Will enquiry find a case for fee-paying DMCs?

Individuals representing firms and associations in the commercial debt management sector were yesterday called as witnesses to attend Business, Innovation and Skills (BIS) Committee’s second evidence session on debt management.

Richard Wharton of DEMSA, Andrew Smith of the Debt Resolution Forum, Chris Davis of MoneyPlus Group, Melanie Taylor of Gregory Pennington and John Fairhurst of Payplan all answered questions which were broadcast on Parliament TV, ranging from the state of the market, client demographics, fees charged, to other services offered.

The panel was asked whether demand for fee services has increased. Andrew Smith said: “The market is declining not increasing, but not by much. Insolvency and bankruptcy have plateaued, as have IVAs.” He also stated that people are succeeding in paying down their debt where they can, although, as he pointed out, we are collectively seeing more professional people coming into the sector and with higher earnings come higher levels of unsecured debt.

We spoke to Kevin Still, of the Association of Professional Debt Solutions Intermediaries (APDSI), to get his consensus on the session. He said: “I think that the commercial debt solution sector provided a strong and fair balance to true state of the debt management sector to the BIS Committee, especially as it was also represented by Payplan, who are regarded by the OFT as a provider of debt counselling on a commercial basis, despite their ‘fair share’ (free-to-consumer) model.

“The opening comments with regard to the state of the current marketplace from both DEMSA and DRF confirmed that the market is fairly static from a DMP and personal insolvency perspective, which was supported by several of the debt solution providers present.

“Following the earlier session on high cost credit, the representatives did confirm the increase in the number of payday loans appearing on statements-of-affairs, though the feeling was that payday lenders were straightforward to negotiate with where evidence of financial hardship is provided by a debt advisor,” Kevin said.

After being asked about the model of fee-charging companies and how they gain new clients, Melanie Taylor explained that a combination of advertising and referrals by existing customers allows Gregory Pennington to grow its client base, something which contrasts with Payplan’s model – which relies on creditors and free-to-consumer organisations referrals.

One thing that was consistently emphasised throughout the session was how a change in circumstances can affect a person and cause them to slip into debt. Andrew Smith highlighted that banks treat those who have entered IVAs or DMPs as ‘financially untouchable’ despite them spending years working hard to pay off their debts.

He also expressed regret that the proposed ‘Simple IVA’ (SIVA) had not been approved, where there is a lower voting requirement from creditors (by value) to get a SIVA approved. Furthermore, if a creditor does not vote, as many smaller creditors don’t, their vote goes in favour of the IVA.

Kevin Still continued his comments on the coverage: “Aside from Payplan, all representatives provided a strong case for membership of trade associations and the work they have done with the OFT in building consumer confidence in their services, notably in the areas of training of client facing staff, external audit of members, on-going compliance monitoring against the Debt Management Guidance and ring fencing clients funds.

“Whilst the level and impact of Debt Management Plan (DMP) fees were briefly discussed, the point was strongly made that many informal debt solutions don’t run to term because the clients’ circumstances change, potentially allowing them to self-manage, resume paying contractual payments or settle outstanding debts early through full & final settlements.

“The quality of customer service was stressed and the high satisfaction survey responses from clients on fee-charging DMPs seemed to dilute the argument that UK consumers are subject to a ‘distressed sale’ when in serious debt problems.”

All the panellists were in agreement that the OFT could benefit from greater enforcement powers. Richard Wharton emphasised that DEMSA is fully committed to working with the OFT to promote and maintain high standards and actively reports rogue companies.

“A committee member asked about the OFT compliance review of the debt management sector and the responses from the trade associations clearly highlighted the difference in compliance levels between those that were members of a trade association and the 120 plus businesses that the OFT wrote to in September 2010, most of whom were small businesses, mainly sole traders. This was most apparent in the response regarding ‘cold calling’ by DEMSA and DRF members, where the OFT had found limited evidence to support the CAB Super-complaint in this respect.

“The representatives of the fee-charging market made a strong argument with regard to why commercial companies can act in the client’s best interests, following a response from Payplan regarding why they aren’t yet a member of a trade association. The majority of the leading debt solution providers offer all-round debt advice and a full range of debt solutions, only some of which incur fees. Debt advice is provided without charge. Gregory Pennington made the point that only 9 per cent of prospective clients that they deal with take-up a fee charging solution,” Kevin said.

Protection of client account money was also an issue Richard, Andrew and Melanie all commented on, with Melanie suggesting perhaps insurance protection might be one solution to ensuring clients get their money back even if a rogue firm does collapse.

Richard Wharton spoke to Debt Management Today after the committee. He reflected on the session, telling us: “We welcome the committee’s enquiry and we believe that self-regulation in light of the revised debt management guidance is especially important.

“The key thing we want to emphasise is that the OFT should be given greater enforcement powers, because at the moment they have to go through quite a lengthy process.”

By Miranda Atty

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