Debt Management

DM 06B

Written evidence submitted by the Debt Managers Standards Association (DEMSA)

Thank for you the opportunity to present both written and oral evidence to the Committee. We hope that you found our evidence useful.

I was concerned to read the submission to your enquiry made by the Consumer Credit Counselling Service (DM16). We believe that in a number of areas they have misunderstood or been mis-informed about how DEMSA members operate. As we said in our evidence, we are not apologists for the "rogue" firms that undoubtedly exist: we need tougher enforcement action to ensure these firms improve or exit the market. But the best private sector providers actually adhere to higher standards than the free-to client sector and clients who choose to use DEMSA members say that they get real value for money – which is backed up by independent market research – commissioned earlier this year.

My comments below refer to the paragraph numbers in the CCCS submission.

· 1.2. We believe that CCCS’s share of debt management plans is closer to 23% than 30%. Our information is that there are 500,000 live plans in the UK, of which 205,000 (40%) are administered by DEMSA members, 23% by CCCS and 22% PayPlan. This information is based upon the data gathered from the BBA/Accenture report.

· 1.3. The services delivered by CCCS are not unique. Many of our members deliver very similar services to their clients – such as predominantly telephone based advice, budgeting support, income maximization, priority debt arrears negotiation etc, as we set out in our submission.

· 1.7 As CCCS says, its ‘Fair Share’ model only covers debt management plans - other services (IVAs, equity release etc) are typically charged for, in the same way as the private sector, with the fees being met by the consumer. For example a CCCS client that takes an IVA will pay broadly the same fees as a client taking an IVA with a DEMSA member firm. This includes the ‘Nominee Fee’ charged by the Insolvency Practitioner to asses the client’s circumstances, draft the proposals and gain support from the creditors.

· 1.8 Whether a client is paying a fee or not is not the best factor in determining the success of a debt management plan. Clearly the initial advice is key - the plan must be appropriate for the client’s needs. The budget that is agreed with the client must be realistic and affordable and the payment sustainable.

· It is also important that lenders are encouraged and largely agree to waive, and continue to waive (as concessions are typically agreed for 6 months) interest and charges. Part of the service that our members offer is to actively negotiate with lenders, to gain their consent to not only freezing interest and charges, but also where possible and appropriate, to obtaining refunds of previously and often unfairly applied charges.

· 5.1 For clarity the £250m referred to by the CCCS is an estimate of the annual revenue of the entire private debt management sector, not the profit.

· 5.2 Clients of reputable debt management firms, such as DEMSA members, pay nothing for advice. Our members will go through typically the same rigorous assessment of the client’s budget as CCCS does (understanding in detail the client’s family circumstances, income, priority bills, living expenses and expectations etc). Building this picture of the client typically takes 40 minutes to an hour, although can often be longer. Only at this stage can we offer detailed advice.

Even where a debt solution is recommended, there is still no obligation on the client to take it. Clients receive, in writing, all the information they need to make an informed choice including full details of fees payable – both initial and ongoing - so they fully understand the service they will receive and the total cost. Only at this stage, if a client chooses to go ahead, would they make a payment. Clients of DEMSA member firms benefit from a 14 day cancellation period – with a full refund during this period.

· 5.3 This scenario is not typical of a debt management client that our members or CCCS would usually encounter. In most cases clients with higher levels of debt, such as the £30,000 referred to, would be more appropriately suited to a solution that offers some debt write off. Clearly it will depend on the detailed circumstances of the individual, but the most appropriate advice is likely to be an IVA. This would usually see the client debt free in five years and DEMSA members would charge broadly the same fees as CCCS’ Insolvency Practitioners.

· 7.3 Whilst there are a significant number of free to client and fee charging debt advice organisations in the UK, there are only 11 "Competent Authorities" approved by the Secretary of State to accredit Intermediaries to offer access to Debt Relief Orders - two of which are DEMSA members. Although not all member firms are Competent Authority approved, this does not prevent them from offering best advice, as a client for whom a DRO was most suitable would simply be referred to any of the 11 Competent Authorities – in the same way as a free to client provider, who was also not approved.

· Similarly the Debt Arrangement Scheme in Scotland is widely seen as being better for the consumer than debt management and is generally therefore more appropriate due to the regulatory framework. Some DEMSA members are approved to offer DAS directly. CCCS offers advice in Scotland but does not offer DAS directly – it simply refers clients on.

· 7.6 Many DEMSA member firms offer a wide range of additional support to clients including benefit entitlement checks, support and help with priority debts/arrears, support with legal actions and bailiffs etc.

· 7.8 It should be noted that the standards that DEMSA members adhere to, and are regularly independently audited and are in fact higher than those set out in the OFT’s own Debt Management Guidance.

· 7.9 DEMSA is committed to raising standards across the sector and would welcome any organisation, including the CCCS, which could meet the required standards and pass the necessary audit. We believe however, that CCCS could not currently be admitted as a member as we understand that it distributes clients’ funds to lenders only once a month, which may well bring consumer detriment - due to the impact of any interest and charges. This point has been raised with the OFT, as their Debt Management Guidance currently requires all firms, regardless of whether their services is provided free or for a charge to the client, to distribute funds within 5 working days of receiving cleared funds.

The CCCS is quite right in saying that DEMSA did not name the firm recently censured by its Compliance and Discipline Panel. The Panel recognised that its Code needed strengthening in this area and has already taken steps to amend it to enable firms to be named, when action is taken against them. This change is currently awaiting OFT approval.

We hope you find this clarification useful and shall be happy to expand on any points raised.

Richard Wharton

General Secretary

9 December 2011

Prepared 21st December 2011