The Debt Advisor Managing Director, Beverley Budsworth invited MP Kate Green to visit our head office on Monday 14th April to discuss issues faced by those in debt.
Some of the issues discussed included the importance of both free and paid-for debt advice in the UK.
We were delighted that Ms Green accepted our invitation and we are pleased to share with you some of the issues Beverley discussed with her.
Overview of The Debt Resolution Forum (DRF)
Beverley first informed Ms Green of The Debt Resolution Forum (DRF) which is one of the two trade bodies that The Debt Advisor is regulated by and how they have led the way to improve standards in the debt solution industry.
DRF have done this by developing training for its members such as the Certificate of Debt Resolution and The BTEC Advanced Certificate in Debt Resolution (CertDR). These qualifications were designed with leading financial services consultants and from DRF members such as ourselves.
The qualifications complement the standards required by Mortgage Advisors, Insolvency Practitioners, Debt Management Advisers, Debt Counsellors, Money Advisers and Credit Managers.
Beverley explained that in 2013 The Debt Resolution Forum asked Zero Credit (a research co-operative) to undertake independent research across the DRF member community.
The research was conducted in order to highlight how different groups of debtors are coping in a post-recession Britain.
Here are their findings:
Creditors and Women:
Women are more likely than men to face increased charges and receive calls or visits from creditors at unreasonable times. They are also twice as likely as men to use Debt Relief Orders, the insolvency procedure for people with low incomes and few assets.
Creditors and Ethnic Minorities:
Ethnic minority debtors are twice as likely as white UK debtors to face legal action even after entering a debt-solution scheme and had higher debt to income ratios.
Creditors and the Long-Term Ill:
Creditors showed a lack of forbearance to those with long-term health problems.
Creditors and the Over 60s:
By contrast, creditors seemed more understanding when dealing with people aged over 60 years than those aged below 60.
Paid-For Debt Advice:
The research found high levels of satisfaction with the paid-for debt advice sector. Those questioned scored their debt advisors nearly nine out of ten in agreement with the statement that they ‘had my best interests at heart’, and nearly 80% reported an improvement in managing their money after signing up to a paid-debt solution.
Free Debt Advice Vs Paid Debt Advice
The above research followed on from earlier research undertaken by Zero Credit in 2012, which looked at the demographic of the clients that members on of the DRF look after, as well as why clients chose to use paid-for debt advice after seeking advice from the free to client services.
Beverley explained how DRF is the only organisation apart from the Citizen’s Advice Bureau to have achieved Money Advice Service’s quality standard for debt advice.
DRF have also developed a very detailed mystery shopping guide for all advisors employed by DRF members. This step-by-step guide explains how advisors can deal with calls on debt issues. It ensures that advisors cover the pros and cons of all debt solutions and that advisors find out adequate information about the debtor so that the most appropriate advice is given.
When DRF undertake mystery shopping of their members, advisors are scored against this guide which takes into account not only the DRF codes but also FCA rules and best practice guidelines issued by The Insolvency Practitioners Association.
Mixed Economy for Debt Advice
Beverley explained that all individuals with debt problems should have access to good quality debt advice and where a debt solution is recommended that the debtor fully understands the advantages and disadvantages and costs in full.
On 1st April 2014, the Financial Conduct Authority (FCA) took over from the Office of Fair Trading for the regulation of consumer credit as part of the Government’s programme of regulatory changes for financial services.
There is no doubt that regulation will become more stringent for both free and paid-for debt solution practices. Those who are offering debt solutions will have to be fit and proper. The FCA has much stronger enforcement powers and this is very much welcomed.
What type of client uses the service of companies such as The Debt Advisor?
We have a diverse range of clients but the common theme is that they can either afford a monthly repayment to their creditors, or can provide a lump sum to settle their debts.
We are well known for dealing with complex debt issues from self employed professions such as solicitors, barristers and accountants.
We can also offer debt advice for Polish, Chinese, Greek and Croatian speaking debtors.
Protocol Compliant Debt Management Plans
Ms Green was keen to hear about the Protocol Compliant Debt Management Plan (P-DMP) which was introduced in October 2013. Bev explained how The Debt Advisor was one of the first five companies to be initially approved by the Approvals Committee headed up by Insolvency Service to undertake these plans.
Originally mooted by the Department for Business Innovation & Skills (BIS) in June 2012, the plans seek to address the two main areas of concern regarding consumers in financial difficulty:
- That consumers do not always receive the most appropriate advice
- Fee charging debt management companies may not always provide debt solutions which are both sustainable and the most appropriate for the customer.
The P-DMP, with government support, could play a profound role in creating a better non-statutory debt solution without requiring legislation. It is as a result of an effective working group of representatives from both the free and fee-charging sectors, creditors, The Insolvency Service and government ministers. This working group has been essential in establishing dialogue between all key parties in debt solutions. The ministerial support for this effective working group has been absolute key. However, the government has u-turned on its commitment to the P-DMP guidance group. This is because Treasury believes the FCA’s new role in regulating consumer credit means it is no longer necessary for them to be involved with the group.
Protocol Compliant Companies are already finding that banks, credit card companies and other lenders are not meeting their obligations under the protocol. Without government involvement, this will worsen. The P-DMP relies on ministerial support to ensure an effective dialogue between all of the key parties. DRF are calling on the government to rethink the support for the P-DMP to ensure that the group continues and is able to work together to develop and improve non-statutory solutions to ensure that debtors get the best possible solutions to suit their individual circumstances.
The IVA and creditor’s behaving badly
Beverley explained to Ms Green that prior to the IVA protocol, there was wide spread action by creditors to make it difficult for IVA’s to be approved. These included minimum dividends that had to be achieved plus a multitude of modifications. Frequently we would end up with so many modifications from every creditor representative and it would take days to try and get creditors to agree a single list of modifications.
However, the protocol materially helped to drive up standards and creditors’ faith in the IVA’s so that these days we sometimes only have 2 to 3 modifications which generally involve capping of our fees and expenses. The latest threat of capping fees has come from Lloyds Bank who threatened to remove the minimum Nominee’s fee of £1,000 and instead allow only 5 times the debtors contribution. This results in low contribution IVA’s becoming unworkable as the fees are too low to cover the costs of setting up the IVA’s.
IVA’s are the most suitable means for consumers to deal with their debt in a responsible way. An IVA is not easy and generally involves a debtor paying 5 years of monthly contributions plus they are expected to look at whether they can refinance their properties in the final year to introduce sums in lieu of equity. If they cannot refinance and prove they cannot, they have to then extend the arrangement for 12 months during which they pay 12 additional monthly contributions.
Taxpayer funded Lloyds Banking Group have been considering introducing a set of measures which would reduce the initial Nominee’s fee for IVA’s. This would have the effect of making the provision of ten thousand or more annually IVA’s non-viable artificially restricting their availability to those can make contributions of £200 or more a month.
Increasing numbers of IVA’s are proposed at contributions as low as £70 per month. It should be possible to put forward an IVA only on grounds that it is the most appropriate debt solution.
DRF research estimates that should the proposed change take place, 23 – 25% of IVA’s would not be viable.
LBG has back tracked on these proposals but is threatening to make changes in the future.
Kate Green MP was interested in hearing our views on all the issues discussed above. She undertook find out more in parliament about the government’s attitude to regulation and to the protocol, and we look forward to staying in touch with her.