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The future of debt management plans

The last few years have seen a fundamental shift in the debt management sector, managing director of Payplan John Fairhurst explains why

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The world today is one where PayPlan (at the time of writing) is one of only two debt management plan (DMP) providers authorised by the Financial Conduct Authority (FCA).

 

More than 150 firms have left the sector and few fee-charging firms are taking on new cases at any scale. It is an industry in disarray that needs stability.

 

While all eyes have been on the FCA the authorisation process is finally drawing to a conclusion. What the post-authorisation environment looks like will soon be clearer.

 

Some things seem probable; that free to consumer and fee-charging providers will continue to co-exist and funding models for both types of provider will remain an issue.

 

The FCA has helped to establish a baseline standard of advice, safeguard client funds and raise the bar of expectations.

 

For those firms which make it through authorisation, it is time to shift attention from these areas to questioning whether the market is operating as well as it could for consumers and creditors.

 

Few would argue the current market and funding arrangements are even close to optimal and at Payplan, we continue making the case for more balance in the sector.

 

We’ve seen missed opportunities to bring about meaningful change.

 

For example, implementation of debt management provisions in the Tribunal Courts and Enforcement Act 2007; work on the Insolvency Service led DMP protocol between 2011 and 2013; and a BIS select committee enquiry into debt management.

 

None of these resolved fundamental tensions between fee versus free-to-consumer models, or the vulnerabilities inherent in fair-share funding models, and these issues continue to limit the service available to consumers.

 

While almost all stakeholders are dissatisfied with the status quo we still lack any clear consensus about the best way forward. Calls for a statutory debt management scheme, for example, have received a lacklustre reception with limited support for the principle, let alone the detail of such a scheme.

 

The responsibility for this lack of consensus is a shared one.

 

While it would be unreasonable to point the finger of blame at one organisation or constituency, our collective failure to find agreement does not reflect well on us as a sector.

 

In the absence of reform we are left with a mixed economy where some consumers are charged fees and some receive a free service depending mainly upon where they access advice.

 

Despite the unsatisfactory operating environment, we believe DMPs remain a valuable option for many consumers.

 

  • In the absence of significant sector change we believe the ability of fair-share providers to meet a significant rise in demand will be limited.
  • The operation of a fee-charging model which requires regular signposting to free services will remain problematic.
  • Fixing the DMP model should be possible without asking fair-share supporters to pay more, or consumers to pay anything.
  • This is about providing a level playing field where consumers can always access a free service, creditors can see an end to large fees deducted at source and fair-share supporters can see an end to the cross subsidies they provide to non-supporting peers.
  • It includes allowing firms operating a fee-charging model the opportunity to move to a free model if that’s their decision.

 

We are, of course, always mindful that fixing DMPs doesn’t necessarily fix wider problems with debt advice services.

 

Funding remains challenging and there are “solution gaps” for many consumers whose circumstances don’t “fit” the available solutions.

 

These are broader issues that deserve wider discussion but time is against us and if we insist on waiting for a holistic solution we risk events overtaking us.

 

No-one can predict the next big surge in demand. There’s a risk this will happen when the sector lacks the resilience and scalability to cope.

 

Pragmatically we need to resolve some of these difficult issues quickly. DMPs seem as good a place as any to start.

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