Member News
By Nic Dakin MP - 30th August 2011
Nic Dakin MP calls for debt management plans to help the increasing number of individuals getting into debt.
This article was first featured on July 5 2011, ahead of Nic Dakin MP's Westminster Hall debate on the subject.
Unfortunately increasing numbers of people are getting into debt. When someone summons up the courage to ask for help they need to get the very best support to help them clear their debts. However at present people that try to take responsibility for their debts can find themselves at the mercy of unhelpful, aggressive and unscrupulous practices that can make dealing with debt an unbearable experience.
In a Debt Management Plan companies collect a single monthly payment from the client and administer the repayments to each of their non-priority creditors on their behalf. Usually the client pays for this service. There are, however, some Debt Management Companies who will do this for free, such as the Consumer Credit Counselling Service and Payplan. These companies are funded through a fair share approach to debt management, where the creditor pays for the repayment plan.
Whilst there are other debt management companies that behave responsibly there are some significant risks to the client in some companies' practice. Most companies charge an upfront fee which can be quite high leaving the client with less money to pay off their debts. Most companies also charge an administration fee to the customer each month, leaving the client with less money to pay off their debts. Some companies take one or more month’s payment as a fee, putting the client’s account into further arrears. Most companies only deal with non-priority debts (i.e debts for which one cannot lose one’s home or liberty) so the client has to deal with any priority debts, such as mortgage, rent and council tax themselves.
Certain common practices are a cause of great concern:
• Cold calling and aggressive marketing.
• Charging upfront fees for services that fail to materialise.
• Poor advice – particularly where other debt remedies would be more suitable in the client’s circumstances
• Failure to pass on payments to the client's creditors
• Excessive charges for debt management services
Research by the Association of Business Recovery Professionals confirmed worries about a lack of impartial advice, insufficient information being given about fees and too many Debt Management Plans being entered into that were always going to be unworkable. This echoes the findings of the OFT who reported widespread non-compliance, misleading advertising and a lack of competence amongst front line advisers working for Debt Management Companies.
It is time – I believe - for government to act to put systems in place to protect vulnerable people. A strong audit regime where fees are controlled and companies make their money by supporting debtors in paying off their debts would be a positive way forward. Providers would compete in future on quality rather than through their advertising budgets.
Debt Management Plans would be much more likely to lead to debt repayment, genuinely resolving debt problems for the majority of customers who entered into them. This would be achieved at far lower cost than under the present regime and significantly increase the speed at which creditors are repaid.
Nic Dakinhas been Labour MP for Scunthorpe since 2010.
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Article Comments
R3, the Association of Business Recovery Professionals, has serious concerns about the regulation and practice of Debt Management Plans (DMPs). There are no figures available for the number of DMPs in existence so it's difficult to gage how many individuals are struggling with their debts. R3 research shows 35 per cent of individuals in a DMP say that other options for dealing with their debts were not discussed before entering their plan and 10 per cent say they were not told they would be paying a fee. R3 believes DMP providers should be properly regulated to ensure individuals are given appropriate advice and do not become victims of bad practice.
R3, the Association of Business Recovery Professionals
6th Jul 2011 at 10:20 am
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