The government is launching a consultation about the future of debt management companies, which are currently largely unregulated.
People with debt problems will often seek the help of a company to negotiate with their creditors. That is where debt management companies come in.They talk to their clients' creditors and persuade them to agree to reduced payments, usually to be made over a longer period of time.
These services and often are provided free of charge, by agencies such as CAB. However some companies are charging fees for providing advice and assistance and, as those in debt are often keen to find a solution to their money worries, they can be vulnerable to being misled about how much they are paying for the advice and/or assistance they receive.
Government officials do not want this to be 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 average household in Britain owes £9,000 excluding mortgages and currently there are around 100,000 debt management agreements being reached every year.
Citizens Advice Head of Consumer Policy Sue Edwards said self regulation of the firms involved had been shown to be not good enough. "Our evidence shows that there is a need for statutory regulation of debt management schemes," she said.
"Unfortunately this isn't always the case at the moment and while we do see some good practice, we also see cases where people doing all they can are still being harassed by creditors and threatened with enforcement action, extra costs and added stress," she added.
The consultation by the Ministry of Justice is expected to conclude in December and the government will make an announcement early next year.
It will consider three options, depending on the opinions expressed by the companies and their customers that take part in the consultation:
(1) Leave the situation as it is and allow debt management companies to continue unregulated;
(2) Introduce a new code of practice for companies operating in this area;
(3) Bring debt management under a formal system of regulation
This consultation will not include Northern Ireland. However the Department of Enterprise, Trade and Investment, through the Insolvency Service launched a consultation in Februry this year to consider the establishment of a debt relief scheme. The scheme would aim to provide relief for those individuals burdened by debt for whom the currently available debt solution procedures are inappropriate or effectively unavailable.
The establishment of such a scheme, which would be regulated, could provide Northern Ireland's debtors with a safe and reliable alternative to seeking the assistance of a debt management company.
