Debt Management Firms Too Expensive

Debt Management Firms Too Expensive.

The financial industry regulator, the Financial Conduct Authority (FCA) has issued a warning to both the debt management industry and the public that many debt management programmes are too expensive.

Credit management is due to become regulated by the FCA on 01 April 2014, taking over from the Office of Fair Trading (OFT).

Many financial companies that are not already regulated by the FCA will now be so.  This will bring in much tighter controls and supervision for the credit industry.

As part of its opening gambit, the FCA has suggested this week that Debt Management Programmes (DMPs) will come under closer scrutiny. 

A DMP firm is one that takes over the management of all your debts, negotiates with the debt providers to agree a repayment schedule and you then pay a simple monthly fee to them and they manage and pay your debts off.

Comment

With an average fee of over £600 per year added to your debts for the management firm, the FCA suggests this is expensive.  The FCA suggests that free services such as the National Debt Helpline and the Citizens Advice Bureau (CAB) make debt management firms expensive

Our view is that if you are lucky enough to go to a CAB office that negotiates and manages your debt, then of course a fee by a debt management firm compared to a free services is expensive.

The average fee itself, may appear expensive but if a debt firm has used chargeable time and influence to agree debt repayment schedules on your behalf and is then dealing with transactions and statements every month then there is a charge.  If it is automated like a bank credit and debit system then charges can fall, but if there is manual interaction then paying £600 per year may not be expensive.

The issue here as with all parts of our lives are whether you get expert help or do it yourself.  If you are not a qualified gas installer, would you install your own central heating system?  The answer is no.  If you are not a qualified and registered debt counsellor, would you negotiate your own credit issues – the answer is your probably could – and save the fee – but how did you get into debt in the first place.

Debt management plans can be expensive and we hope the regulator will take control of the sector.  There will be times when debt management help is needed and valuable and times when it is not.