HC 271 Money Advice Service

Written evidence submitted by the Consumer Credit Counselling Service

Executive summary: What is the MAS role in debt advice?

· CCCS welcomes the MAS taking a role in co-ordinating debt advice and ensuring value for money from the levy of financial services firms.

· We are keen to work with MAS to ensure the consumers have access to high quality free debt advice through our free telephone helpline and on-line debt remedy tool

· We believe that a key task for MAS is to help us get financially vulnerable consumers to seek help earlier from free debt advice providers by promoting free advice. Steering consumers away from the exploitative practices still too common in the fee charging debt management sector is the most important way of raising the quality of service these consumers experience.

· CCCS welcomes the decision to continue support for face to face debt advice through the industry levy. But MAS must ensure that this does not undermine other industry funding for debt advice, such as the fair share scheme.

· However we are concerned that the Financial Services Bill does not fully clarify either the MAS role in debt advice or the nature of the relationship MAS should have with existing free debt advice providers.

· We would like the Government to amend the legislation to make it clear that MAS should not seek to directly replace or duplicate existing free debt advice services.

· We would like the legislative objectives for MAS on debt advice to have more regard to the needs and position of existing debt advice charities and more emphasis on the need for MAS to work in partnership with existing providers to develop a strategy for the free debt advice sector.

Introduction

1. The Consumer Credit Counseling Service (CCCS) is the UK’s leading debt charity and largest specialist provider of independent debt advice. We are funded almost entirely through a voluntary ‘fair share’ contribution from creditors in recognition of the unique service that CCCS provides in supporting people in financial difficulties to deal with problem debt. CCCS does not receive any support from the levy for debt advice currently administered by the Money Advice Service (MAS)

2. In 2011 our telephone advice line and ground breaking on-line debt remedy helped 370,000 people to deal with 1.25 million problem debts. The advice and support we provide is always free, independent and impartial and covers a wide range of needs including specialist insolvency support, welfare benefit checks, mortgage arrears and help for the self-employed.

3. CCCS is also the largest charitable provider of free-to-client debt management plans (DMP), having introduced this essential debt remedy to the UK in 1993. Our DMP’s now support over 120,000 people to budget, regain control of household finances and make sustainable and affordable repayments to their creditors. In 2011 these repayments to creditors totaled £311 million in respect of £3.7 billion of debt.

4. As a result CCCS understands the reasons why households can become vulnerable to financial difficulties and has considerable experience of delivering the help and support that people need to get out of debt and on with their lives. Indeed our experience highlights a need to support households recovering from unmanageable debts to make the most of their money when debts are paid off. CCCS looks forward to drawing on the MAS to help us develop services to address this.

5. So we welcome the opportunity to submit written evidence to this Treasury Committee inquiry on the Money Advice Service. Our comments relate mainly to the role of the MAS with respect to debt advice.

· To what extent is the Money Advice Service meeting its core statutory objectives?

· Are these the right objectives for MAS to have

6. The core statutory objectives for MAS, currently set out in Section 6A (1) are both broad and ambitious. Helping consumers to be more capable, confident and resilient in managing their household finances is a goal that is as challenging to achieve as it is important. As a result, CCCS believes that it is too early to evaluate how the MAS is meeting these objectives. This is a long term policy aim that need time to succeed.

7. In contrast, we believe that it is both possible and necessary to scrutinize how MAS goes about the role given by the legislation; are the powers and duties correct, do they clear MAS a sufficiently clear role and is MAS interpreting this role in the best way. So as a charity and advice provider working to similar aims as MAS, CCCS is concerned to understand the impact that MAS will have on area of work. For instance

· Will MAS help us to help more people?

· Will MAS add value to what we do by helping people in ways that we currently do not?

· Will MAS help us to develop to meet new needs in better ways?

8. In this respect CCCS has a particular interest and concern about the role of the MAS with respect to debt advice. MAS has only recently been tasked with an explicit role in debt advice, following the announcement in the Government’s July 2011 response to the Consumer credit and personal insolvency review that MAS would take responsibility for the co-ordination of debt advice services alongside the commitment to continue the funding of face to face debt advice.

9. CCCS welcomed the Government’s acknowledgement of the importance of ensuring that consumers have access to free and impartial advice on dealing with their debts. There is now a considerable body of evidence pointing to the considerable benefits that free debt advice brings for over-indebted households, creditors and society more generally. In particular we supported:

· £27 Million of continued support for our colleagues delivering face-to-face debt advice in England and Wales. Face to face debt advice is particularly important in meeting the needs of hard to reach consumers who are not easily able to

· access advice through telephone or on-line channels and in providing help with things like court hearings that require physical attendance.

· £2.7 million support for debt advice in Scotland and £780,000 for Northern Ireland.

10. CCCS also welcomes MAS taking a role in co-ordinating debt advice services. This is an expedient solution to the closing of the financial inclusion fund. However moving the funding base to a levy on financial services firms will require a different sort of oversight. MAS will need to satisfy firms that the money is being used effectively and efficiently while ensuring that the free to client debt advice sector retains independence to meet its wider charitable aims.

11. Furthermore CCCS broadly supports a role for the MAS in facilitating a wider strategic approach to the free debt advice sector as a whole. This will help to minimise duplication and ensure creditors do not pay twice for the same work. In this respect we believe that the current 2012/13 business plan MAS has developed for debt advice provides a reasonable estimate of need and identifies some key cost-effectiveness issues. More specifically CCCS supports the way the strategy highlights the need for more co-ordination in the following areas:

· CCCS is keen to work with MAS to develop a triage system with a single point of contact to get people in financial difficulties quickly to the right help in the most appropriate way. Our free debt helpline handled 229,000 calls in 2011 and has the capacity to help even more people. Our online debt remedy also provides a very efficient low cost gateway to debt help.

· We agree that the previous focus on face to face advice provision needs to be re-thought to place more emphasis on directing people to telephone and on-line support where these channels can meet their needs more quickly and cost- effectively.

· But we also want to sufficient emphasis on meeting the needs of vulnerable families.

· We agree that the debt advice sector and creditors need to work together to find ways to get people in financial difficulties to free debt advice more quickly.

12. However CCCS would also take this opportunity to highlight our concerns at the lack of clarity around the broader long term objectives of the MAS in respect of debt advice. The debt advice strategy needs to be build on a firm consensus if it is to succeed and we do not think that the proposed legislation setting out the MAS debt advice role is right in this respect.

13. The Financial Services Bill currently passing through parliament amends the existing statutory objectives of the MAS to include a new explicit reference to a role for MAS in debt advice. The current Section 6A (2) FSMA 2000 will be replaced by new section 3R (4), which adds the following points to the list of core activities set out to define the consumer financial education function:

f) assisting members of the public with the management of debt.

g) working with other organisations which provide debt services, with a view to improving

- the availability to the public of those services;

- the quality of the services provided;

- the consistency of services in the way they are provided, and in the advice given.

14. The activities proposed in new Section 3R (4) (f) and (g) appear to go well beyond the co-ordinating and facilitating role we want for the MAS.

15. Sub-section 3R (4) (f), assisting members of the public with the management of debt, suggests a possible role for the MAS in the direct delivery of debt advice services to the public. This seems to conflict with the role of providing independent oversight on how levy money for debt advice is spent. It also conflicts with the MAS role in commissioning debt advice services.

16. While the current MAS strategy gives us some reassurance that MAS is not seeking to substitute itself for current third sector debt advice providers, the proposed objectives in the Financial Services Bill appear to leave this possibility open. Our concerns here are also heightened by statements from MAS itself. The MAS ‘new approach to debt advice’ document sets out a vision of ultimately ‘aligning crisis debt advice with the Money Advice Service’. Likewise in its 2012/13 business plan, MAS describes itself as moving ‘from an organisation that was primarily configured to support, oversee and fund the work of others, we are transforming to deliver money advice directly’. Therefore we believe that MAS needs to do more to clarify its role, but more importantly we would urge the Government to consider whether this proposed legislation should be amended to make clear that MAS should not seek to replace established, expert and effective free to client debt advice charities.

17. The foreword to the MAS ‘new approach to debt advice’ document also states that ‘our role is not as regulator for the sector but as an independent enabler of high quality debt advice services’. However the text of sub-section 3R (4) (g) appear to equip MAS to intervene directly in the day to day running of debt advice charities by setting conditions on how and where services are provided, creating standards for quality and monitoring these for consistency. These look very much like the functions of a regulator.

18. But the proposed legislation does not make it clear how MAS should go about meeting these objectives, save for a rather vague reference to ‘working with other organisations which provide debt services’. This does not appear to amount to a safeguard ensuring that MAS will work by consensus and agreement, rather than imposing requirements on debt advice charities or seeking to speak on our behalf. This is in clear contrast to the sort of safeguards for firms in respect of interventions by the FCA (such as the regulatory principles) set out in the Financial Services Bill for instance.

19. Here we would also point out that CCCS has been working in an open and accountable way with the creditors that support us for nearly 20 years on issues such as quality, consistency and availability of advice. Likewise CCCS works with other voluntary debt partners on these same points. We would welcome support from MAS that helps the free to client debt advice sector to develop our services in an efficient and effective way. But we believe this requires a partnership approach that is not currently expressed in MAS objectives proposed by the legislation.

20. We believe that the key public policy point here for the MAS is to build more stability, sustainability and efficiency into the already good work of the existing free-to-client debt advice sector. This will help to ensure that people in financial difficulties get the support they need without recourse to fee charging debt remedy providers that can exploit financially vulnerable people with high charges, poor advice or both. Here we particularly welcome the statement that Tony Hobman made in evidence to the Business, Innovation and Skills Committee that MAS should ‘help the free debt advice community to have a much higher profile, so the consumers can see that is a better option for them’.

21. In conclusion, the proposed legislation appears to give the MAS set of objectives on debt advice that looks somewhat at odds with the emphasis of the original Thoresen Review on filing the generic financial advice gap, working with existing providers and not taking a direct role on providing crisis debt advice. The Business, Innovation and Skills Committee report on Debt Management highlighted concerns about the MAS ‘brand building’ having a ‘confused remit’. The debt advice objectives set out in the Financial Services Bill do little to address these concerns. Therefore we believe that the Government should redrafting this to clarify a more limited and focused role for MAS in enabling access to fee to client debt advice.

· How effective is the MAS’s internal administration and expenditure on staff and other resources?

22. CCCS has no specific comment in response to this question.

· What accountability mechanisms are in place for the MAS? Are they sufficient? How can the effectiveness of MAS be assessed?

23. CCCS has addressed our concerns about accountability above in respect of the debt advice activities included in the consumer financial education objective. More generally we are concerned that the legislation provides little opportunity for wider stakeholders to either inform or challenge the direction of MAS strategy. The current mechanisms for accountability flow mainly through the FCA except for a requirement for the MAS to consult on the annual plan.

24. But this is not a requirement to consult generally and falls some way short of a duty to consider either the possible impacts on stakeholders or to set out how MAS will work with existing voluntary debt advice providers like CCCS to help us meet our charitable aims. MAS has held a series of working groups and bilateral meetings on its debt advice strategy and we are pleased that MAS has made efforts to listen. Going forward we hope to see the MAS demonstrate its commitment to constructive partnership working.

25. So as a key partner in debt advice delivery, we urge the Government to use the opportunity of the Financial Services Bill to develop a broader framework of accountability for MAS that both gives this commitment and ensures that MAS are better able to take account of the experiences and concerns of organisations working to similar aims and objectives.

· To what extent are the services provided by MAS also provided by other organisation? How does MAS compare to these organisations?

26. The answers set out above in respect of debt advice services highlight how MAS is entering an area that is already populated by a number of longstanding and successful third sector providers. A quick look at the MAS website shows MAS developing information and guidance in a number of areas where other public and third sector providers are also working. There is nothing wrong with this, so long as MAS uses its levy funding to work with and support other providers in a way that adds extra value for consumers and does not seek to replace or duplicate existing successful services.

27. Here we take some comfort from the MAS statement in the ‘new approach to debt advice’ document that ‘it is not our intention to displace current funding arrangements’ such as the fair share arrangements that support CCCS. But ensuring that this happens in practice is a key accountability question as highlighted above.

· Is the MAS reaching its target audience? Are any groups unable to access the MAS services? Who is worst affected by the lack of knowledge of financial matters? Should MAS have a greater role in financial education in schools?

28. Our comments in response to this question are focused on debt advice and debt prevention.

29. Research commissioned by CCCS found that some 6.2 million households are either already in financial difficulty (3.2 million) or at risk of getting into financial difficulty (3 million) [1] . These should both considered as part of the broad target audience where MAS can work with advice sector partners to ensure need is being met.

30. If our concerns about the statutory objectives for MAS on debt advice can be resolved, we believe that MAS can be successful in helping the free debt advice sector to meet the needs of those people already facing financial difficulties.

31. Supporting people at risk of getting into financial difficulty is a more difficult task. A recent survey of CCCS clients found that 45% of people had waited more than a year between starting to worry that their debt was a problem and seeking help from a debt advice provider. Getting more people to free debt advice more quickly should be one key success measure of the MAS strategy.

32. The recent experience of many CCCS clients also suggests little or no progress in helping people to make better financial decisions; particularly in respect of decisions on credit use. For instance in January 2009 only 2% of CCCS clients had a payday loan. By December 2011, 13% had one or more payday loans. The average total unsecured debts of people with one or more payday loans was over £10,500, suggesting that the decision to take out short term high cost credit was taken against a background of growing financial difficulties.

33. This perhaps illustrates the distance that still needs to be covered to encourage consumers to seek early help from the free debt advice sector rather than taking on further, often high cost, borrowing that can make financial difficulties even more severe.

34. This highlights the importance of the reforms to the consumer credit regulation regime set out in the Financial Services Bill. Better consumer protection, including product sales and features is remains a key issue in debt prevention. But it also highlights the need for the MAS to work with debt advice providers, other organisations concerned with financial education, financial services firms and the FCA regulator to move this issue forwards.

· How appropriate is the model, using fees raised from financial services firms regulated by the FSA, by which MAS is funded?

35. Here we will restrict our comments to funding of debt advice. Research published by the Friends Provident Foundation in 2011 estimated that creditor may benefit by as much as £1 billion a year from extra monies collected as a result of debt advice [2] . Various studies have also highlighted the external social costs of debt problems as a contributing cause of wider problems like ill health or homelessness. Therefore CCCS believes that the levy model to fund debt advice is an appropriate model.

36. However we would also strongly emphasise our belief that a levy is not the only mechanism for creditors to fund debt advice. As we pointed out earlier, CCCS is supported by creditors through a voluntary, non contractual and charitable fair share contribution in recognition of the benefits creditors also receive form the help we provide to people in financial difficulties. Here it is crucial to understand that fair share is not a service level agreement with creditors for repayments received and as such cannot be simply rolled out to other providers as it rests on 20 years of trust, transparency and co-operation.

37. Our main concern here is that the MAS, through the levy, should not undermine this set of longstanding voluntary arrangements with creditors. Instead we would urge MAS to work with CCCS to build on our experience and help us to further spread the benefits of fair share to even more people in financial difficulties.

June 2012


[1] Debt and Household Incomes, Financial Inclusion Centre (2011)

[2] The impact of independent debt advice services on the UK credit industry, Wells J, Leston J and Gostelow M (2011), Friends Provident Foundation

[2]

Prepared 15th June 2012