Debt management companies are not providing the assistance they should
- AuthorAndrew Leakey
It is important that when assisting consumers who are in substantial debt that they are not put in a worse financial situation than they were. The current economic climate has clearly led to an increased number of people facing serious debt issues. As a consequence there has been an influx of debt management companies claiming they can assist people to repay their debts when in reality appear to have recognised a potential money making opportunity. Despite the many free advice services available to consumers with debt problems including the Citizen’s Advice Bureau, The Financial Ombudsman Service and solicitors who provide assistance under the Legal Help Scheme such as ourselves, a recent report from the OFT has estimated that there are between 300 and 400 debt management companies.
Many of these companies charge up front fees to consumers who, by the time they have approached them are desperate for a solution to their financial problems. Fees are expected to reach £250m by the end of 2010 according to the OFT. In addition only about 10 are members the Debt Managers Standards Association (DEMSA).
The damning report by the OFT has highlighted widespread problems in the sector including misleading advertising, poor advice and a failure to advise of alternative options which may be less profitable for them and discrediting free alternatives. The OFT confirmed there had been some improvement but standards should still be higher.
I think that consumer awareness about the cost and risk of using a debt management company needs to be increased.
I would also advise consumers to be wary of companies making grand promises to rid them of debt quickly for a small sum either through a debt management plan or through other means such as challenging enforceability.
Whilst this can be achieved in some circumstances it is important to make sure that you get the right advice from the right source. There is often no quick solution and consumers in serious debt need to consider all of their options, especially free ones, before looking to the wider market for assistance.
By consumer solicitor, Sarah Hood