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NEW PROTECTIONS TO HELP CONSUMERS PAYING FOR DEBT MANAGEMENT ADVICE

07 February 2013 12:51

Insolvency Service

Consumers who pay for advice on managing their debts will now be protected by a new Debt Management Plan (DMP) Protocol, launched by Consumer Affairs Minister Jo Swinson today.

Under the Protocol, agreed with providers and creditors, consumers will not be charged any fees before signing a contract with a Protocol compliant debt management company. Providers have agreed to spread the recovery of their set up fees, over at least the first six months, making plans more affordable and sustainable.

Companies that sign up to the Protocol will be expected to provide clients with information about other appropriate debt management options including the availability of free debt advice by providers.

Consumer Affairs Minister Jo Swinson said:

“This is good news for consumers faced with debt problems. I am pleased to see commercial providers making these changes, which will see them help consumers by spreading the costs of the plan.

“However, consumers should be aware that there is also free advice available. For example, anyone with debt worries can contact the National Debtline on 0808 8084000 for free and confidential advice. The Money Advice Service can also signpost people to appropriate and free debt advice services. Under this Protocol anybody in debt who seeks paid-for advice will be made aware that free debt advice options are available before signing any contract with a fee charging provider.

“This Protocol comes in the wake of the refusal by the Office of Fair Trading (OFT) last week to renew the credit licences of two debt management companies and the refusal of the application of a new business.

“The Government is determined to drive up standards in this industry and ensure that people seeking paid-for advice are not disadvantaged by debt management companies that do not offer value for money.”

The Protocol will help drive up standards in the fee charging debt management sector in the run up to the launch of the Financial Conduct Authority (FCA) which will take over responsibility for consumer credit from the OFT. The FCA will come into being on 1 April 2013 and will take over responsibility for consumer credit regulation from 1 April 2014.

The DMP Protocol, which is voluntary, will be independently monitored to ensure firms meet the standards and the spirit required of the protocol. Those companies that sign up will be able to advertise their compliance to consumers.

The Protocol will also be subject to a standing committee headed by The Insolvency Service which will oversee the protocol and report within the first 12 months of its operation.

The debt management industry and the public highlighted two key concerns in the charging structure, as part of the Government’s review into consumer credit and personal insolvency. Consumers said there was lack of awareness of where to go to get free debt advice while those willing to pay for the advice said they felt upfront fees by providers were driven more by profit for the providers than getting the best value for money.

A spokesperson from the British Bankers Association said, “We welcome today’s announcement as an important step towards raising the standard of debt advice available to customers in financial difficulty. Banks provide funding for the majority of free impartial debt advice and will always signpost their customers to free advisors. However if customers do wish to pay for advice it is important that they find a provider who is compliant with these new standards.“

A spokesperson from the Credit Services Association (CSA) said, "The CSA and Debt Buyers & Sellers Group support this important step in improving the services and professional advice offered to customers in financial difficulty. We commend Consumer Affairs Minister Jo Swinson and The Insolvency Service for their leadership in developing this Protocol and we join stakeholders from across the consumer credit marketplace in embracing this important step forward for consumers."

A spokesperson from the Debt Managers Standards Association (DEMSA) said, “The Protocol is good news for consumers. Not only does it improve the operation of debt management plans and the auditing of providers, but it will also provide a clear way for consumers to differentiate between providers that are committed to the highest standards and those that are not. DEMSA has long campaigned to raise standards across the sector and we’ve worked hard with The Insolvency Service and other stakeholders to deliver this Protocol.”

A spokesperson from The Debt Resolution Forum said, "We have worked hard with The Insolvency Service and creditors to create a protocol that reflects the efforts that the industry has made in recent years to build public trust and confidence. This is a major step forward in standards, practice and transparency. We will continue working hard with our members to build a body of providers who meet these standards as early as possible and will also be working with the standing committee on the Protocol to ensure that this is a beginning of a process which leads to debt management plans that work better and are achievable and sustainable for consumers and creditors."


Ends

Notes to Editors

  1. A debt management plan (DMP) is a non-statutory form of debt repayment, whereby a third party provider holding a Consumer Credit Licence will deal with creditors on behalf of a debtor. The debtor is normally required to make payments towards their debts over a period of time, with a view to paying them off in full.
  2. DMPs can also be used as a means of gaining temporary respite from creditor pressure whilst a debtor looks at ways of improving their means of repayment.
  3. Many DMPs are operated via debt charities, some of which are funded by creditors through the fairshare scheme. Others are dealt with by commercial providers who charge the consumer a fee.
  4. The statutory insolvency options that are available to a consumer in financial difficulty are: debt relief orders, bankruptcy or individual voluntary arrangement.
  5. All who provide debt management services are required to be licensed under the Consumer Credit Act 1974. The Office of Fair Trading (OFT) has a duty to ensure that applicants for licences are fit to engage in the activities for which they wish to be licensed, and to monitor the continuing fitness of those to whom licences have been granted.
  6. Where the OFT has evidence of unfair practices, action can be taken to refuse or revoke or place conditions on the consumer credit licence of those concerned. As a result of OFT action, over 100 businesses have either exited or not entered the debt management market since September 2010.
  7. The Protocol will see firms that are operating under it move away from charging high up front fees to consumers before a contract has been agreed; spreading their set up charges over at least six months. This will result in creditors receiving distributions from month 1 of a plan, rather than a provider keeping the first 1-3 months payments made by a consumer.
  8. In addition, all providers signing up to the Protocol will ensure that they notify prospective clients ahead of entering into a contract that free debt advice services are available to them. They will be directed to the Money Advice Service (https://www.moneyadviceservice.org.uk/en/articles/where-to-go-to-get-free-debt-advice) or 0300 500 5000 (8-8 Monday to Friday, 9-1 on Saturday).
  9. Seeking debt advice at an early stage is vital for a consumer to ensure successful resolution of their debt problems.
  10. 10. A link to the Protocol, an executive summary and an information sheet that will be available to consumers can be found at http://www.insolvencydirect.bis.gov.uk/insolvencyprofessionandlegislation/policychange/policychange.htm
  11. 11. Media enquiries should be directed to: Kathryn Montague, The Insolvency Service Press Office, tel 020 7674 6910.
  12. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. Further information about the work of The Insolvency Service is available from www.bis.gov.uk/insolvency
  13. You can now subscribe to get e-mail alerts from The Insolvency Service. You may wish to subscribe to receive updates for the whole site or any of the key areas, i.e. about us, news, personal, companies, redundancy, profession, publications, consultations, contact us etc. These areas can be expanded if required. To subscribe, go to the site and you will see a button to “sign up for email alerts and newsletters”, or click on the link below and follow the instructions:https://public.govdelivery.com/accounts/UKBIS/subscriber/new

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