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The Money Advice Trust releases its independent review into the fee-charging debt management sector
Can read report here Bristol University | News from the University | PFRC MAT report
A GROWTH INDUSTRY? – AN INDEPENDENT REVIEW OF THE FEE-CHARGING DEBT MANAGEMENT INDUSTRY.
The fee-charging debt management sector has grown over three fold in the last ten years, customers and creditors have a very mixed experience of the sector and the OFT should require these companies to be clear when they promote their services that beyond initial contact, their services are provided at a cost, are three conclusions of an independent review of the fee-charging debt management industry published today by the Money Advice Trust.
Other Key findings of the report, carried out by the Personal Finance Research Center at University of Bristol (see Notes to editors).are that both customers and creditors described a mixed picture of working with fee-chargers, identifying both good and poor practice. Some creditors had good working relationships with some fee-chargers, and some customers were satisfied with the service they received. However, poor practice identified includes:
Publishing today’s report, Joanna Elson, Chief Executive of the Money Advice Trust said
‘Free independent debt advice offers a holistic service to those in debt, seeking to ensure clients receive the best advice for their situation. Fee-charging debt management companies may also aspire to give best advice, but their motivation and business model - in aiming to sell products - are different.
Consumers can of course choose to pay for debt advice – and this research shows that between two and three times as many are on feecharging debt management plans as those from the free sector - but this should be an informed decision. That’s why we recommend that the OFT ensures that customers are clear about fee levels and cost structures - including upfront fees - before they enter into an agreement with a fee-charger.
This independent review of the fee charging sector highlights a mixture of both good and bad practice experienced by both consumers and lenders when working with this sector. We applaud the good practice and are keen to work with the fee-charging sector to drive up standards, including ensuring better use of the Common Financial Statement. We also want creditors to build on the good practice many of them already adopt to ensure that customers know about free alternative early in the debt management process.’
- Ends –
Notes for editors
Key findings and recommendations from MAT’s fee-chargers’ research, July 2009
Key findings
The sector has grown very significantly since the last major study in 1999. At that point there were fewer than 40 companies identified providing debt management services to individuals for a fee; this review identifies over 150, i.e. the sector has more than tripled. We estimate that somewhere between 300,000 and 375,000 people are on a commercially provided Debt Management Plan (DMP), between two and three times as many as those with free to client providers such as CCCS or Payplan
Feechargers told our researchers that DMPs were projected to run on average for between 60 and 120 months, yet the actual average duration tended to be 36 months or less. We would welcome further discussion with stakeholders about how sustainable these DMPs are, and whether the industry is over influenced by taking upfront fees.
Both customers and creditors described a mixed picture of working with fee-chargers, identifying both good and poor practice. Some creditors had good working relationships with some fee-chargers, and some customers were satisfied with the service they received. However, poor practice identified includes:
Customers were not always provided by creditors with information about free to client services early enough in the process; several customers said they would have used a free service if they had known about it, but were reluctant to switch once they had committed to using a fee-charging service.
Recommendations
We welcome the OFT’s further compliance review against its Debt Management Guidance since it is 6 years since the OFT reviewed this, and the industry has grown significantly in this time. We also recommend that this guidance should require fee chargers to be explicit in its promotion that beyond initial contact, their services are provided at a cost.
MAT should extend its promotion of the Common Financial Statement further into the commercial debt management sector to improve the quality of financial statements supplied by this sector.
Trade bodies representing the fee-charging sector should move towards greater convergence of individual quality frameworks.
Creditors should build on best practice to ensure promotion to customers early in the debt management process of the free to client sector.
Government should build on existing initiatives to ensure better public awareness of free-to- client services.
Any debt management related initiatives should be designed and maintained with the needs of the consumer as a central focus.
The Money Advice Trust (MAT) is a charity formed in 1991 to increase the quality and availability of money advice in the UK. MAT’s vision is to contribute to reducing unmanageable debt of UK consumers and its mission is to support individuals in the UK with unmanageable debts and to improve the capacity, quality and efficient delivery of free-to-client independent money advice, through:
The Rt. Hon Ian McCartney MP was appointed MAT’s President (unpaid) in November 2007. Ian McCartney has been a campaigner against illegal money lending and has introduced various government initiatives including the then Department of Trade and Industry’s (now Department for Business, Enterprise and Regulatory Reform) loan shark projects.
MAT has the following trustees:-
Martin Hall MVO MBE (Chairman)
Margaret Bloom CBE (Deputy Chair)
Garry Hunter
Eva Lomnicka
Brian Pomeroy CBE
John Saunders
Jenny Watson
Consumer Credit Counselling Service
CCCS helplines received over 260,000 calls last year while another 100,000 received help via its online counselling service, Debt Remedy. The charity provided in-depth advice session to over 60,000 and repaid £224m to lenders.
CCCS is self-funding. Unsecured lenders share with the charity the benefit they receive from its operation, making a donation from the money repaid to them through debt management plans. This allows CCCS to retain its independence and ensure that its advice is always in the best interest of the client. CCCS aims to separate the “can’t pays” from the “won’t pays”.
Payplan
Payplan provides free, ethical and immediate debt advice to over 100,000 people every year, working closely with organisations in the field of money advice and consumer and employee welfare. Payplan have excellent relationships with both creditors and consumer groups, such as National Debtline, the Citizens Advice Bureau and high street lenders.
Personal Finance research Centre at the University of Bristol
The Personal Finance Research Centre is an independent research centre that specialises in social research across all areas of personal finance, mainly from the consumer's perspective. Much of our work focuses on the following areas:
Financial exclusion and inclusion.
Credit use and over-indebtedness.
Financial capability and financial decision-making.
Money management and savings.
The team has expertise in designing, undertaking and analysing both large-scale quantitative and in-depth qualitative research. They conduct research for a wide range of organisations, including government departments, trade associations, charities and the private sector.
They combine extensive empirical research skills with a detailed understanding of a range of social policy issues. Their work has been influential in shaping public policy, and provides technical and policy advice to government departments and others.
-ends-
Can read report here Bristol University | News from the University | PFRC MAT report
A GROWTH INDUSTRY? – AN INDEPENDENT REVIEW OF THE FEE-CHARGING DEBT MANAGEMENT INDUSTRY.
The fee-charging debt management sector has grown over three fold in the last ten years, customers and creditors have a very mixed experience of the sector and the OFT should require these companies to be clear when they promote their services that beyond initial contact, their services are provided at a cost, are three conclusions of an independent review of the fee-charging debt management industry published today by the Money Advice Trust.
Other Key findings of the report, carried out by the Personal Finance Research Center at University of Bristol (see Notes to editors).are that both customers and creditors described a mixed picture of working with fee-chargers, identifying both good and poor practice. Some creditors had good working relationships with some fee-chargers, and some customers were satisfied with the service they received. However, poor practice identified includes:
- Customers noting that some fee-chargers told them the level of fees very late in the process, some feeling they were in a worse financial position than before they contacted the company
- Customers noting that creditors were being paid late by the fee-charging company, or not at all
- Creditors noting that there was considerable variation in the standard of financial statements received
- Creditors’ concern about high levels of fees and charges
Publishing today’s report, Joanna Elson, Chief Executive of the Money Advice Trust said
‘Free independent debt advice offers a holistic service to those in debt, seeking to ensure clients receive the best advice for their situation. Fee-charging debt management companies may also aspire to give best advice, but their motivation and business model - in aiming to sell products - are different.
Consumers can of course choose to pay for debt advice – and this research shows that between two and three times as many are on feecharging debt management plans as those from the free sector - but this should be an informed decision. That’s why we recommend that the OFT ensures that customers are clear about fee levels and cost structures - including upfront fees - before they enter into an agreement with a fee-charger.
This independent review of the fee charging sector highlights a mixture of both good and bad practice experienced by both consumers and lenders when working with this sector. We applaud the good practice and are keen to work with the fee-charging sector to drive up standards, including ensuring better use of the Common Financial Statement. We also want creditors to build on the good practice many of them already adopt to ensure that customers know about free alternative early in the debt management process.’
- Ends –
Notes for editors
Key findings and recommendations from MAT’s fee-chargers’ research, July 2009
Key findings
The sector has grown very significantly since the last major study in 1999. At that point there were fewer than 40 companies identified providing debt management services to individuals for a fee; this review identifies over 150, i.e. the sector has more than tripled. We estimate that somewhere between 300,000 and 375,000 people are on a commercially provided Debt Management Plan (DMP), between two and three times as many as those with free to client providers such as CCCS or Payplan
Feechargers told our researchers that DMPs were projected to run on average for between 60 and 120 months, yet the actual average duration tended to be 36 months or less. We would welcome further discussion with stakeholders about how sustainable these DMPs are, and whether the industry is over influenced by taking upfront fees.
Both customers and creditors described a mixed picture of working with fee-chargers, identifying both good and poor practice. Some creditors had good working relationships with some fee-chargers, and some customers were satisfied with the service they received. However, poor practice identified includes:
- Customers noting that some fee-chargers told them the level of fees very late in the process, some feeling they were in a worse financial position than before they contacted the company
- Customers noting that creditors were being paid late by the fee-charging company, or not at all
- Creditors noting that there was considerable variation in the standard of financial statements received
- Creditors’ concern about high levels of fees and charges
Customers were not always provided by creditors with information about free to client services early enough in the process; several customers said they would have used a free service if they had known about it, but were reluctant to switch once they had committed to using a fee-charging service.
Recommendations
We welcome the OFT’s further compliance review against its Debt Management Guidance since it is 6 years since the OFT reviewed this, and the industry has grown significantly in this time. We also recommend that this guidance should require fee chargers to be explicit in its promotion that beyond initial contact, their services are provided at a cost.
MAT should extend its promotion of the Common Financial Statement further into the commercial debt management sector to improve the quality of financial statements supplied by this sector.
Trade bodies representing the fee-charging sector should move towards greater convergence of individual quality frameworks.
Creditors should build on best practice to ensure promotion to customers early in the debt management process of the free to client sector.
Government should build on existing initiatives to ensure better public awareness of free-to- client services.
Any debt management related initiatives should be designed and maintained with the needs of the consumer as a central focus.
The Money Advice Trust (MAT) is a charity formed in 1991 to increase the quality and availability of money advice in the UK. MAT’s vision is to contribute to reducing unmanageable debt of UK consumers and its mission is to support individuals in the UK with unmanageable debts and to improve the capacity, quality and efficient delivery of free-to-client independent money advice, through:
- Co-ordination
- Influence
- Direct service provision
- Training
- Research
- Information.
The Rt. Hon Ian McCartney MP was appointed MAT’s President (unpaid) in November 2007. Ian McCartney has been a campaigner against illegal money lending and has introduced various government initiatives including the then Department of Trade and Industry’s (now Department for Business, Enterprise and Regulatory Reform) loan shark projects.
MAT has the following trustees:-
Martin Hall MVO MBE (Chairman)
Margaret Bloom CBE (Deputy Chair)
Garry Hunter
Eva Lomnicka
Brian Pomeroy CBE
John Saunders
Jenny Watson
Consumer Credit Counselling Service
CCCS helplines received over 260,000 calls last year while another 100,000 received help via its online counselling service, Debt Remedy. The charity provided in-depth advice session to over 60,000 and repaid £224m to lenders.
CCCS is self-funding. Unsecured lenders share with the charity the benefit they receive from its operation, making a donation from the money repaid to them through debt management plans. This allows CCCS to retain its independence and ensure that its advice is always in the best interest of the client. CCCS aims to separate the “can’t pays” from the “won’t pays”.
Payplan
Payplan provides free, ethical and immediate debt advice to over 100,000 people every year, working closely with organisations in the field of money advice and consumer and employee welfare. Payplan have excellent relationships with both creditors and consumer groups, such as National Debtline, the Citizens Advice Bureau and high street lenders.
Personal Finance research Centre at the University of Bristol
The Personal Finance Research Centre is an independent research centre that specialises in social research across all areas of personal finance, mainly from the consumer's perspective. Much of our work focuses on the following areas:
Financial exclusion and inclusion.
Credit use and over-indebtedness.
Financial capability and financial decision-making.
Money management and savings.
The team has expertise in designing, undertaking and analysing both large-scale quantitative and in-depth qualitative research. They conduct research for a wide range of organisations, including government departments, trade associations, charities and the private sector.
They combine extensive empirical research skills with a detailed understanding of a range of social policy issues. Their work has been influential in shaping public policy, and provides technical and policy advice to government departments and others.
-ends-
