Consumers who pay for advice on managing their debts will now be protected by a new Debt Management Plan (DMP) Protocol, launched by Consumer Affairs Minister Jo Swinson today.
Under the Protocol, agreed with providers and creditors, consumers will not be charged any fees before signing a contract with a Protocol compliant debt management company. Providers have agreed to spread the recovery of their set up fees, over at least the first six months, making plans more affordable and sustainable.
Companies that sign up to the Protocol will be expected to provide clients with information about other appropriate debt management options including the availability of free debt advice by providers.
Consumer Affairs Minister Jo Swinson said:
This is good news for consumers faced with debt problems. I am pleased to see commercial providers making these changes, which will see them help consumers by spreading the costs of the plan.
However, consumers should be aware that there is also free advice available. For example, anyone with debt worries can contact the National Debtline on 0808 8084000 for free and confidential advice. The Money Advice Service can also signpost people to appropriate and free debt advice services. Under this Protocol anybody in debt who seeks paid-for advice will be made aware that free debt advice options are available before signing any contract with a fee charging provider.
This Protocol comes in the wake of the refusal by the Office of Fair Trading (OFT) last week to renew the credit licences of two debt management companies and the refusal of the application of a new business.
The Government is determined to drive up standards in this industry and ensure that people seeking paid-for advice are not disadvantaged by debt management companies that do not offer value for money.
The Protocol will help drive up standards in the fee charging debt management sector in the run up to the launch of the Financial Conduct Authority (FCA) which will take over responsibility for consumer credit from the OFT. The FCA will come into being on 1 April 2013 and will take over responsibility for consumer credit regulation from 1 April 2014.
The DMP Protocol, which is voluntary, will be independently monitored to ensure firms meet the standards and the spirit required of the protocol. Those companies that sign up will be able to advertise their compliance to consumers.
The Protocol will also be subject to a standing committee headed by The Insolvency Service which will oversee the protocol and report within the first 12 months of its operation.
The debt management industry and the public highlighted two key concerns in the charging structure, as part of the Governments review into consumer credit and personal insolvency. Consumers said there was lack of awareness of where to go to get free debt advice while those willing to pay for the advice said they felt upfront fees by providers were driven more by profit for the providers than getting the best value for money.
A spokesperson from the British Bankers Association said, We welcome todays announcement as an important step towards raising the standard of debt advice available to customers in financial difficulty. Banks provide funding for the majority of free impartial debt advice and will always signpost their customers to free advisors. However if customers do wish to pay for advice it is important that they find a provider who is compliant with these new standards.
A spokesperson from the Credit Services Association (CSA) said, “The CSA and Debt Buyers & Sellers Group support this important step in improving the services and professional advice offered to customers in financial difficulty. We commend Consumer Affairs Minister Jo Swinson and The Insolvency Service for their leadership in developing this Protocol and we join stakeholders from across the consumer credit marketplace in embracing this important step forward for consumers.”
A spokesperson from the Debt Managers Standards Association (DEMSA) said, The Protocol is good news for consumers. Not only does it improve the operation of debt management plans and the auditing of providers, but it will also provide a clear way for consumers to differentiate between providers that are committed to the highest standards and those that are not. DEMSA has long campaigned to raise standards across the sector and weve worked hard with The Insolvency Service and other stakeholders to deliver this Protocol.
A spokesperson from The Debt Resolution Forum said, “We have worked hard with The Insolvency Service and creditors to create a protocol that reflects the efforts that the industry has made in recent years to build public trust and confidence. This is a major step forward in standards, practice and transparency. We will continue working hard with our members to build a body of providers who meet these standards as early as possible and will also be working with the standing committee on the Protocol to ensure that this is a beginning of a process which leads to debt management plans that work better and are achievable and sustainable for consumers and creditors.”