Report Reveals Debt Management Companies Guilty Of Poor Practice
Consumers who are struggling with their finances and are thinking about appointing a debt management company to help them get out of debt – by re-negotiating terms with their creditors – have been warned to be aware of the charges involved in the process.
A report issued by Money Advice Trust has revealed that many debt management companies are guilty of poor practice. Its report was based on research carried out by the Personal Finance Research Centre at Bristol University. Money Advice Trust is a charity formed in 1991 to increase the quality and availability of free, independent money advice to people with debt problems.
The findings in the Trust’s report reveals many debt management companies failed to sufficiently highlight the costs and charges involved in arranging a debt management plan. The key findings were:
- Some consumers were not fully informed of all the charges and costs involved in the arrangement until late in the process
- Some consumers even felt they were worse off than before they contacted the debt management company
- Some debt management companies did not make clear, from the outset, that in addition to an initial set-up charge, ongoing fees eat into the monthly repayments of those borrowers unable to meet former terms
Money Advice Trust said that it was important that debt management companies treat their customers fairly by providing information about charges and costs upfront in a clear and fair manner. It also said that consumers struggling financially should also be made aware of the availability of free debt advice and debt management planning. One such free service is National Debtline which the Trust funds. National Debtline receives more than 40,000 calls every month. Visit www.nationaldebtline.co.uk for more information.
The fee-charging debt management sector, which differs from simple debt consolidation firms, has grown threefold over the past decade. There are now more than 150 debt management firms in the UK. The Office of Fair Trading regulates the sector and is due to start a fresh investigation into debt management companies as its guidelines have not been reviewed for six years.
