, and it wont help you to understand what you are being told.
If you have to write to the company, take your time and make sure you havent
missed anything. Again, keep your letter polite and business-like. Always keep
a copy.
If the problem seems too big or complex for you to handle on your own, ask
someone to help. Maybe a parent or friend can help you to write a letter, or call
the company for you.
For debt-related problems, a financial counsellor may be able to help you.

If you cant resolve the problem with the company, you can contact FOS.

Our contact details

We recommend that you visit our website www.fos.org.au for comprehensive
information about our services. If necessary, you can also lodge a dispute online.
Other helpful contact details are:
Phone:
Email:
Mail:

1300 78 08 08*
info@fos.org.au
GPO Box 3 Melbourne VIC 3001

* 9am 5pm AEST. Calls will be charged for the cost of a local call from landlines. Calls from mobile phones will
be charged at the applicable rate from your carrier.

Financial Ombudsman Service Credit Trouble & Scams

18 of 18