Media Statement on OFT warning to Debt Management Companies
“R3 welcomes the OFT’s decision to address an issue many people face when looking for a viable debt solution. It is hard for a vulnerable debtor to distinguish between fee charging debt management companies, licensed insolvency practitioners and free debt advice charities when weighing up their options. There are many debt solutions available, and it important that individuals use the one most appropriate for their financial situation.
“R3 found that over half of insolvency practitioners have worked with individuals who had been ‘pushed’ into DMPs by creditors, and over a third had worked with individuals who say that other options for dealing with their debt such as bankruptcy were not discussed ahead of the start of a DMP.
“Moreover, close to a third of undischarged bankrupts and those currently in an IVA used to be in a DMP. That such a high volume of individuals go from a DMP into a formal insolvency procedure suggests that, in some cases, DMPs are prolonging distress when another procedure would have been more appropriate from the start. A DMP can be the right solution in certain circumstances, but DROs, IVAs and bankruptcy should also be considered as well.
“Organisations offering DMPs must be upfront about the options available, and fees charged to ensure that people are able to draw a line under their debts as quickly as possible.”
Steven Law, President of R3, insolvency trade body
R3 Press Office