UK debt management companies to be regulated?
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The government has recently announced that it is launching a ‘consultation’ about the future of debt management companies, which operate in a troubled market but are, at the moment, mostly unregulated.
The companies step in and negotiate on behalf of people who are having debt problems. They talk to their clients’ various creditors and persuade them to agree to reduce the payments, but this usually greatly extends the period of the loan.
However, fees are added to the repayment amount and vulnerable customers are not always properly informed or advised.
Apparently, government officials are keen that this is not seen as a ‘crackdown’ on debt management companies, but they say there is a need to examine the system more closely and find out whether customers are getting appropriate help tackling their debt problems.
The figures demonstrate why there is a case for the examination of this industry. The average household in Britain owes £9,000 excluding mortgages and roughly 100,000 debt management agreements are reached every year.
The Citizens Advice Bureau has pointed out that the self regulation of debt management companies is not good enough. Indeed, with self-regulation having spectacularly failed in many industries over the years this is hardly a surprise.
The evidence shows that there is a need for statutory regulation of debt management schemes. Unfortunately this isn’t always the case at the moment and while there is some good practice, there are also cases where people doing all they can are still being harassed by creditors and threatened with enforcement action, extra costs and added stress.
The ‘consultation’ by the Ministry of Justice is hoped to be completed by December and the government will make an announcement at some point next year.
There are three main options under consideration put forward by various stakeholders in the industry.
The first of these is to leave the situation as it is and allow debt management companies to continue unregulated. Unsurprisingly, this is the favourite choice of the companies themselves.
The ‘light touch’ option is to introduce a new code of practice for companies operating in this area. If there is a compromise struck this is likely to be the option used.
Finally, the option favoured by agencies working in the field and consumer organisations is to bring debt management under a formal system of regulation. Unfortunately, this is also the option that will take the longest time and be the most expensive to implement.
By the time this zombie government has decided what to do the recovery will be under way and a different government looks likely to be in power.
