Press Release 9th March 2010
Preventing Consumer Harm - Regulating Commercial Debt Managers
From Bill Hobbs, analyst and commentator on consumer financial services:
Vulnerable consumers must be protected from harmful debt manager practices such as
False and misleading claims
Misleading advertising
Deceptive online marketing
Ambiguous or hidden fees
Predatory selling
• Government must regulate commercial debt managers
• Attached is a draft Consumer Protection Code for Commercial Debt Managers submitted to the Government’s expert group on consumer debt, to kick start open discussion on protecting consumers.
Commenting today Bill Hobbs said
“Unless a regulated code of conduct is introduced rapidly into the Irish market to control and supervise the activities of the fast-growing debt management sector, which is currently unregulated, we will be faced with further disaster as distressed borrowers are inevitably exposed to predatory activity by unscrupulous debt management operations that, will tarnish what could otherwise be a notable and timely addition to the financial services mix.
Ireland has had a very poor record in closing regulatory loopholes such as with sub-prime mortgages, only acting long after the horse had bolted. It’s not too late to ensure that this time it will be different.”
“With growing evidence of very substantial number of ordinary people who are in arrears on personal and mortgage debt and experiencing Dickensian era debt enforcement and insolvency laws, there is an urgent requirement for Government action. The establishment of an advisory group is a help in dealing with a wider agenda including changes to insolvency law but Government can move today to bring debt management companies in under the regulatory framework through IFSRA and the NCA. In order to kick start open discussion, I have assembled a starting point – a Guidance and Code of Conduct for Debt Management Companies ideally to become statute-enforced.”
End.
Text of letter sent to the Minister for Finance and Minister of Communications, Energy and Natutral Resourses
Preventing Consumer Harm - Regulating Commercial Debt Managers
Dear Minister,
In an unregulated market, competition almost inevitably leads to unscrupulous behaviour, sharp practice, predatory selling and abusive marketing. Unregulated, the debt management sector poses a particularly acute risk of harming vulnerable, indebted consumers. My letter addresses this risk and proposes a consumer protection code that could be put in place within a short time.
While commercial debt managers are new phenomena in Ireland, they are not in the UK, where harmful practices first documented there are now appearing here:
• False and misleading claims
• Misleading advertising in newspapers and on websites
• Misleading promotional materials
• Website opacity and deceptive online marketing
• Ambiguous or hidden pricing and fee models
• Predatory selling
• Marketing of “free advice”
MABS recently expressed concern over debt managers using its good name to market their services.
In the UK, the OFT considers debt managers to be in their high risk consumer protection category. Their experience has been one of consistent difficulty in controlling for consumer harm as the sector remains unregulated. Tackling problems is a high priority “there is a significant risk that consumers who suffer from distressed debt could end up in a worse, rather than better, financial position.”(OFT) Concerned over worsening non-compliance it is engaged in a review of the sector. Responding to growing consumer protection concerns the UK government is considering regulating the sector. Leading consumer advocates and lenders maintain self-regulation hasn’t worked.
“Our evidence shows that there is a need for statutory regulation of debt management schemes. Self regulation hasn’t yet proved to be sufficient," UK Citizens Advice
“Without regulation debt management companies are free to act in ways that are clearly harmful to the consumer and so I urge the government to ensure this consultation yields concrete results before the situation gets completely out of hand." Moneysupermarket.com
Worryingly the commercial debt management sector here is at the same start up stage as in the UK in the late 90’s but with the additional problem of escalating consumer indebtedness.
Faced with the same issues what’s the solution ?
Bringing debt managers in under the Consumer Credit Act will allow for licensing and authorisation procedures. As legislation takes time, there is an interim option worthy of consideration.
• The NCA, unlike the OFT, does not have debt manager licensing powers, but it can as a matter of consumer protection issue guidelines. It can also co-operate with the Financial Regulator. It’s eminently possible for both bodies to co-operate in publishing and supervising a code of conduct to protect vulnerable consumers from harm.
• The LRC proposals on personal insolvency made a number of recommendations relating to debt managers. It’s generally accepted that there is a need for alternative debt enforcement and resolution systems to the current court based one. Debt management plans appear to offer one component of an alternative system. MABS is working with debt management protocols that will need to be established on a firmer footing.
Taking existing consumer protection codes and codes of business conduct, LRC proposals and UK experience into account I have assembled a “strawman” consumer protection code for commercial debt managers. It is attached with this letter. I have also written to the Chairman of the expert group on consumer indebtedness.
I would welcome the opportunity to discuss its contents as it contains a number of enhancements designed to ensure consumer protection.
Yours sincerely
Bill Hobbs
9th March 2010
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