A new Debt Management Plan (DMP) Protocol has been launched by Consumer Affairs Minister, Jo Swinson. This new protocol is designed to make sure that consumers have the correct advice and all charges are clearly explained when they are considering debt management plans and more importantly the providers of these services.
At the moment commercial debt management companies charge the customer a fee to administer their debt management plans. The customer normally makes one payment which the debt management company then splits between the individual creditors. At this point an administration fee is then taken by the debt management company to cover their services.
The new protocol is designed to ensure that the consumer is made aware of the “free of charge” debt organisations that will provide impartial advice and also, in some cases, free debt management programs.
Under the terms of the protocol the initial set up fees that are often charged by debt management companies are spread over a six month period, and no initial fees will be charged prior to signing a contract with the debt management provider. This new system will be overseen by the Insolvency service together with the Financial Conduct Authority (FCA) who will be taking over the responsibility of consumer credit issues from the OFT.
The protocol reinforces the message that has been recently sent out by the OFT; Industry standards are being tightened up, and companies supplying commercial debt management services are under the spotlight. Recently the OFT has refused to renew two consumer credit licences in relation to existing debt management companies and also refused to licence a third company that was applying for a new licence. The refusals were due to the OFT not considering the companies had the necessary skills or standards to administer this type of debt solution.
The new protocol has been welcomed by many associations such as the British Bankers Association and also the Debt Managers Standards Association, although it is hard to understand why this is a voluntary system rather than a compulsory requirement.
Will the average consumer realise that one Company is better than another when approaching people for advice? Maybe if they are aware of the difference between the myriad of different approvals and logos that are shown on Company websites, but if not they could easily fall into the clutches of an unscrupulous company that employs good sales people.