Debt Management Schemes

Debt Management Schemes
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Debt Management Schemes – delivering effective and balanced solutions for
debtors and creditors
Response by the Association of Business Recovery Professionals (R3) to the
consultation paper issued by The Ministry of Justice, the Department for Business,
Innovation and Skills and the Insolvency Service in September 2009.
Section 1: Introduction
The Association of Business Recovery Professionals (“R3”) represents Insolvency
Practitioners licensed by all the professional bodies which are authorised under statute to
regulate insolvency practitioners in the UK. Over 97% of authorised Insolvency
Practitioners are members of R3.
A number of R3 members work in firms that offer debt management schemes (otherwise
known as debt management plans or DMPs), but the majority of our members do not
provide them. As DMPs are one of several debt and insolvency procedures available to
individuals struggling with their debts, it is important to understand the role they play in
the landscape, and to approach them from a similar public policy standpoint.
To support our response, we have commissioned two surveys of individuals who are
currently in DMPs (the most recent in late 2009/early 2010 and an earlier project in 2008)
and we conducted a survey of 298 R3 members who work on personal insolvency in (in
November 2009).
General observations
R3’s overall stance is that DMPs have a place in the range of solutions open to debtors,
offering a short term solution for individuals whose circumstances may change or who do
not qualify for an IVA. We understand that these schemes or plans are for people who
‘can pay’ and we see no reason why people who can pay off their debts should not do so.
We also appreciate, though, that individuals in financial difficulty are often the least able
to understand the options available to them, which can leave them vulnerable to any
inappropriate practices that might occur in the debt management industry (which includes
creditors as well as DMP providers).
As a starting point, a significant concern for R3 is the worrying lack of captured data – and
therefore adequate information and research – on the nature, scope and operation of the
debt management industry. As a result, it is very difficult to determine the extent and
nature of problems within it, and to decide on the best approach moving forwards. We
urge the Government to keep records of the numbers and characteristics of DMPs, and
for the recording of all DMPs to be a condition of obtaining a Consumer Credit Licence.
Occasioned by this worrying lack of information about the debt management industry, R3
has commissioned research among people on DMPs, and we have polled our members
who are experts in personal insolvency. The results and our consequent concerns are
discussed in question 2 and 3 of this paper. In short, we understand that most DMPs
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seem to operate to an acceptable standard. However, we are concerned that there is a
potential for ‘abuse’ in the system, by both providers and creditors. This includes:
• a lack of impartial advice;
• the implementation of unfeasible, unworkable DMPs;
• creditors continuing to contact or threaten debtors despite a DMP being in place;
• a lack of information about fees leading to some people entering plans without
realising they would be charged;
• instances of providers not asking for proof of income and expenditure before
implementing a plan;
• instances of providers making late payments despite timely payments from
debtors;
• and some instances of debtors being ‘pushed’ by providers / ‘strong armed’ by
certain lenders into DMPs, when the scheme is unsuitable for the debtor.
A note on the OFT’s findings
Management of excessive debt is understandably a priority for the Government in the
current economic climate – and there has been a flurry of activity in this area. Two
months after the Ministry of Justice launched this consultation on DMPs, The Office of
Fair Trading (OFT) launched its own review of the debt management practices of its
Consumer Credit Licence holders.
We fully support the OFT’s decision to review debt management practices, but we are
concerned that it is very difficult to come to a decision on which of the Government’s
three options is most appropriate given that Option 1 is heavily reliant on the work of the
OFT (which will report after submissions are made). R3 urges the relevant government
agencies and departments to work together to ensure that the OFT’s findings can be
taken into account before a final decision is taken by the Government on the future of this
industry.
Section 2: R3’s responses to the consultation questions
As far as possible, our comments follow the order of questions posed in the consultation
document.
Q.1 Are these objectives reasonable and attainable?
We believe that the objectives listed are reasonable and attainable. We would point out,
though, that the suspicion that some banks ‘strong-arm’ people into a DMPs could
undermine the ‘awareness of the range of options’ objective.
We suspect that certain banks may be effectively ‘pushing’ debtors towards a DMP even
if a different option would be more suitable for them. We believe they may do this as a
result of their accounting procedures – when unsecured debts owed are covered by a
statutory insolvency procedure, they are classed as ‘bad/doubtful debt’ (in effect being
written off in the bank’s balance sheets); whereas when debts are covered by a DMP, we
would expect that they can be classed as ‘rescheduled, performing debt’, which is
preferable for the banks as it would not involve balance sheet write-down. It may,
therefore, be in certain banks’ interest to persuade or even push debtors into a DMP
even though an IVA or bankruptcy might be a better option for the individual (i.e. more
realistic and less expensive for the debtor while achieving a greater dividend).
In such cases, an individual can be as aware as possible of the range of options, but
unless they want to go bankrupt, there is no option but to go into a DMP approved by
their bank (if the bank blocks an IVA, for example).
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Q.2 and Q.3 Is there evidence of problems in the current system and if so, how
significant and frequent are these problems?
R3 has commissioned and conducted considerable research in this area.
1. During December 2009 and January 2010, R3 commissioned polling agency ComRes
to conduct a new piece of research into the experiences of 258 people currently in a
DMP. The following bullet points highlight some of the most worrying findings. It is worth
noting that the majority of DMPs seem to be operating well, but there are serious
concerns about a minority of DMPs:
• 35% of people in a DMP say that other options for dealing with their debts, such as
an IVA or bankruptcy, were not discussed with them before they started their DMP.
• When asked why they went into a DMP, 5% of people in a DMP say they tried to set
up an IVA but their creditors stopped them from doing it; 3% say they were pushed
into it by the company that set up the plan and 8% say they were unaware of any
other options.
• 22% of people in a DMP say the organisation that set up their DMP did not ask to see
proof of income or expenditure before the plan was established.
• 10% of people in a fee charging DMP say they were not told that they would be
paying a fee until after they had started their plan.
• Since starting their DMP:
o 44% say they have been contacted by their creditors for the money and
35% say their creditors have threatened to take action such as sending
bailiffs round or threatening court action, even though the plan is in place.
o 17% of people on a DMP say the length of their plan has increased since
it began, 21% say their monthly payments have increased in size, and 9%
say the interest rate has increased.
o 15% say the company arranging their plan has made late payments to the
people they owe money to, even though they have made their agreed
payment at the right time.
It is again worth reiterating that our research suggests that the majority of DMPs are
operating well, but these bullet points highlight some very worrying practices in the
industry – on the part of both providers and creditors. The full results are appended.
2. In November 2009, R3 conducted a poll which found that 90% of Insolvency
Practitioners who deal with personal insolvency believe that there are problems with the
way the debt management industry currently operates. The poll found that:
• 84% of Insolvency Practitioners who deal with personal insolvency have seen
debtors who agreed to a DMP without having received impartial advice about the
alternative options available to them, like IVAs or bankruptcy.
Verbatim comments suggest that advice given to individuals in financial difficulty
is often provided by people who do not offer any other products or who do not
have any knowledge of the other procedures available, which can automatically
limit the provision of full and impartial advice.
• 52% have seen debtors being ‘pushed’ into a DMP by their creditors and 53%
have seen creditors refusing an IVA even though it was a viable option because
they wanted the individual to go into a DMP.
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• 78% have seen debtors in a DMP that is patently unsuitable for them;
o 57% have seen people whose DMP had failed because the amount of
debt they were in was too high to make a DMP a feasible option;
o 46% have seen people whose DMP had failed because the monthly
payments were unaffordable; and
o 40% have seen people whose DMP had failed because the repayment
timescale was too unrealistic. Our research suggests that the average
DMP lasts 8 years; but 10% of people on a DMP say their plan is due to
last more than fifteen years and 16% say it is due to last between ten and
fifteen years. 15% say they don’t know how long their plan is due to last.
• 29% have seen people whose DMP had failed because their creditors decided to
take enforcement action, even though correct payments were being made at the
right time. Verbatim comments highlight one example in which an individual was
on a DMP under which he was meeting his obligations, but the plan failed
because all of his creditors obtained charging orders against him.
• Verbatim comments also suggest that people who take out a DMP can often end
up with an IVA or bankruptcy further down the line – i.e. the DMP effectively just
prolonged their distress and did not solve the problem.
We appreciate that Insolvency Practitioners are much more likely to see cases of ‘bad
practice’ and failed DMPs than they are to see successful ones. However, these results
certainly suggest that there are some very concerning practices occurring in at least part
of the industry.
3. Research conducted for R3 by YouGov in 2008 into the experiences of people on
DMPs led us to believe that there were problems in the system and prompted us to
commission the further research summarised above. The 2008 research showed that:
• 28% of people in a DMP had not heard of an Individual Voluntary Arrangement.
• Almost one in five (18%) people in a DMP said that the plan was due to last over
10 years and one quarter (27%) did not know how long their plan was due to last.
• A quarter (26%) of people in a DMP said they have had the terms of their plan
changed since the plan was first agreed, with 66% of these people seeing an
increase in their monthly payment amount.
Q.4 Would this approach meet any/all of the objectives in paragraph 43?
See Section 3
Q.5 Should the Government follow Option 1 and do nothing beyond measures
underway?
Without the results of the OFT’s review on the status quo in the debt management
industry, it may be premature to determine whether Option 1 will meet the Government’s
objectives.
Based on what we know so far, only 6% of R3 members believe that the continuation of
the status quo should be the way forward. Nonetheless, there is certainly scope in
Option 1 to meet most of the Government’s objectives and to address some key
concerns. We would welcome an update to the OFT’s guidelines which includes the
following stipulations:
• The fact that fees are charged should be made clear on the website of feecharging
DMP providers;
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• Individuals asking for debt advice should be provided with information showing
the average fees charged by providers in the industry;
• A comparison table outlining the different debt management and insolvency
options available, alongside the implications of each, should be made available to
individuals before they make a decision;
• All providers should be required to ensure that customers provide proof of income
and expenditure before a plan is implemented;
• Providers should be required to provide regular financial updates to debtors
detailing how much has been paid off to date, to which creditors, and how much
remains.
Our members would also welcome a number of other proposals, which could be
achieved under Option 1, provided the OFT has the resources and appetite to pursue
them. These include:
• preventing creditors terminating schemes if debtors are making payments in full
at the designated time;
• preventing creditors charging interest on debts under a scheme;
• caps on the monthly fees charged by providers;
• caps on the length of schemes;
• restricting access to schemes to people with certain levels of debt.
Given that the OFT can influence the behaviour of both providers and, crucially, creditors,
it is arguably ideally placed to play a greater role in improving the operation of the
industry.
If Option 1 is pursued in isolation, the Government should certainly collect data on the
number of DMPs in existence and the number of companies that provide these for a fee.
We also believe it should capture ‘flow’ data which would facilitate the production of
reliable, timely and insightful information on the industry’s operation. This should include:
• the number of DMPs proposed;
• the number rejected;
• the number modified before accepted;
• the intended duration of plans and their actual lifespan;
• the average number of creditors that individuals on a DMP owes money to; and
• what happens when a DMP fails.
This information would provide a firm basis for evidence-based policy.
Q.6 and Q.7 How well are the existing codes of practice working and how effective
is the enforcement of existing codes of practice?
Without the results of the OFT’s review, it is impossible to know how effectively the codes
of practice are working. We would reiterate, though, that there is evidence of certain bad
practice in the current system by DMP providers and creditors (highlighted by R3’s
research).
We understand that DMP providers have made strides towards more effective self
regulation in recent years and that the members of the two main trade bodies account for
the majority of the market. The Money Advice Trust’s research suggests that the biggest
concerns relate to smaller companies who are new to the market and who do not belong
to these trade bodies (operating outside their standards).
Q.8 Are there any features which you would like to see as part of the existing
codes of practice?
There are several features that R3 members would like to see as part of the existing
codes of conduct:
• In order to ensure that individuals can make as much of an informed decision as
possible, organisations offering DMPs for a fee should
o make their fees clear on their websites;
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o provide individuals with information outlining the average fees charged by
providers in the industry;
o complete a comparison table outlining the different options for the debtor
before they make a decision;
o ask for proof of income and expenditure before implementing a plan and
verify this for accuracy and completeness; and
o provide regular financial updates to debtors.
• To tackle the worst aspects of the industry, our poll of R3 members highlights
several features they would like to see in the industry:
o Creditors being legally bound into a plan where the debtor is paying back
the agreed amount at the right time (74% support);
o Creditors prevented from charging interest (73% support) and adding
interest once a scheme has started (82% support);
o Restricted access to DMPs to people with certain levels of debt to prevent
lengthy DMPs (69% support);
o Caps on the monthly fees charged by DMP providers (62% support);
o Caps on the length of DMPs (76% support).
• The lack of data on DMPs is a key concern for R3. Within the existing
environment, the potential exists for data to be voluntarily pooled – we would very
much welcome comprehensive collection and sharing of data.
• There is potential for a debt management company to go into insolvency. To
safeguard debtor monies in the event of a company becoming insolvent, monies
DMP providers collect should be held in a single client account. Bonding cover
should also be mandatory, with the bonder required to have its confirmation on a
public website so that consumers can check independently that it is in place, as is
commonplace in other professions, such as solicitors and Insolvency
Practitioners.
Q.9 Would this approach meet any/all of the objectives in paragraph 43?
See Section 3.
Q.10 Should the Government follow Option 2 and promote a code of practice/nonregulatory
approach?
Option 2 seems to present a better way forward than Option 1. We hold this view
because activity under Option 1 will happen regardless, and Option 2 provides additional
scope for improvement. We do not believe Option 3 is a credible way forward, which we
discuss in detail in Q13.
The features that R3 members would like to see can be achieved through self regulation
(either through trade body or a protocol). These features are listed in Q8. We are
concerned, though, that it may take a long time and a great deal of hard work from
providers and – crucially – creditors to make effective self-regulation a reality.
Q.11 How should such a code of practice/BPM be monitored and by whom?
Self regulation could involve the creation of a suitable trade body or the establishment of
a protocol (akin to the IVA protocol).
• Trade body: if self regulation by a trade body is to work effectively, a practical
way forward would be to have one trade body formed by the merger of DEMSA
and the DRF.
Effective self regulation can only work if the trade body/associated ‘regulator’ is
capable of taking enforcement action against members who breech the codes of
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conduct. An external audit by a reputable organisation could provide a robust
way of assessing how well this is working.
• Protocol: the establishment of a protocol is a viable alternative – a formula that
has been proven to work well, though not flawlessly, with IVAs.
Q.12 Would this approach meet any/all of the objectives in paragraph 43?
See Section 3.
Q.13 Should the Government follow Option 3 and introduce a regulated approach?
Without knowing more about the size and shape of the debt management industry, or the
problems within it, we feel that regulation would be an unwise step. This is not an antiregulation
standpoint, rather a reflection that without broadly sourced data, it is
impossible to know what needs to be fixed, prevented or improved.
There are clearly concerns about the operation of the current system, as our research
highlights. We do not believe that option 3, as it currently stands, is capable of tackling
those problems or of meeting the Government’s objectives.
We do not believe that statutory DMPs under Option 3 present a credible way forward for
the following reasons:
• We are concerned that the Government departments or agencies (the OFT or
Insolvency Service) do not have the resources to police a statutory programme.
Given that resources are currently stretched, we suspect that even light touch
regulation would represent a significant additional strain.
• We understand that the legislation referred to under Option 3, as currently
drafted, would exclude profit-making providers of DMPs. While we appreciate
that the legislation can be altered, a significant amount of time and resources
may be required, and any legislation could give rise to the “law of unintended
consequences”. We doubt whether sufficient time will be found to produce the
necessary legislation before the next Parliament; and if it is, we fear that the
resulting legislation will be a knee-jerk reaction to anecdotal problems rather than
a considered, evidence-based way forward.
• We understand that statutory DMPs would operate alongside non-statutory
DMPs. Bearing this in mind, we suggest that Option 3’s introduction would create
a parallel universe, adding to the existing maze of options available to individuals
struggling with their debts, which is highly undesirable.
• Given that non-statutory DMPs would exist alongside statutory DMPs, we do not
believe Option 3 would meet the Government’s criteria, or address key concerns
about the way the industry operates. Statutory DMPs might be able to meet
these objectives and prevent bad practice by providers and creditors bound into
them, but Option 3 would be powerless to tackle bad practice in non-statutory
DMPs (and only cover, at best, part of the industry).
• We doubt that commercial providers would sign up to provide statutory DMPs
when they could offer non-statutory ones without additional constraints – i.e.
unless the regulated product would be more attractive than the unregulated
product. Given the relatively unconstrained nature of non-statutory DMPs, we
see little incentive for commercial providers to offer statutory DMPs instead of, or
even in addition to, non-statutory ones.
We assume it is hoped that companies could be encouraged to sign up as a
result of sufficient media and political pressure. Even if commercial providers did
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sign up to offer statutory DMPs, we are concerned that they could sign up ‘in
name only’, while still channelling individuals towards unregulated schemes or
other procedures instead.
• If all of the proposed features of a statutory DMP were pursued, the resulting
product would look and feel remarkably similar to an IVA. We see no point in
complicating the debt and insolvency landscape by creating another IVA or an
‘IVA lite’ which would undermine the hard work that has gone into making the IVA
such a flexible solution. We suggest that the two procedures are kept distinct
(e.g. debt write off) to avoid duplication and confusion.
If a DMP essentially has all of the elements of an IVA, we suggest that they
should fall under the remit of a licensed Insolvency Practitioner, to ensure
consistency with the current formal insolvency landscape.
• We are unclear as to how creditors would enter into statutory DMPs – i.e. whether
they would all have to agree it or whether there would be a vote. We think that
DMPs should only be enacted if all of the creditors agree.
As it stands, we do not believe the case for Option 3 has been made – i.e. given the lack
of research into (and understanding of) the industry – and we do not believe Option 3
would be capable of meeting the Government’s objectives.
Q.14 If option 2 or 3 is introduced, should advice, including the use of a
comparison table, be provided as a requirement?
R3’s research indicates that individuals who are currently in DMPs are often unaware of
the alterative solutions available to them:
• 35% of people in a DMP say that other options for dealing with their debts (IVA or
bankruptcy) were not discussed with them before they started their DMP;
• 8% of people in a DMP say one of their reasons for entering into a DMP was
simply because they were unaware of other options; and
• 84% of Insolvency Practitioners who deal with personal insolvency have seen
debtors who agreed to a DMP without having received impartial advice about the
alternative options available to them.
We believe that a comparison table would help to make individuals more aware of their
options. All organisations offering DMPs should be required to complete a comparison
table for each individual they deal with, outlining the pros, cons and implications of each
solution. The table should be made available to individuals, and explained to them,
before they make any decision on which option to pursue. We believe they should have
to sign a form entitled ‘is a DMP right for me’ before the plan begins, as happens in an
IVA.
Q.15 and Q.16 If option 2 or 3 is introduced, should there be a limit on the total
amount of debt included in a plan? If yes, what should the debt limit be?
69% of Insolvency Practitioners who work on personal insolvency think access to DMPs
should be restricted to people with certain levels of debt, to guard against excessively
lengthy DMPs.
Our research shows that:
• An individual who enters a DMP has an average of around £100,000 of debt.
It suggests that the average DMP lasts 8 years though 10% of people on a DMP
say their plan is due to last more than 15 years, 16% say it is due to last ten
years or more and 15% say they don’t know how long it is due to last.
• 57% of Insolvency Practitioners who work on personal insolvency have seen
people who have failed a DMP because the amount of debt they were in was just
too high to make a DMP a feasible option; and
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• 40% of Insolvency Practitioners have seen people who have failed a DMP
because the repayment timescale was just too unrealistic (which could relate to
the amount of debt included within it).
DMPs are for those who can pay rather than those who cannot. Too much debt over too
much time is simply not a feasible approach to an individual’s financial situation – in these
cases, an IVA or bankruptcy offers a more appropriate way forward, and is likely to offer
a better dividend for creditors as well.
Q.17, Q.18 and Q.19 If option 2 or 3 is introduced, should plans have an asset
cap? If yes what should the asset limit be? If an asset cap is introduced, how
should assets be valued?
We do not see the merit in setting an asset cap.
Q.20 and Q.21 If introduced, should statutory debt repayment plans be time
limited (option 3) or should a time limit be included in a code of practice (option
2)? If yes, what should the maximum limit be?
76% of Insolvency Practitioners who work on personal insolvency would like to see a limit
on the length of plans.
Our research indicates that the average DMP lasts 8 years, but 10% of people on a DMP
say their plan is due to last more than 15 years and 16% say it is due to last ten years or
more. One example provided in our poll of R3 members highlights the case of a debtor
aged 55 with a DMP lasting 45 years. We suggest the length of these DMPs is
excessive and out of line with public policy on insolvency procedures.
DMPs are for those who can pay rather than those who cannot – plans of this length
indicate that the individual cannot pay and would be better off in a different solution.
DMPs have a place in the range of solutions open to debtors, offering a short term
solution for individuals whose circumstances may change or who do not qualify for an
IVA. To be an effective and useful tool, they should remain a short-term solution.
Q.22 and Q.23 If option 2 or 3 is introduced, should there be a minimum payment
rate? If yes, what should the minimum repayment be?
We believe this is predominantly an issue for providers to decide.
Q.24, Q.25 and Q.26 If option 2 or 3 is introduced, should any repayment plan have
an element of debt write-off? If yes, how could this be balanced against the needs
of creditors? If yes, would requiring creditors to agree to any debt write-off
achieve this balance?
No. There are other adequate insolvency procedures in place which achieve debt writeoff.
Introducing an element of debt write-off would bring DMPs remarkably close to IVAs,
and we see little point in creating another IVA.
The real difference between an IVA and a DMP should be debt write-off. DMPs should
be for people who can pay the amount they owe in full, which many individuals want to
do. Placing caps on the length of schemes and the total debt included should prevent
individuals entering into a scheme when their debt is excessive or another solution, which
does include debt write off, is more appropriate. DMPs should be the preserve of people
who can pay back what they owe in full (i.e. no debt write-off).
Q.27 and Q.28 If either option 2 or 3 is introduced, should access be restricted to
those with multiple debts? If yes, what should be the criteria for the minimum
number of debts?
We do not see the merit in restricting access to those with multiple debts.
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Q.29, Q.30, Q.31, Q.32 and Q.33 If option 2 or 3 is introduced, should
administration charges be capped? If yes, do you agree that the cap on charges
should be between 7.5% and 15%? If option 2 or 3 is introduced, should operators
be permitted to charge a set-up fee? If yes, should a set-up fee be a fixed amount?
If yes, what do you consider to be a reasonable amount?
There is a range of views from R3 members, but the majority (62%) of those who work on
personal insolvency would like to see caps on fees.
R3 believes that individuals enquiring about DMPs should be made aware of the fees a
provider charges from the outset. This should include putting information about fees on
the websites of providers and ensuring that individuals are provided with a ‘fee sheet’
which details the average fees charged by providers in the industry before they sign up.
Our research shows that one in ten people (10%) in a fee-charging DMP were not told
they would be charged a fee until the plan had begun.
We see no reason why providers should not be permitted to charge a set-up fee, but we
recommend that payments made by debtors should be shared between creditors and
scheme providers, rather than the providers taking the first few payments themselves
while creditors wait for a few months before receiving any of the money owed to them.
This would mirror the IVA-protocol.
Q.34 Who should meet the fees and charges of scheme operators?
We believe other respondents are better placed to offer a view on this – we see merit on
both sides.
Q.35 and Q.36 Should a standard formula/fixed percentage be applied when
calculating repayment rates? If Yes, what percentage of surplus income should
form the repayment rate?
We believe other respondents are better placed to offer a view on this.
Q.37 and Q.38 Should the above debts be excluded? Are there any other debts
that should be excluded?
In order to ensure consistency, we suggest that the debts that are excluded in statutory
insolvency procedures should be excluded in DMPs.
Q.39 If either option 2 or 3 were introduced, how regularly do you feel that debtors
should be required to update information on their means? Should this apply under
a code of practice?
a) Six-monthly
Yes/No
b) Annually
Yes/No
c) Other (please specify and give reasons)
97% of Insolvency Practitioners who work on personal insolvency think that providers
should be required to send regular financial updates to debtors. To ensure consistency,
we suggest that DMPs are subject to the same frequency of updates as IVAs.
Q.40 Do you think that, if option 2 or 3 is introduced, plans should be terminated if
circumstances improve sufficiently to allow normal commitments to be met?
If the individual is able to pay back the money they owe in a shorter period of time than
originally envisaged due to a beneficial change in circumstance (the proverbial lottery
win), we believe the plan should be terminated as soon as possible.
Q.41 Is 12 months an effective barrier against potential misuse?
We believe other respondents are better placed to offer a view on this.
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Q.42, Q.43, Q.44 and Q.45 Do you have any comments on the powers, sanctions or
funding mechanism for the Supervisory Authority? Who should be considered to
be authorised by the Lord Chancellor for the role of Supervising Authority? Is
there an existing regulatory regime that might be adapted to take on the
Supervising Authority role? How should the Supervisory Authority carry out its
functions?
Self regulation would reduce the need for a state supervising authority as it would be ‘self
funding’. This would leave the OFT better able to direct resources towards newer
entrants to the market (thought to be responsible for the most worrying practices).
We are concerned that the OFT and the Insolvency Service may not have the resources
needed to carry out the functions required under Option 3. If a Supervisory Authority had
to be selected, we would suggest that the Insolvency Service is best placed to fill this
role. This would ensure consistency given that the service is currently responsible for
insolvency procedures.
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Section 3: Government’s objectives
Q4, Q9 and Q12. Would this approach meet any/all of the objectives in paragraph
43?
The following table summarises our view of each option’s capacity to meet the
consultation’s objectives:
Helping
those
who can
pay to
pay
Fees are
reasonable
and
consistent
Stopping
creditors
adding
interest
Preserving
the best
features
Ensuring
debtors are
aware of
the range
solutions
available
Correct
balance
between
creditors
and
debtors
Option
1
Potentially,
though this
is highly
dependent
on the
OFT’s
work. At
the
moment,
evidence
indicates
that those
who can’t
pay also
go into a
DMP.
Potentially,
though this is
highly
dependent
on the OFT’s
work.
Potentially,
depending
on the
OFT’s work.
Yes, though
worst practices
may also
continue – this
is dependent
on the work of
the OFT.
Potentially,
though this
is highly
dependent
on the
OFT’s work.
At the
moment,
evidence
suggests
worrying
numbers of
debtors are
not aware
of their
options.
Potentially,
though this
is highly
dependent
on the
OFT’s work.
At the
moment, we
fear certain
bad practice
by creditors
can take
advantage
of debtors’
vulnerability.
Option
2
Yes. It
can also
decrease
the scope
for people
who can’t
pay going
into a
DMP
Potentially
yes.
Potentially
yes.
Yes, and going
some way to
address the
worst features.
Potentially
yes.
Potentially
yes.
Option
3
Yes. It
can also
decrease
the scope
for people
who can’t
pay ending
up on a
statutory
DMP,
though
those who
can’t pay
could still
go into a
nonstatutory
DMP.
As statutory
and nonstatutory
plans will coexist,
this
objective can
only be
partially
achieved at
best – i.e.
fees could
still be
unreasonable
in nonstatutory
DMPs.
As statutory
and nonstatutory
DMPs will
co-exist,
this
objective
can only be
partially
achieved at
best – i.e.
adding
interest
could still
happen in
nonstatutory
DMPs.
Broadly yes,
though the
debt/insolvency
landscape
could be more
confusing for
debtors due to
statutory and
non-statutory
plans coexisting.
The
situation
could
become
more
confusing
for debtors
due to
statutory
and nonstatutory
DMPs coexisting.
As statutory
and nonstatutory
DMP will coexist,
this
objective
can only be
partially
achieved at
best – i.e.
the
‘incorrect’
balance
could still
exist in nonstatutory
DMPs.
13
Section 4: Impact assessment
QIA 1. If you are a creditor, can you give details of the estimated cost of adopting
a code to your business?
N/A
QIA 2. If you are an operator, can you give details of the estimated cost of
developing and adopting these proposals to your business?
N/A – not enough of our members are operators for us to have access to this information.
QIA 3. If you are an operator, can you give details of the estimated cost of
adopting these proposals to your business?
N/A – not enough of our members are operators for us to have access to this information.
QIA 4. If you are a creditor, can you give details of the estimated cost involved if
changes are needed to debt provisioning caused by debts being included in a
regulated scheme?
N/A
QIA 5. What level of funding would be necessary to ensure the Supervising
Authority is “fit for purpose”?
Without a reliable notion of how many providers would sign up to offer statutory DMPs, it
is impossible to provide a figure.
QIA 6. If option 2 or 3 are implemented, what are your views on whether the
number of current operators will expand or contract?
N/A
14
APPENDIX 1
Survey of R3 members: Debt Management Plans
Results Summary
Methodology note: R3 conducted an online survey of 298 R3 members who work on
personal insolvency between November 30th to 3rd December 2009.
Q1. Do you think there are problems with the way the debt management industry
operates at the moment?
Percentage
of IPs
Yes 89%
No 3%
Don’t know 7%
Q2. Have you come across any of the following in the past few years? Please tick
all that you have come across.
Percentage
of IPs
Debtors who agreed to a DMP without having received impartial advice
about the alternative options available to them, like IVAs or bankruptcy
84%
Debtors being ‘pushed’ into DMPs by their creditors 52%
Creditors refusing an IVA even though it was a viable option because
they wanted the individual concerned to go into a DMP instead
53%
Debtors in a DMP that is patently unsuitable for them 78%
People who have failed DMPs because the repayment timescale was
too unrealistic
40%
People who have failed DMPs because the amount of debt they were in
was just too high to make a DMP a feasible option
57%
People who have failed DMPs because the monthly payments were
unaffordable
46%
People who have failed DMPs because their creditors decided to take
enforcement action, even though correct payments were being made at
the right time
29%
15
3. The Government consultation lays out three options. Please rank the options
from 1 to 3, where 1 is the option you like the most and 3 is the option you like the
least.
Mean score (where 3 is the least favourable
option and 1 is the most favourable option)
Continue with the status quo 2.73 (i.e. the least favourable option presented)
Improve self regulation 1.77
Introduce statutory DMPs 1.52 (i.e. the most favourable option presented)
4. Do you support or oppose each of the following proposals?
Support Oppose Don’t
know
Restricting access to DMPs to people who have a certain level of
debt (i.e. so that people with excessive debt can not enter into plans
that last for many years)
69% 25% 6%
Restricting access to DMPs to people by capping assets 33% 41% 26%
Restricting access to DMP to people with multiple debts 30% 57% 13%
Preventing DMP providers charging set up fees 36% 49% 15%
Preventing creditors charging interest on debts covered by a DMP 73% 18% 9%
Preventing creditors adding interest on debts covered by a DMP
once a plan has started
82% 14% 4%
Capping the length of DMPs 76% 20% 4%
Capping the monthly fees charged by DMP providers 62% 27% 11%
Requiring that all DMPs include an element of debt write off 36% 44% 20%
Requiring DMP providers to provide regular financial updates to
debtors (how much has been paid back to which creditors and how
much is left to pay)
97% 0% 3%
Introducing minimum payment rates 39% 43% 18%
Making DMPs legally binding on creditors – so if payments are
made in accordance with the plan, they cannot pull out of it or take
enforcement action
74% 18% 8%

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