Government funded debt advice – rubbish or not?

Government funded face to face personal debt advice is not all it’s cracked up to be. It costs taxpayers lots and, in many cases, does nothing for the debtor.

Very strange. An MP (now, I guess, a parliamentary candidate given that the May 6 UK general election has been called) seems to have changed his view on a government-funded debt advice initiative in the space of just two months. OK, his view on the complete range of government funded debt advice (that it is pretty useless) hasn’t altered much but, specifically on the free face to face debt advice initiative Edward Leigh seems to have done a complete 180!

Here he is (today, April 8) quoted in a BBC article praising the government’s face to face debt advice initiative, through Citizens’ Advice and other charities. And yet, on February 4,  he was slamming the same initiative for its cost (£265 per person).

My view is that Edward Leigh was right the first time. I’ve always had a slightly less than rosy view of the advice on debt provided by Citizens’ Advice: it’s patchy and usually leaves people to help themselves (the link is to an article I wrote on my private blog just over a year ago) and, when they do leave people to implement CAB’s excellent debt management plans themselves (DIY debt management) the creditors rarely freeze interest or charges on the person’s debt.

The research done by the National Audit Office (NAO) appears to show that 81% of those interviewed about the face to face debt advice initiative believed it had helped them, compared with 69% who had come to a fee-charging IVA and debt management house like ClearDebt. I suspect though, if they had looked further, into whether the advice turned into action that really helped the client then their conclusions would have been quite different.

Why? First because leaving someone to manage their own debt recovery programme is not helpful – people are often in debt because they have lost control of their life, frequently because of circumstances beyond their control, and they need help and hand-holding (and maybe a little cajoling) to get back on track. Being left to do it alone (which, I believe, happens with very many CAB cases), just doesn’t hack it.

More to the point, my work with creditor organisations leads me to believe that the “free” (taxpayer-funded) advice provided by charities actually costs the debtor money: More and more creditor organisations freeze interest and charges on debt management plans put in place by companies like ClearDebt and Abacus and, in an Individual Voluntry Arrangement (IVA) it is the creditor who pays anyway – as long as the debtor makes all the payments. Creditors usually won’t do this when they get a DIY plan from a debtor who has been advised by Citizens’ Advice. So, the advice provided by CAB costs you and me millions (£130 million, I think) and leaves the debtor no better off and saddled with increasing debts, scheduled to be repaid over a longer period.

I’m surprised Edward Leigh can see this as the one strand of government debt advice that is working but agree wholeheartedly with his committee’s (the House of Common’s Public Accounts’ Committee) views that the rest of the just-dissolved Labour government’s consumer debt policy isn’t working.

I’m proud of the job many of the private sector debt resolution companies do – especially those with standards and training (members of DRF and DEMSA) – Free advice is NOT always good advice, even if you feel good when you get it.

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  1. I couldn’t agree more … the quality of “advice” provided by the free money advice sector is highly overrated and patchy at best.

    They simply don’t have the resources or expertise to deal with complex cases and there is far too much hand holding from these “well meaning amateurs”.

    I like your description of a DIY Debt plan – this is a poor substitute for a structured plan.

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