Debt management in 2012

After sitting down with industry experts to review the major changes in the debt landscape for 2011, here at Debt Management Today we thought we had better look ahead to 2012 to see what the future holds. Miranda Atty spoke to some industry experts to find out their predictions about how the challenges set during 2011 will impact on the debt sector into 2012 and beyond...

Debt levels

So, what impact is the increasingly bleak economic outlook likely to have on debt levels into 2012 and beyond?

Michael Land, Chairman of the Debt Managers Standards Association (DEMSA), said: “Personally, I believe debt levels will fall but those seeking debt help will rise. Levels will fall because there has not been a lot of lending and I think many who have struggled up till now may be tipped over the edge as disposal income is reduced all the time.”

Matthew Cheetham, CEO of Harrington Brooks, told us: “The economic indications for next year are all suggesting that consumers need to be braced for an increasingly tough time. We are seeing rising unemployment as the coalition government cutbacks start to impact roles in the public and the defence sector.

“Inflation is running well ahead of wage rises and real personal disposal income fell in 2011 and will probably fall again in 2012.

“One segment of customers who do not appear on any radar currently is the “squeezed middle classes”. With average household savings so low, all it takes is a short period of unemployment and a family which has historically made all of its contractual payments on time moves from prime to sub-prime in a matter of a few months as creditors charge late penalty interest and charges, worsening the situation.”

Nick Pearson, Director of External Affairs at Paymex Group, agreed. He said, “I think the number of people in financial difficulty is likely to increase once the full effects of public expenditure cuts are felt after April. In terms of total debt, levels are likely to be lower because people’s ability to access credit has been curtailed over recent years.

“What we have been seeing recently, and which looks set to continue, is individuals with low levels of debt from pay day lenders. With the new customers we have been helping, 50 per cent have at least one pay day loan which contrasts with a few years ago.”

The general consensus from the individuals we spoke to is that the number of people seeking debt help is likely to rise in 2012, with unemployment and interest rates rises being key concerns. Anthony Sharp, who helped found non-policy discussion forum the Money Advice Liaison Group (MALG), added, “A certain amount of the crisis continues to be kept at bay by the very low Bank of England interest rates, but if they do go up during 2012 it is likely to cause another nightmarish situation.”

Regulation

Vance Parsons, Director of EuroDebt, stated: “Looking forward to 2012 and the further regulatory changes it may bring, we fully support any moves to improve the quality of service provided to indebted individuals and welcome the clarification offered by the new OFT guidelines.

“Indeed many of the practices are ones we have applied within our business for a number of years. EuroDebt has always been committed to providing a fully transparent service. This is further evidenced in our role as founder member of the Association of Professional Debt Solutions Intermediaries (APDSI), a not for profit organisation committed to helping intermediaries and brokers offer a range of debt solutions to financially disadvantaged clients, whilst complying with regulations on consumer credit and debt advice.”

Alasdair Warwood, Secretary General of APDSI, highlighted the importance of a strong trade association available to represent intermediaries’ viewpoints and to provide practical advice on coping with the constantly changing regulatory landscape into 2012. He said: “APDSI believe financial intermediaries have an obligation to help longstanding clients by sign-posting them to reputable free-to-consumer and commercial advice providers and to ensure that the advice they provide themselves is compliant.

“The principles of Transparency, Fairness and Redress – which are set out in the new OFT debt management guidance – remain key. Indeed, one of the stated objectives of the draft OFT Annual Plan for 2012-13 is to focus on vulnerable consumers, which will undoubtedly include those in financial hardship.”

Mark Fawcett, Sales and Marketing Director of Release Money Group added, “Further reform cannot do us any harm. There has been a lot of bad press from rogue companies, but if we work together as a whole, particularly supporting the OFT’s guidance, then we will be able to get stronger as an industry.”

So what must debt management companies do in the New Year?

Kevin Still, Director of Atlantic Financial Management, said, “Compliant businesses such as Atlantic have a vital role to play in helping to build consumer confidence in the debt advice and debt management sector, which was debated in the Commons in December.

“Our DEMSA membership and founder membership of APDSI are a long-term commitment to improving standards from the point of first contact by a consumer to determination and implantation of the best debt remedy to meet a client’s needs, with informed choice being at the heart of the services we provide. Accessibility of debt advice with no pre-contractual fees remains a key factor as demand is likely to grow in 2012.”

Predictions

Anthony suggested that we “may enter another recession in 2012. Although it is easy to become depressed about the global financial turmoil, I think we should be optimistic and hope this time next year things will start to improve.” Despite offering these encouraging words, Anthony left us with food for thought – and numerous questions. “There is a lot of debt waiting to implode and a lot of people struggling. As stated earlier it depends on various factors.

“Will unemployment continue to rise rapidly? Will the Euro be saved and stability return to Europe and Great Britain? Particularly in the world of debt advice, what rabbits will the Money Advice Service (MAS) ‘pull out of the hat’ in April next year when they take over the commissioning and provision of free-to-client debt advice? No one knows, but I hope they do!”

Nick, too, raised some intriguing points. He revealed, “What is fascinating at the moment is what the British Bankers Association (BBA) has been saying about MAS. BBA has been told that its members will have to fund MAS through a levy paid, which means lenders will no longer be in positions to implement the fair share model and provide funding for the CCCS, Payplan and other organisations like Christians Against Poverty.

“I think lenders would rather support fair share organisations like this because they administer payments and make sure customers pay their arrears, which is something the CAB, by and large, doesn’t always do. Lenders may therefore have to say publicly what they think about the quality of face-to-face advice.

“If CCCS and Payplan do have their funding cut, then fair share models like this may no longer be viable options – something which, if it does happen, will play out quite quickly I think.”

Speaking to some of the industry heavyweights and hearing their predictions for the coming year definitely left me with more questions than answers. What will happen to the fair share model after MAS takes over the ‘purse strings’ of the free advice sector? Will more firms be forced to exit the market as the OFT’s updated debt management guidance comes into force? And will the stringent budget cuts which start taking effect in April push more of the middle income earners into debt?

As 2011 draws to a close and a new year looms, all I can really say looking ahead to 2012 is ‘watch this space’....