R3 comments on BIS Select Committee report into debt management
Frances Coulson, R3 President comments:
“The Business, Innovation and Skills Committee today released its report following an inquiry into debt management, and how poorly regulated lending and collection practices can cause or contribute to unmanageable debt problems.
Recent research commissioned by R3 found that there are around 2 million people who say they are in a Debt Management Plan (DMP) in the UK. DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts, however we agree that there needs to be greater transparency and regulation of providers because at present, there is no clear picture of how many people are in such arrangements.
“The report highlights the fact that difficult economic conditions are leading to more people struggling with their personal finances. Recent research by R3 has found that 39% of respondents are concerned about their current level of debt – this equates to 18 million people. What is even more worrying is that 25% of people do not think it is clear where to go for impartial, good debt advice. Some clarity is urgently needed in this area as an online search for debt advice could easily lead to a provider with a vested interested in ‘selling’ a particular product.
“We feel that Debt Management providers should be obliged to make all debt solutions known to their customers before taking them down a route that may not be the best one for them. Earlier research by R3 has shown that 35% of individuals in a DMP said other options for dealing with their debt, such as an Individual Voluntary Arrangement (IVA) or bankruptcy were not discussed with them before they started their DMP.
“The research also found that some 30% of people currently in an IVA were previously in a DMP, as were the same proportion of undischarged bankrupts. This indicates that DMPs can serve to prolong financial distress and another solution may have been more effective.
“We have seen huge numbers of personal insolvencies in 2011 and so undoubtedly more people will find themselves in need of advice. For this reason we believe that Debt Management Companies should be obliged to give ‘best advice’. Furthermore, there needs to be an official record of how many people are in DMPs so we have an accurate picture of the personal debt landscape.”