Regulating Debt Management in the age of scrutiny

Andrew Smith, marketing director of ClearDebt and spokesperson for the trade body, the Debt Resolution Forum, discusses the changing nature of debt regulation and the Debt Management Protocol.

The debt resolution industry is facing changes in the way we are regulated from all different directions at the moment and, representing both ClearDebt and our trade association, Debt Resolution Forum,  I’m in the middle of a whirlwind of change at the moment – and just about resisting spinning out of control.

Right now, my industry and/or ClearDebt is dealing with (or about to deal with):

  • The Introduction of the Debt Management Plan Protocol
  • Development of Money Advice Service’s Quality Framework for Individuals
  • Application for the Money Advice Service Quality Framework for Organisations
  • Awaiting the imminent FCA consultation on detailed rules for debt management companies
  • Creditor concerns on low value Individual Voluntary Arrangements (IVAs)
  • New creditors requirements for information from debt management companies
  • Commercial structural opportunities that will come from FCA regulation
  • Worries about handling client monies in debt management
  • Trying to improve the way our industry deals with vulnerable clients.

So, writing this is, for me, the equivalent of taking a deep breath. All this change is good.

Really. Why? Well it’s another step on the road to fee-charging debt resolution being a trusted part of the UK personal debt scene.

After all, we do provide about 75% of the plans UK people use to help themselves get out of debt.

Debt Management Companies and the DMP Protocol

The DMP protocol is a voluntary deal between the government, the banks and debt collection companies and other creditors: Protocol compliant debt management companies are put through and successfully pass, independent annual inspections (as DRF members do already) carried out by the Insolvency Practitioners Association (IPA).

Big trust point – Money Advice Service (MAS) will provide links to protocol compliant companies through their trade associations. Another plus.

It’s probably fair to say that, when MAS took on responsibility for debt advice they thought fee-charging debt resolution companies were the spawn of Satan.

That is no longer true – MAS seem to recognize that a mixed economy for debt advice is needed and that transparency and standards are the route to ensuring consumers get a good service that they are prepared to pay for!

Independant Debt Research

Another positive thing that happened this week was that Money Advice Trust (another organisation that doesn’t like the principle of fee-based debt advice and also a very significant player in the area of public policy development)  put some of our trade association (DRF -Debt Resolution Forum) research on it’s website.

We have been funding independent research (by Zero-Credit) for two years now and the scepticism with which it was initially treated seems to have been overcome. I think the fee-charging debt resolution industry has developed a lot in recent years, now others seem to agree.

Keeping Clients Money Safe

Of course, that doesn’t mean we don’t have problems still to solve. I’m especially concerned about the standards we have for keeping safe the money clients send us and the risk that funds could go missing (as has happened, more than once, recently). We don’t think it is enough just to have a client account:

The way it is used must be monitored too – ClearDebt has blogged about keeping clients money safe – and hope to promote them in the forthcoming consultation on FCA’s detailed rules for Debt Management.

Full authorisation vs appointed representative

Speaking of which, the body that takes over regulation of the debt management sector, the Financial Conduct Authority (FCA) have launched the process for application for interim permission. It looks like a doddle (it isn’t difficult – I did it for ClearDebt last week): But this is just getting through the gate.

I think full authorisation by the FCA is going to require an attitude to compliance that really only the members of the two debt resolution trade associations currently have – and that the costs, for many companies, are going to soar.

Establishing an independent, authoritative compliance function isn’t cheap. The one question in the interim permission application that gave me pause was the one that asked how many people do we have employed in compliance.

The answer is nine. I reckon the compliance burden is going to encourage many to choose to be appointed representatives or ARs, (where a fully authorised company takes responsibility for the AR’s compliance) rather than seek full authorisation (If you are thinking about this you still must get interim permission or you won’t be able to trade at all from next April – FCA will delay full authorisation for those who say they want to be ARs in order to give time for people to build networks: If you want to speak to us now about joining our network then get in touch, we are ready.

Debt Regulation One Year On

So, what will things look like in a year’s time? fewer “top companies” with wider, deeper networks? I think so.

More IVAs and fewer DMPs? I think that will happen too as long as creditors accept that an IVA is often the best deal for the debtor and that they ought not to insist on fees so low that it restricts access to the market.

Robust but costly compliance: That’s inevitable and a good thing for the consumer and the industry – but some will baulk at the impact on their organisation and will either get out of the market or try to operate non-compliantly. Our industry’s reputation will suffer, yet again because of this.

More trust by policy-makers, creditors and consumers. This is the big win and I think it is on track to happen. If we can keep pace with this whirlwind of change.

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