Debt Management

DM 27

Supplementary written evidence submitted by Gregory Pennington

Gregory Pennington’s response to BIS Select Committee on follow up questions:

Introduction

· Gregory Pennington has been providing debt advice and access to a range of debt solutions for almost 20 years.

· All advice is provided without charge and only approximately 9% of enquires – having received advice - go on to pay for an ongoing debt solution.

· We have developed a free self help booklet and website (www.debtandyou.co.uk) which provides budgeting advice, hints and tips, income maximisation and benefit assistance, as well as downloadable guides and letter templates – all of which are provide without charge – for those individuals that are confident enough to self manage their debts. Within the last year, over 10,000 people utilised the support and guidance provided through this website.

· We are one of the few private providers approved by the Secretary of State as a Competent Authority, allowing us to accredit Intermediaries who in-turn are able to provide clients (where appropriate) with access to debt write-off through the Debt Relief Order. This service is provided completely without charge.

· Ensuring most appropriate advice and access to right solution has always been our approach, which is why we offer our clients access to every available debt and insolvency solution.

· Gregory Pennington is also one of only four organisations to be approved to by the Accountant in Bankruptcy (an executive Scottish agency) to provide Payment Distribution Services in connection with the Debt Arrangement Scheme.

· We currently work with circa 50,000 people, providing them with debt management and budgeting services on an on-going basis.

· Despite improving our services and providing extended assistance to our clients through the introduction of additional budgeting tools, negotiation of secured and priority bill arrears, income maximisation and the development of a web based support service; we have chosen not to increase our fees and we remain one of the lowest in the sector - charging the equivalent of one month’s disposable income as an initial set-up fee and then 15% per month on a pay as you go basis.

· Having commissioned independent market research, we identified that our clients typically had awareness of the free-to-client sector; however actively chose to use our services, because they felt that we represented real value for money and they appreciated the additional support and professionalism of the services we provided.

· Prior to any client instructing us to commence work for them; we outline clearly and transparently what service they can expect to receive from us and not only the initial cost – but the total fees throughout the duration of the DMP are provided in writing. Once a client makes an initial payment to us, they have a 14 day cancellation period, to further consider their options – during which time, a full refund of their payment will be made (without any charge being made) should they change their mind. We are therefore confident that our clients make an informed decision to work with us and we in-turn work hard to meet their expectations on their journey to becoming debt free.

· DEMSA, our trade body, conducts independent customer satisfaction surveys across 10% of our database, representing a mix of clients at different stages of their DMP. In the quarter to September 2011, 86.8% of our clients rated us as good or excellent.

Last week we heard that there needed to be much more transparency in the commercial debt advice market – would you agree? Do you currently publish figures on, for example, the number of people you recommend an individual voluntary arrangement or  debt relief order? I f not why not?

We absolutely agree that there needs to be more transparency and protection for financially distressed individuals. However we believe that every client is entitled to any advice and assistance being provided to them with a ‘duty of care’ as, regardless of whether or not the service attracts a fee, poor advice can and most likely, will result in consumer detriment – which may not simply be financially calculable – but in a more extreme case - could involve loss of home or liberty. We would therefore like to see every individual or organisation offering debt advice and/or ongoing services being accredited and independently audited.

We also believe that the sharing of data across the sector would be a positive move and one which we would fully support. Not only would this allow for a better understanding as to how many individuals are utilizing informal DMPs, it could also provide greater insight into whether or not consumers felt this provided them with a positive outcome and, in particular, could help to determine which service providers were performing better and why.

Of the 150,000 people that we speak to and provide advice to in the course of a year, only approximately 9% go on to take a debt solution for which there is a fee. This splits down as follows:

60% Debt management plan

23% Individual Voluntary Arrangement

6% Trust Deed (Scottish residents only)

5% Debt Arrangement Scheme (Scottish residents only)

5% Bankruptcy

1% Debt Relief Order

What percentage of your debt management plan customers are still making their debt management plan payments after 24 months?

A common misconception is a DMP that finishes prior to the repayment of all of the clients’ debts is a failure. Whilst this may be the case on occasions, many clients utilize a DMP for a variety of reason - never intending to remain on their Plan for the longer term. This may be due to an unexpected income shock, lack of budgeting or money management confidence (perhaps driven by lender pressure) or in some instances, because they have been unable or are unwilling to access a more appropriate formal solution, such as bankruptcy or an IVA. Unlike formal insolvency solutions, DMPs allow flexibility and do not require the sacrifice of assets, such as the family home, as bankruptcy or an IVA might.

Broadly, once a client has commenced their DMP, there are a number of scenarios:

· We negotiate with lenders and they agree to support the level of repayment proposed and to provide concessions in relation to interest and charges. The client works within their budget, meets the payments due until they become debt free.

· Their circumstances improve and they resume contractual repayments.

· After budgeting advice and support and following the acceptance of concessionary arrangements, some clients feel confident enough to deal directly with their lenders and continue their DMP directly.

· Sadly in some cases, clients experience a further deterioration in circumstances, resulting in the DMP becoming unviable and a different, more appropriate solution being needed.

· Legislation may change. For example some clients may have been suitable for a DRO but their accrued pension rights prevented them from taking one. The DRO pension rules have now changed so some clients may become eligible.

· Some may not be willing to accept that their best option is a debt write off solution and may take time to accept the severity of their situation.

Overall just 2.6% of our clients leave their DMP each month. Of the clients leaving their DMP:

20% leave debt free

24% have a change in circumstances, warranting an alternative solution

22% leave, feeling empowered to deal directly with their lenders

20% circumstances improve

10% move to another provider

4% for other reasons, typically specific to their individual circumstances

Do you make people who contact your organisations aware of the availability of free debt advice? Should you?

We don’t believe there is a lack of awareness amongst consumers of the free services available. Indeed the National Audit Office found last year that 97% of people with debt problems were aware of free advice agencies. We believe the Citizens Advice Bureau is one of the most highly regarded and best known brands in the UK. It is also important to note that every lender is required, as part of their responsibilities under the Consumer Credit Act, to provide customers who go into arrears with a copy of the OFT’s Information Sheet - which details a number of free to client advice providers; which includes, amongst others, Citizens Advice, Consumer Credit Counselling Service and National Debtline.

The OFT’s Debt Management Guidance also requires all firms to display and signpost to the Insolvency Service’s advice guide ‘In Debt? Dealing with your creditor’ – which is provide as a link and downloadable guide on our website.

It is interesting to note that the Scottish regulator – the Accountant in Bankruptcy – introduced regulatory changes in July this year; which requires all private firms to not only advise explicitly of the availability of free advice (in relation to the Debt Arrangement Scheme); but also to provide all prospective clients with details of their nearest free money adviser – specifically their location details. In our experience, despite being provided with this information – which is prescriptive to meet regulatory requirements – the vast majority of clients are either already aware of this or choose not to pursue this route.

Do you educate people who come to you about financial planning and budgeting so they are better able to manage their finances in future? Do you think there is capacity for you to do more of this?

Yes. Most debt solutions require people to work within a reasonably restrictive budget; for a significant amount of time, in order for these solutions to be successful. It is therefore imperative that we work with our clients to help them draw up a realistic budget; that takes account of priority bills (including arrears) as well as day to day living expenses. This approach includes reviewing any benefit entitlements; thereby maximising the income – as well as reviewing cheaper utility tariffs and discussing money saving hints and tips. Whilst a significant proportion of our clients may have suffered a change to their circumstances, resulting in an inability to meet their unsecured contractual obligations, better budgeting skills can only help make their Plan more likely to succeed and assist them with any future money management.

In addition to this, we work with our clients on a daily basis to address any difficulties they experience in adhering to their budget, which will include regular periodic reviews, as well as changes to payment amounts, to reflect any changes to their financial circumstances.

Some further information we believe the Committee may find useful.

Simplified Individual Voluntary Arrangement (SIVA)

The Insolvency Service consulted and looked set to introduce a SIVA; which aimed to reduce creditor voting powers to a simple majority, with deemed consent, rather than a required response and the removal of modifications – thereby requiring the creditor to either accept or reject the terms – without unnecessary and costly changes. Despite the introduction of the IVA Protocol, we still believe there is a place for SIVA, which would allow more consumers to gain access to much needed and appropriate debt write-off; whilst removing some of the associated and unnecessary costs.

Enforcement Restrictions Order (ERO)

The 2007 Tribunals, Courts and Enforcement Act legislated for the introduction of EROs; which effectively allowed a personal suffering an income shock or unexpected change in circumstances, to be protected from creditor enforcement action for a period of up-to 12 months whilst their circumstances improved. Again there is a place for EROs; which may well have stopped some individuals from having to seek a potentially unnecessary debt solution – where simply some ‘breathing space’ would have been more appropriate – free from the threat of enforcement action, unnecessary collection charges or the seeking of preferential treatment by some lenders.

Regulated Debt Management Plans

Within the same Act as EROs, legislation was provided for the introduction of regulated DMPs. Whilst there would have been significant benefits to the enactment of this legislation; there would too have been some unintended consequences. Benefits of the Act included the ability to make regulated DMPs legally binding upon all parties, but in particular brought additional restriction on creditors – thereby preventing them from collection or enforcement of their debt (for as long as the Plan conditions were met) whilst restricting them from the application of interest or charges – thereby preventing debts from growing and giving the consumer protection and much needed certainty.

However the consequence of regulating a DMP, was that it did not ensure that the DMP was the best solution for the consumer and did not prevent inappropriate behaviour from the provider; who may simply choose not to offer any regulated Plan – opting instead for only informal DMPs. Whilst we believe the certainty of a regulated Plan would bring many benefits for consumers; we firmly believe this needs to be aligned with regulation or accreditation of the debt solution provider too.

Debt Arrangement Schemes (DAS) – Debt Payment Programmes (DPP)

We believe there are many aspects of the DAS that work very well, addressing many of the deficits outlined above. DAS is, in effect, a regulated DMP for Scottish residents – with five parties involved being: The consumer, the DAS Administrator (AiB), the Money Adviser, the Payment Distributor and the creditors. Legislation has been reviewed and revised several times; hence it today contains many of the benefits we have outlined above. DAS works on a deemed consent basis, so only objecting creditors need to respond. All approved DPPs are legal binding; protecting the home, preventing enforcement and removing all future interest and charges.

Interestingly there is a mix between private and public sector providers; with some Money Advisers charging for their service and some providing it for free. Changes to DAS regulations in July were introduced to widen access via the private sector – accrediting their Money Advisers to Continuing Money Advisers – which effectively allows for an ongoing service to be provided beyond the commencement of the DPP. At the same time, the role of the free to client provider was reduced to the assessment and proposal of the DPP, with the ongoing management becoming the responsibility of the DAS Administrator. This change provided for free advice and free access where needed or preferred, but also allowed for the consumer - who is prepared to pay and values the support of a professional DPP provider - to make an informed choice. Since the introduction of this change on 1 July 2011, DPPs have increased by approximately 45%.

The Payment Distributor service is also provided by the private sector, following the tendering and outsourcing of this role. Legislation however dictates that creditors must pay for this service and prohibits any charges from being made to the consumer. Legislation further restricts the amount that can be charged - in percentage terms and levy’s a fee on every payment received, which is payable to the DAS Administrator (Accountant in Bankruptcy) thereby making DAS completely self funding.

9 December 2011