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Changing times for debt-management firms

Levels of personal debt in the UK have never been higher. As the national debt mountain rises to new records every month, one government agency thinks that debt-management companies must do more to help their vulnerable customers.

£1,000+ a head

Every time I see figures on the news about how much in debt we’re all in, I think yet again that it’s just as well that UK interest rates have been at such amazingly low levels in recent years.

But even with base rates standing at just 0.25% throughout the whole of 2016, every adult in the UK has still paid an average of more than £1,000[1] in annual interest payments on their personal debt.

And that’s not even including mortgages.

In fact, the average person in the UK owes £3,765 in consumer credit debt (add mortgages, and it rises to £29,862 – more than the average salary). Bear in mind that theconsumer debt figure is the average: millions of people owe nothing at all.

That means that millions owe substantially more, up into the tens and even hundreds of thousands of pounds.

They must be praying that rates don’t go up any time soon

Thousands of new customers

So it’s unsurprising that every year, the UK’s hundreds of debt-management companies win many thousands of new customers who are looking for help with taking care of their finances, prioritising payments and reducing what they owe.

According to figures published earlier in 2016 by the Financial Conduct Authority (FCA), around 400,000 people in the UK are on commercial debt-management plans.

But are these companies any good? The FCA at least thinks there’s plenty of room for improvement. In a letter to the CEOs of all debt-management firms, it has accused many of non-compliance with its rules and called on them to do more to help people who are struggling financially.

Changing circumstances

In particular, it reminded these firms that they must review individual debt-management plans at least once a year (‘desk-based’ reviews being insufficient) and be in regular contact with their customers. Without this discipline, the FCA believes, customers’ circumstances can change substantially (for better or for worse), making existing arrangements out of date and inappropriate.

This isn’t the first time that the debt-management industry has come under fire from the FCA, which took over responsibility for the sector from the Office of Fair Trading in 2014. In fact, hundreds of firms were forced out of the market when their applications to trade as debt managers failed. As FCA director Jonathan Davidson has pointed out, the quality of advice is extremely important.

Customers’ interests at heart

“Poor debt advice can lead to consumers trying to make payments on their debt that they cannot afford,” he says. “This is particularly serious for those in vulnerable circumstances and why we have paid very close attention to the advice given to consumers by debt-management firms. As part of our authorisation process, all firms must demonstrate that they have customers’ interests at the heart of their business.”

Of course, the great majority of debt-management firms are highly professional and provide an extremely valuable service to their customers. That said, particularly in uncertain economic times, it’s great to see that the industry as a whole is being held to account to ensure that all firms deliver the service quality that their vulnerable customers need.


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