Debt Help Firms Face OFT Probe

Introduction

“The Office of Fair Trading (OFT) wants to ensure that debt management companies (DMCs) are adhering to OFT Debt Management Guidance.

Some of these companies advertise on TV, radio and on sponsored listings on internet search engines and make the process of escaping from debt seem simple and painless.

Here, we answer the questions that frequently crop up when people consider using debt management companies.

How do DMCs work?

They ask for a regular monthly payment, from which they deduct a fee and redistribute the rest between your creditors. They renegotiate your repayments and deal with creditors for you.

So why is the OFT worried?

There are concerns some firms claim customers will pay less by using their services.

Others may be earning interest by holding on to customers' cash before passing it to their creditors, while some break the code by knocking on doors looking for business

How much do DMCs charge?

Fees are typically, the first two monthly payments and then 17.5 per cent of income, after mortgage or rent, travel, food and other necessary expenses have been deducted.

 

Why doesn't everyone use the free service?

A lack of awareness is probably the biggest reason, but some DMCs claim customers have to wait to talk to free debt advisers. They also say free services require you to deal with creditors yourself.

Some commercial debt advice firms try and talk the public out of using a free debt advice services and often make the following statements:-

'Clients leave free debt advice services because they are not satisfied with the service'
'Charities are working for creditors so do not give best advice'
'Free debt advice free debt management companies are focused on creditors'
'Using a so called FREE debt charity or debt management company is not always what it can seem!'
'Very few charities or companies in Britain are willing to work for nothing'

These statements are incorrect as they mislead by implication and/or omission as they mislead consumers about the availability of services provided by free to client charitable advice organisations and consumer organisations without providing supporting evidence

In truth, you may have to wait to speak to an adviser, but you can talk to a member of the debt advice team at Money Advice Direct on 0800 074 6918 without waiting.

So who should choose a paid DMC?

Those who are financially very disorganised and cannot deal with their creditors effectively. Many paid DMCs enjoy a good working relationship with creditors, they have efficient systems, processes and operations and are keen to work closely with the credit industry.

Commercially-provided DMPs are generally marketed at people with debts of less than £15,000, with at least two creditors, and sufficient disposable income to make repayments. It was not uncommon, however, for the customers of these companies to owe more than £15,000 in consumer credit debts.

Customers should also be prepared to take longer to clear their debts than they would do if they were not paying a debt management fee.

There are more than 50 companies that provide debt management services to individuals for a fee in the UK. They generally offer access to debt remedies including DMPs, IVAs and trust deeds either provided in-house or, more commonly, by referral to another company.

Any organisation that provides DMPs, regardless of whether or not they charge individuals a fee, has to be licensed under the Consumer Credit Act 1974. The OFT Debt Management Guidance sets out minimum standards that have to be met by all debt management providers if they are to be judged fit to hold a consumer credit licence.

 

How do I make sure my DMC is reputable?

Pick one that here are adheres to codes of practice that cover fee-charging debt management companies. The Debt Managers Standards Association’s code of practice relates specifically to fee-charging debt management companies. The Debt Resolution Forum code of practice and the Debt Standard Code of Conduct refer to DMPs and other debt remedies that are provided by commercial companies.

What can I do if something goes wrong?

             Sources of help

• R3 - Society of Practitioners of Insolvency / The Association of Business Recovery Professionals
  badadvice@r3.org.uk
• DTI - The Department of Trade and Industry
  If you have a complaint about a debt management company then print off this Office of Fair Trading Questionnaire, complete it and return it to them
  
  Click here to download the questionnaire - (requires the Adobe Acrobat Reader)

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