The two sides of the debt advice industry

Both ‘free’ and ‘fee-charging’ – have long had a complicated relationship with creditors and debt collections professionals, as well as with each other.

On the free side, they started by being viewed as ‘the opposition’ who always took a negative view of the industry and attempted to stall collections where possible. But understanding has grown all round and they are now seen, by many, as an important part of the credit lifecycle and a crucial safety net for struggling borrowers. Much of this growth in understanding is due to the excellent work of bodies such as the Money Advice Trust (MAT) and the Money Advice Liaison Group.

Meanwhile, fee-charging advisors were initially viewed with mistrust by the industry with concerns over fees, customer service and advertising. But now some companies have found their place as part of normal collections practice.

Naturally, the two sides have been extremely competitive over the years, but just maybe things are now changing after, the shock of a major external threat last month.

It was initially announced that funding for the Citizens Advice Bureaus’ (CAB) debt advisers would be cut at the end of March because the Financial Inclusion Fund, which has paid for roughly 500 debt advisers in England and Wales for the last five years, was not being renewed.

Many debt counsellors received redundancy notices and were told to stop taking on new clients, before the decision was reversed and £27m of new funding found. For a moment the entire industry stared into the abyss, as the MAT estimated that an extra 200,000 people are expected to ask for free debt advice this year.

Creditors realised how much they relied on the CABs’ repayment plans – how many more debtors would simply bury their heads in the sand and avoid all calls and letters? Or, without the CAB, would bankruptcy be the only option?

The CABs were faced with the knowledge that, without extensive government handouts they had no adequate plan for how to raise funds. Without this funding, their debt advice would simply cease to operate.

For the debt management firms, there was the fear that, even though they do not want as customers the majority of the poorest debtors in our society, who naturally look to the CABs for help, they might be obliged to take them on. They had nothing like the capacity required to accept the wave of new customers that would inevitably come their way. Would the government look favourably upon the largescale denial of service to consumers who do not meet the debt managers’ criteria?

The fact is that, for many years now, both sides have needed the other: free services have never had the capacity to deal with every case of financial difficulty, and why should the government pay for those who could pay for themselves? Likewise the debt management sector has never wanted to deal with the kind of debtor who tends to opt for the CAB.

This was a unique and worrying opportunity to learn this vital lesson – let us hope that we have not come to this understanding too late.

Enjoy the magazine!

Stephen Kiely

Editor 

The original article can be found on the CCR Magazine site here: http://www.ccrmagazine.com/index.php?option=com_content&task=view&id=153&Itemid=50

 

 

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