Dear Member,

I apologise that you are getting a number of newsletters from me in pretty short order. But, this one is VERY important.

The Minister for Employment Relations, Consumer and Postal Affairs, Norman Lamb, has invited DRF to join a discussion on “issues of concern around debt management services”. Three members from your Board of Directors will be attending the meeting.

This discussion is likely to result in a debt management protocol that will effect almost every aspect of what we do and how we do it. It will also change our relationships with the free-to-client sector and make even more relevant the work being done by the Money Advice Service to channel consumers’ access to debt advice.

Below my signature you will find the short discussion paper provided by the Department of Business, Innovation and Skills.

Please make your voice heard. Please email andrew.smith@debtresolutionforum.org.ukwith any views you have before 5:00pm on Friday, 8 June.

Your contributions are very important. Please respond to this request urgently.
Yours sincerely,

David Mond

David Mond
Debt Resolution Forum Chairman

Voluntary Code for Debt Management Plans

Background

There were two main areas of concern regarding consumers in financial difficulty brought out within responses to the BIS call for evidence, Managing Borrowing and Dealing with Debt:

1. That consumers do not always receive the most appropriate advice
2. Fee charging debt management companies may not always provide debt solutions which are both sustainable and  the most appropriate for the customer

Since then;

• The OFT have published their compliance review of this market and around 90 debt management firms have left the sector since then.

• OFT have also consulted on and published their revised Debt Management Guidance, which has been well-received.

• They have responded to a super-complaint from Citizens Advice about, amongst other issues, those firms that charge up front fees.

• Money Advice Service published ‘A Better Deal for Everyone: A New Approach to Debt Advice’, which sets out their approach to debt advice. The new model should be in place during the financial year 2013/14.

There have been a number of meetings of a small but representative group to discuss how a voluntary code may help raise standards within this market, and the following tables summarise the main features that such a code may include, and some of the main issues that remain to be addressed.

Our starting point is the assumption that those compliant with a voluntary code will be following the OFT’s Debt Management Guidance in both letter and spirit.   In some respects however, a voluntary code can look beyond the Guidance to some of the detailed features of the Plans themselves.

Possible Features of a Voluntary Code

Best Advice: A firm will be able to demonstrate that the advice they give is holistic and covers all available options to the client thus demonstrating that the DMP proposed is currently the most suitable debt solution and that it is sustainable

Common Approach to Income and Expenditure: Providers will use the Common Financial Statement or the CCCS guidelines to complete a thorough examination of the client’s financial position. Any deviations from the norm will be explained.

Regular Checks 1: Providers will review a client’s financial position at least annually to check whether the DMP is still the most suitable debt solution.

Regular Checks 2: Providers will be independently monitored to demonstrate their compliance with the code. Such reports will be sent to those who own the code.

Data: Management information will be provided on, amongst other things, number of new plans, number of completed plans, number of breakages.

It is hoped that a single portal could be used for this information, but this is to be explored (see later point about ‘Ownership’ of the code.

Creditors: Will constructively cooperate with the client’s 3rd party provider and endeavour to provide all relevant and reasonably requested material within a reasonable timeframe.

Issues to be Resolved

Competition Law: How to ensure that a voluntary code does not restrict competition practices either amongst participants or those outside

Fees: How to set the timing and quantum of fees in a way which aligns the commercial interest of providers with those of their clients and creditors.

Consumer Information: What information – and how presented – would consumers find useful to enable them to compare providers?

Ownership: A voluntary code will only work if those party to it are satisfied that the ownership, monitoring and enforcement of the code are taken seriously.