Independent review of fee-charging debt management companies: Emerging findings - DRAFT PRESENTATION
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Independent review of fee-charging debt management companies: Emerging findings DRAFT PRESENTATION Sharon Collard Personal Finance Research Centre www.pfrc.bris.ac.uk
Research aims
• To provide an updated overview of the industry
• To explore how the credit industry responds to fee-
charging debt management companies (FCDMCs),
and their views and experiences of dealing with
them
• To explore what motivates consumers to seek
advice from FCDMCs, and why some consumers
choose FCDMCs over free-to-client advice services.Research methods • Desk research (web searches, company accounts) • Depth telephone interviews with 10 representatives from the credit industry • Telephone survey with 50 FCDMCs • Face-to-face depth interviews with 30 customers of FCDMCs
Big questions • How many FCDMCs are there? • How many people have a DMP from a FCDMC? • How durable are DMPs? • What do creditors think about FCDMCs? • What do customers think about FCDMCs?
How many FCDMCs are there? • 1999: list of 40 FCDMCs to work from • Now: 1,396 licences issued or renewed under new CCL regime (16%) are in debt adjusting/debt counselling category • 150 FCDMCs identified in this review – Most (130 or so) direct providers – Rest are introducers – But excludes those with no web presence
Characteristics of FCDMCs
• Most operate on UK-wide basis, used remote service
delivery methods (mainly telephone)
• Generally small businesses: most of those in phone
survey had fewer than 50 employees
• Typically offer access to other debt remedies
(IVAs/Trust Deeds, debt consolidation)
– In the phone survey, more common to refer than
to offer in-house
• Internet advertising most common among those
surveyed – but generally advertise in other ways tooHow many people have a DMP from a FCDMC? • 600,000 according to recent YouGov survey – But no distinction between fee and free • 375,000 according to industry figures • Most companies in phone survey currently had fewer than 1,000 customers on a DMP – A few said they had more than 10,000 • From phone survey, average number of customers per company is roughly 2,450 • This gives crude estimate of c. 320,000 based on known DMP providers (130)
How durable are DMPs? Projected
average duration (phone survey)
4 1
5 Less than 60 months
Betw een 60 and 120
months
Betw een 120 and 240
months
Don't know
34Actual average length of DMP (phone
survey)
Less than 12 months
1
9 Betw een 12 and 24
months
14
Betw een 24 and 36
months
Betw een 36 and 48
months
Betw een 48 and 60
8 months
4 Betw een 60 and 120
months
5 3 Don't know /refusedWhat do creditors think of FCDMCs?
• 3rd party approaches all assessed in same way
• Uncommon for freeze on interest to be standard
practice among those interviewed
– Case-by-case or exceptional circumstances only
• Mixed views and experiences
– Generally positive experiences of working with
larger, longer-established firms
– Serious concerns about smaller, newer entrants
– General concern about chargesPositive experiences with some… • Open and transparent • Efficient systems, processes and operations – Able to cope with high customer volumes • Open to discussions about sharing MI and streamlining • Employ people in equivalent roles to credit industry • Proactive in chasing up late or missed payments – By phone rather than letter
…and compared well with some parts
of the not-for-profit sector
• Creditor-funded DMP providers
– Good relationships
– High and consistent standard of financial
statements
• Less easy to engage with smaller nfp agencies
– Advisers may not be available because limited
working hours
– ‘Them and us’ mentality among some advisers
– Difficult to promote standard practicesBut at the other end of the fee- charging spectrum… • Lack of transparency in activities and charges • Advice not always in best interests of debtor • Low standard of financial statements – Incorrect use of trigger figures – Misrepresentation of income and expenditure – Any proof of income and expenditure?
Plus general concerns about charges • High set-up charges – Extend length of DMP • Set-up charges taken over several months – Lenders don’t receive payment for some time – Customers continue to be pursued • Do some debtors use credit to pay the set-up fees? • Recent increases in management charges applied to new and existing customers
Desire for greater regulation to improve practices industry-wide • Around charges – Ceiling or limit on charges? – Greater transparency for customers and lenders – No extension of set-up fees beyond a month • Around financial statements – Standardisation e.g. CFS – But on its own not enough to address concerns? • Around scrutiny and monitoring – Industry-wide kite mark – Annual audits against OFT guidance – Bigger role for existing trade bodies
What do customers think about FCDMCs? • Aim to conduct 30 depth interviews in total • Fieldwork not completed, so headline findings from around 12 customers who had contacted NDL • Mainly approached by FCDMC after they had made an online loan application • Rare for customers to check out any other company
Very positive experience at outset… • Reassured by advisers that the company could ‘do it all’ for them • Advisers knowledgeable about how to deal with lenders and what they would/would not accept • Asked how much they would like to pay, so know it will be affordable • Offered discretion: telephone service, unmarked envelopes for any lender correspondence
… but this generally didn’t last
• Lack of communication once DMP set up
– Unable to get past switchboard
• Alarmed that lenders still pursuing them for payment
– What happened to the payments they made to the
FCDMC?
– Little or no information about how much had been
paid to lenders
• Most talked about a steep learning curve
– Some now confident to deal with lenders
themselves, others less soAny questions?
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