Fee and free debt advice, heads you win, tails I lose
Unlike the headline of this blog post there really are two side to every coin of the insolvency profession.
ClearDebt’s involvement with the collapse of Apex DCM has been explained in detail elsewhere on this blog and already featured in BBC news coverage. Other BBC regional programs (X-Ray BBC Wales) have also featured the DCM Money case with strong testimony from some of those most affected by the demise of the debt management company.
Such stories inevitably revive the sentiment repeated in the program featured:
….absolutely do not pay for debt management services because there are loads of organisations out there who’ll provide exactly the same service as these companies but they will do it completely free of charge. -Rachel Treadaway Williams, BBC
Yes there are creditor funded organisations that provide debt advice that is free at the point of need. Free debt advisory services that are taxpayer-funded, charitable or creditor-funded include Citizens Advice, National Debtline and the Consumer Credit Counselling Service (CCCS). They provide a valuable service to UK citizens suffering financial difficulties.
But do they provide exactly the same service as commercial organisations as claimed?
Let’s look at five aspects of service that are of importance to people in debt.
Capacity
CCCS’s latest annual review (2009, page 5) reveals that they offer advice at the time of the first call to 25% of callers – fee-paid adviser generally offer this call (free – and it is of roughly 40 minutes duration) to 100% of callers.
Availability
Fee chargers tend to be available (on the telephone, admittedly) for longer hours and on more days than non-fee chargers. This applies, often to the administration and support process as well as to the initial advice. Payplan, I think, offers the longest hours and is broadly comparable to a fee charging company. Did we mention you can query a qualified debt advisor round the clock online also by chat, question or via text message?
Informational advice
When is advice no more than information? Debt management companies financially administer payments to creditors whereas plans offered via Citizens Advice often do not. Employees and advisors of ClearDebt undertake over 200 hours of study to gain industry wide accepted qualifications (including CertDR – certificate in debt resolution and the CPI from the Insolvency Practitioners Association) to advise people in debt. You gain the benefits of that knowledge with zero upfront fees.
Competitiveness
An IVA can offer a number of benefits over a Debt Management Plan, and typically last 5 years which is less than half the typical debt management plan even offered by those recommended by CCCS, Payplan or Citizen’s Advice (and, to be fair, most fee-charging debt management companies).
Value
A ClearDebt IVA is available to people with unsecured debts as low as £10,000 and sometimes less.. In contrast this threshold is £15,000 from creditor funded organisations. CCCS average debt for people in IVAs is £58,847 – this seems to indicate that they don’t advise (or are unable to pass) IVAs for lower debt individuals, even though this will often be in the debtors’ best interests.
By contrast, ClearDebt’s average IVA debt level in 2010 was £32,224. It is worth repeating that wherever it is possible, an IVA is almost always a better solution for a debtor than a DMP. IVAs freeze interest and charges automatically, write off debt (typically 50%) at the end of the arrangement and stop creditor action.
Regardless which type of organisation an individual assigns to arrange an IVA, a licensed insolvency practitioner, will be reimbursed for professional services ultimately from the debtors contribution. ClearDebt employ licensed insolvency practitioners and are not merely a commission middlemen organisation.
ClearDebt also operates so-called “protocol compliant” IVAs which is a sort of industry standard meaning you won’t find lower fees elsewhere – even amongst charitable providers. ClearDebt do applaud the actions of the media to expose unscrupulous operators in the debt sector, have a track record of leading action against rogue operators spanning many years and will continue efforts on this front, unafraid to set the record straight where necessary.
Furthermore ClearDebt as a founding member of the Debt Resolution Forum continually lobbies for raising professional standards across the industry.
Heads you win, tails I lose
Where the media sometimes come up short is recognising the differences between services levels and a misguided pursuit of simplifying the argument for a sound byte.
And yes, like other professions the debt industry comprises mixed levels of service and standards by practitioners and organisations alike.
Look further afield and ask yourself if broadcasters can be equally compared? Are newspaper journalists all the same? Is free legal aid better than paid legal advice?
Or is that really the wrong question? In spite of the welcome forthcoming reforms in the debt industry for non OFT Guidance compliant firms to be weeded out, commercial and creditor funded debt organisations will continue to service the needs of people in debt in the UK and unlike the headline of this blog post there really are two sides to every coin of the insolvency profession.
What do you think?
