Debt Management

BM 05

Written evidence submitted by Fairpoint

Introduction

In a period of exceptional strain on household budgets, there is growing need to ensure delivery of sustainable, high quality debt management services. Yet a number of challenges raise a question mark over the ability of the current regime to achieve this.

Fairpoint are delighted that the Select Committee is looking seriously at this issue. We are eager to see sufficient availability of quality support, tailored to those who need it, as well as to encourage uptake of timely help where it is needed. Improving standards within the sector is critical to each of these objectives.

We believe the following issues are most pressing:

· The need to ensure a quality service.

· The need for more free products.

· The need to ensure the right service for the right people and encourage uptake.

We believe that a robust regulatory landscape must address these challenges and improve standards for the consumer.

About Fairpoint

Fairpoint plc is a commercial organisation calling for higher standards in the debt management sector. For the past two years we have provided a free service through our debt management business, ClearStart, which belongs to an industry body approved by the OFT.

ClearStart offer no-obligation advice and free debt management plans. In addition, we offer a range of paid-for debt solutions where these will lead to the best outcome for the consumer. This is true of other providers of free advice, such as CCCS and Payplan, and our products offer equal terms to charities.

Personal debt: a growing and overlooked problem

With sluggish economic recovery, rising inflation and stagnating wages, debt is an increasingly mainstream issue. Our research shows that hard working people, notably women, public sector workers and young families, are being pushed into difficulty. There is a particular need to encourage those who are struggling with money to seek help and advice: research shows just one in six with a debt problem currently seek advice.

It is vital that the right network of support is in place, with responsible and tailored provision available, to help these different sections of society struggling with their finances.

Barriers to quality provision

Current steps to drive up standards in debt management include the OFT review of guidance. Fairpoint welcome this focus; however, we believe there are omissions and shortcomings which will have unwanted consequences, and prevent the guidance from achieving its objective of improving standards.

Below we outline a sample of examples we believe represent barriers to quality provision:

· Minimum quality standards, applied equally across the ‘free’ and commercial sectors are vital to protect the consumer and promote transparency. Yet there is no attempt in the guidance to set out quality standards for the provision of advice.

· There is no guidance on appropriate use of debt solutions, vital to ensure the best outcomes and empower the consumer.

· There are no guidelines as to when interest should be frozen, a step which would provide safeguards for both debtor and creditor.

· The guidance recommends cost of credit becomes the driver of contributions to creditors, a policy which potentially risks encouraging creditors to drive up interest rates.

· The guidance appears to place a number of obstacles in the way of early intervention, crucial in achieving the most satisfactory outcome for debtors and creditors alike.

· Guidance does not allow for all providers of free debt management plans to use the same wording in describing their services. This hinders transparency, consumer confidence and choice.

· There is no guidance to promote the fairshare model, which would create much needed additional capacity for free debt management plans.

At a time when household finances are under increasing strain, we must ensure that such issues are ironed out, removing barriers to quality provision of financial advice and practical help.

Is guidance enough?

Any guidance is likely to be embraced only by those organisations already committed to high standards. We wonder if the guidance goes far enough to restrict irresponsible practice, or whether a move towards improved regulation is required.

The existing regulatory system has allowed growth amongst low quality providers who often cause more harm than good. It must be improved, to protect consumers from irresponsible credit solutions and ensure adequate provision of quality help and advice to those who need it.

Growth of low quality providers has left many with the impression that private sector involvement in this area is always poor quality and not in the consumer interest. This is not the case.

Whether guidance or regulation, it is vital that standards are implemented consistently, across all practitioners involved in the debt solutions market.

Improving standards and ensuring provision

We have drawn on our knowledge base and experience to undertake a root cause analysis of the problems which exist in the industry and we believe there are a number of simple steps to remove problems inherent in the provision of debt solutions. We would be delighted to have the opportunity to discuss this with you in further detail.

The key components required are: a balanced and fair system; quality, targeted advice; early intervention; and a transparent and level playing field for all responsible providers.

We believe that there are reasons why responsible, high quality providers in the private sector need to be involved in this:

· It is vital that we ensure the support infrastructure contains a range of options which cater to the needs of changing demographics, as those facing debt problems are made up of an increasingly high proportion of hard-working professionals.

· Free advice and free debt management plans must be available to people suffering financial stress, yet budget cuts and capacity issues will limit capacity of charities and Citizens Advice.

· Consumers must be able to access quality advice in a timely fashion to ensure early intervention.

· There is an assumption that all providers of debt management solutions are the same, but this is not the case.

Crucially, all organisations, whether public, private or voluntary, should be required to demonstrate adherence to minimum standards of advice and delivery.

14 November 2011