Citizens Advice welcomes OFT action on Debt Management

A review of the debt management sector by the Office of Fair Trading (OFT) shows that more than 100 debt management companies face losing their licence for failing to comply with its Debt Management guidelines.  The review found that 129 companies failed to adhere to standards with the most common concerns being failure to disclose a fee and poor advice provided by advisers.

Debt management companies set up and administer debt management plans which are informal arrangements between a debtor and their creditors to repay their non-priority debts.  A person who decides to use a debt management company agrees to pay a single amount to the debt management company at regular intervals, usually each month, and the company then distributes the money fairly between the creditors, usually on a pro-rata basis.

Citizens Advice in Northern Ireland welcomes this action by the OFT as the organisation has long been receiving evidence from its clients that their debt problems have been made worse as a result of going to a debt management company for help.  Often clients have been given incorrect advice, been charged high fees and default charges and in some cases their money has not been passed on to creditors to pay off their debts.

A client of Newtownards CAB is self-employed, working part-time and in receipt of Tax Credits.  He consolidated his debts through a debt management company but now finds he cannot meet his monthly payment obligations to the company because of their fees and default charges.  The client’s mortgage lender advised the client to contact CAB for help. 

A client of Banbridge CAB has been with a debt management company in order to repay his debts for two loans and two credit cards.  The client paid a first payment of £350 but it then took the company six months to set up the debt management plan.  The client continued to pay £350 per month but this was not forwarded to his creditors and he had to constantly contact the debt management company to make the payments as his creditors continued to contact him.

It is very important that people in a debt situation receive clear and informed advice in relation to their debts and are not pushed into further debt by hidden charges and poor information.  Many people turn to these companies at a time when they are particularly vulnerable and it is vital that they are protected so they can actually make their situation better and not worse. 

The Citizens Advice Dealing with Debt service, funded by the DETI, helped over 2,500 clients with over £33million of debt in the last year.  This is an increase of 7% on the previous year and continues a four year upward trend since the service began.  Citizens Advice helps many of its debt clients to set up debt management plans in order to deal with their debts and provides this service free of charge.