Debt management firms selling 'unsuitable' plans, says FCA

[EXC]

Debt management companies are persuading people to sign up for "unsuitable" and expensive repayment plans, the Financial Conduct Authority (FCA) says.

The regulator believes these plans do not offer the best value for money for people already struggling with debt.

It also wants firms to give customers information on how they can get free debt advice.
Some debt management plans can cost £620 per year, the FCA said.

More than half a million of these agreements are started annually, most of them with fee-charging firms.

Free help is available from Citizens Advice, National Debtline and other charities, according to the FCA."

Debt management firms must start putting consumers first," said Christopher Woolard, the FCA's director of policy, risk and research.

"It's frankly unacceptable that these people who are struggling to make ends meet are being talked into unsuitable plans."

From 1 April the FCA will be responsible for regulating consumer credit and it plans to bring in new regulations.

These include a requirement for firms to provide customers with information on how to get free debt advice and for firms to pass more money on to creditors right from the start of the plan.
Debt management firms gather up all a consumer's debts and pay back the creditors on that individual's behalf. They take their fee out of the borrower's money as it comes in each month.

http://www.bbc.co.uk/news/business-26692111

[enaid]

Re: Debt management firms selling 'unsuitable' plans, says FCA

Maybe a scheme should be set up where the debtor pays into an account their agreed monthly dmp amount, get a little interest on it over 12 month, then pays a lump some to the creditor plus half the interest accrued.
That way if the interest and charges have been frozen it be a little bit of extra for the creditor and a little bonus for the debtor.

After all don't the clone clowns want us saving, this way imho (and tin pot way) both are happy :tinysmile_twink_t2:

[wales01man]

Re: Debt management firms selling 'unsuitable' plans, says FCA

Remember these companies are there to make money not get someone out of debt for free!

[Nibbler]

Re: Debt management firms selling 'unsuitable' plans, says FCA

People being bounced into unsuitable IVAs is also a very serious problem.

[Amethyst]

Re: Debt management firms selling 'unsuitable' plans, says FCA

I can't find where the FCA said this. The new rules come in 1st April to stop first 3 months payments not going to creditors (as some firms had been doing) and to signpost to free debt advice (CAB etc). The £640 figure seems a bit random so ws Tryong to check how that had been arrived at.

We were talking about a firm the other day where they have switched to the new rules and now charge 15% of payments in for the first three months and thereafter it whacks up to 35% of payments. Average payment IN to a DMP is £250 month. That's £37.5x3 (£112.50) then £87.5x9 (£787.50) which is £900 for the first year, increasing to £1050 year thereafter (so basically a third of what is paid in is swallowed in fees)

[Amethyst]

Re: Debt management firms selling 'unsuitable' plans, says FCA

Maybe a scheme should be set up where the debtor pays into an account their agreed monthly dmp amount, get a little interest on it over 12 month, then pays a lump some to the creditor plus half the interest accrued.
That way if the interest and charges have been frozen it be a little bit of extra for the creditor and a little bonus for the debtor.

After all don't the clone clowns want us saving, this way imho (and tin pot way) both are happy :tinysmile_twink_t2:

I think CCCS use that a little bit as well as getting commission from the creditors, you pay in to your dump, they keep it for a month then distribute it, so cccs keep the interest on that month. Sorry Step change. They've probably changed their business model a bit now as that was ages ago now.

At todays savings rates it would be utterly pointless. If you put 10k in to a locked in for a year savings product you're lucky to get £20 a month interest.

I have never understood why a percentage fee is considered appropriate as regardless how much a client pays in to a dmp the work is the same so a fixed fee would be better.

[enaid]

Re: Debt management firms selling 'unsuitable' plans, says FCA

Well many banks now pay interest or cash back schemes to entice us, even on current accounts.
Thinking of ways to cut out the bent middle man as even if the FCA do jump on them they will still want a profit from what could be a big difference in some folks financial problems.

I know people can set up a plan on their own if they put the work in, but I think lots will fail to keep up the payments if left to do it alone

[Amethyst]

Re: Debt management firms selling 'unsuitable' plans, says FCA

Bit more in the Yorkshire evening post

"Christopher Woolard, director of policy, risk and research at the FCA, said: "Debt management firms must start putting consumers first. It's frankly unacceptable that those people who are struggling to make ends meet are being talked into unsuitable plans."

The FCA is conducting research into the sector that will be published next month, but initial findings show that paid for services do not offer consumers, most of whom are already in difficult financial circumstances, the best value for money.
The research shows that outstanding UK consumer debt is estimated at £12.8-15.2 billion, and fees for debt management plans are estimated to be £25 million a year.

Evidence suggests fees for debt management providers average £390-620 per year for each debt management plan, and the number of new debt management plans are estimated to have doubled since 2007, and now stand at around 520,000 - 645,000.
"

[wales01man]

Re: Debt management firms selling 'unsuitable' plans, says FCA

The whole Debt industry needs overhauling from the lenders through to the collectors DCAs Bailiffs and others and the Debt management companies taking one sector out of the equation without the others will achieve nothing .

[EXC]

Re: Debt management firms selling 'unsuitable' plans, says FCA

I can't find where the FCA said this.

Nor could I prior to posting the BBC piece but according to ITN is was Christopher Woolard, director of policy, risk and research at the FCA, so maybe a speech he made somewhere. Oops just seen you posted that.

Half a million new DMPs a year is a big increase on the Grant Thornton market study of about 18 months ago which quoted about the same figure for DMPs currently in existence.

[Tools]

Re: Debt management firms selling 'unsuitable' plans, says FCA

So what would be the ideal DMP model?

Stepchange etc gets their income by being paid a commission and accruing interest on delaying payment, fee paying DMP's get their income by taking a % of incoming payments.

Objectively they both need income to operate, cover staff wages etc, etc, but in the end it is the debtor that is repaying a debt, they could arrange this themselves as Enaid pointed out which is ideal. However, many people we have seen here feel like a weight has been lifted once they enter a DMP, your son was one wasn't he Enaid? From memory other than a few hiccups it went well. So what are we talking, fixed affordable fee per creditor/per debt regardless of the amount outstanding, a smaller % operating fee, or something else ?

With the FCA looking at it, if they were to put it to consultation as these things sometimes do, what would be everyones ideal DMP.....bearing in mind operating costs have to be met. Another factor is that I can't think of a single DMP that would challenge spurious charges/interest added to the debt or help if the debtor received court action whilst in an arrangement, it can reduce the debt quite a lot if these spurious fees "collection charges" etc are removed from the outstanding debt.

Interested to see peoples ideas.

[meellis]

Re: Debt management firms selling 'unsuitable' plans, says FCA

I personally think that, with the on-coming mortgage/endowment shortfall heading our way, debtors should be offered a way to re-finance existing debts in such a way that the creditors get a realistic but not extortionate sum back and the debtors get to keep there lives as best as possible. Currently it seems that creditors just want to force an end to the debt and leave debtors homeless and without when it wasn't totally all their fault. When people will be forced to sell their homes because they can't re-mortgage and their endowments won't settle there will be another property crash. Instead of government backing for help to buy maybe there should be government backing for help to re-finance.

[enaid]

Re: Debt management firms selling 'unsuitable' plans, says FCA

An affordable monthly amount placed in an account that can not be withdrawn from, I think even a little interest accruing is something, after all most banks now are enticing us with interest on current accounts and even on your DDs as a cash back bonus so there is money there to give us a boost.
The money should be able to be taken from salaries, benefits or paid by payment book.
The lenders can then after 12 months claim their lump sum from the account.
Money that the debtor thinks he can afford to put in the DMP as a one off (a windfall or the such) should be treated as that and not affect the amount he is already paying.
The debtor is then re assessed and the amount adjusted or left the same depending.
The lender should not be allowed to sell on the debt, just so they can write it off.
This should be noted on the debtors credit file but not allowed to cause any problem unless the DMP is defaulted.

I just think the debtor should be in control of trying to sort out their debts but not totally left to their own devices. They should not be milked for trying to help themselves I think it is often that which makes people bitter and think 'sod it'

[EXC]

Re: Debt management firms selling 'unsuitable' plans, says FCA

This is the Grant Thornton DMP market study (attached) and although it was commissioned by DEMSA it does give some interesting stats.

Press release http://www.demsa.co.uk/demsa-news/gr...gement-market/

It seems to me that for both the free and fee paying DMP providers there is no real incentive to attempt to challenge and reduce the debt.

[Tools]

Re: Debt management firms selling 'unsuitable' plans, says FCA

The incentive could be taken as a % of the amount removed.

i.e a £1000 total debt which includes £100 of spurious charges would be reduced to £900. Of that £100 saved by the creditor the DMP could quite reasonably take say 10-30% in fees, the debtor is in front by £70-£90 and the DMP operator makes £10-£30 and gains additional "customers" through being known to help in these situations.

I think I should start a DMP Company, I'd be grrrrrrrrrrreat lol.