It’s regrettable (but inevitable) that most of the coverage about the OFT’s latest announcement on action they are taking against some fee-charging debt management companies implies that the whole industry is in a terrible state. In fact, it is a major step forward in creating an industry consumers can trust – and it’s a process which the industry is working hard to bring to fruition – quickly.
OFT crackdown on debt management companies
Speaking as a director of ClearDebt (a fee-charging debt resolution firm – and proud of it) -and as spokesperson for one of the industry’s two trade associations (Debt Resolution Forum) I believe that what the OFT is doing, a fee-charging debt resolution industry, which consumers and creditors can trust is going to be needed.
The OFT’s action has driven out a number of dilettantes and those who can’t be bothered to accept a burden of regulation. It seems to have found a number of rogues too and is dealing with them.
The industry itself is shaping up – fast. First, the OFT’s requirement for an audit of compliance was historic – in most case it related to trading standards reviews made between autumn 2009 and spring 2010 and, for many firms, their response to the OFT was confirmatory – the changes required had already been made.
Debt management company regulation
Secondly, there is real commitment, from a large section of the industry, to all the regulation that’s necessary to remove consumer detriment. Debt Resolution Forum (DRF) offers an advanced BTEC (the Certificate in Debt Resolution – CertDR) requiring more than 210 hours study and with three examinations: Members have to commit to their client facing staff either taking this or being trained to an equivalent standard. All our staff who deal with clients have to obtain this qualification.
DRF also requires members to go through an annual independent audit from the Insolvency Practitioner’s Association (a regulator trusted by government). This is a five day process in the first year (three days in years two and three – and then back to the five day review).
DRF has an independent complaints panel with a majority of members from outside the industry. chaired by David Hawkes, National Money Advice Co-ordinator of Advice UK. The complaints’ panel’s decisions are binding on members.
It’s early days for both these initiatives but the commitment is there.
And the OFT will continue to challenge us: We’ll shortly see a consultation on new debt management guidance that will raise the bar further.
The cost of free debt advice
Why bother though, with all the free advice that’s available. Well first, free advice is not always best advice (but I recognise that I would say that – wouldn’t I). More to the point, the free sector has a capacity issue, they themselves say they could only deal with half the enquiries they received. Now, after Citizen’s Advice’s announcement of up to 900 redundancies, their capacity is slashed.
Then, the government’s attitude is changing. “Free” debt advice is often taxpayer funded – so not free at all. And many debtors can actually afford the fees they pay – as can (and perhaps should) their creditors. Most creditors factor the cost of defaulters into each product when they design it. So any debt recovery the banks and credit card companies make is actually bunts. Why not squeeze their margins a little and get them to share, with the debtors, the cost of debt advice and resolution? This does seem signposted by the Department of Business Innovation and Skills/Treasury call for evidence on credit and debt regulation.
So – what we are seeing is the rapid evolution of an industry sector from unregulated and seen as unhelpful to consumers to well-regulated and a required part of the UK economic scene. After all, we have an economy partly fuelled by consumer spending and you need credit to spend (nobody saves anymore). More credit means more debt.
Seems, in people’s financial lives, there is nothing certain except debt and taxes.
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ps. On a related note, if you are interested in checking the license of a debt management firm, ClearDebt have made a screencast showing you exactly how to do so.
