Urgent need for debt managers consumer protection code

The failure of Home Payments Ltd, a bill paying service provider, is a timely warning shot across the bows of government and consumer protection regulatory agencies.

Similar financial service providers are busy taking money from vulnerable consumers who are unaware their money is not protected or the companies they are dealing with are not regulated by the central bank or any other consumer protection agency.

Called commercial debt managers, they are a worrisome development in the consumer financial services marketplace as they are opportunistically exploiting a social and economic consumer debt crisis.

By using abusive marketing and predatory sales tactics, debt managers and their commission driven sales staff and agents are persuading vulnerable people to buy what are recognised elsewhere as quite dangerous financial products called “debt management plans”.

These outfits, using clever tricks, induce people to repay their debts using their plans which they claim will get lenders to back off legal debt collection and agree to debt write-offs. These are of course misleading and blatantly false representations as there are no laws or regulations governing collective debt settlement arrangements in this country. Yet thousands of people are being induced into buying products designed to maximise profits for their producers.

Some of these outfits are using non-transparent websites to market their services directly from Britain. Others are localised shop fronts for British operations or domestic home grown operations offering alluring “free advice” designed to generate leads for their commission driven sales people.  

With no known evidence supporting the business case for debt manager’s business model, their claims of providing economic value by lowering costs of indebtedness for consumers and recovery costs for lenders are spurious.

I recently estimated that a typical debt management plan to repay €35,000 would cost about €7000 in fees. At 20% of the debt owing such exorbitant fees are a red flag for anyone concerned with consumer protection.

Just how many millions are being paid into unregulated debt management companies is unknown. Not one cent is covered under the government’s deposit guarantee scheme. What’s more as these outfits are not required to operate ring fenced client accounts, maintain adequate levels of solvency, abide by prudential standards or comply with codes of conduct and regulations governing financial service and money transmission providers, should they get into trouble consumers are wholly unprotected.

It’s known that close to 100,000 financially fragile households are struggling to make mortgage payments. But this is the only visible part of the distressed debt iceberg. Given the €9.4bn in mortgage losses and €2.6bn in consumer debt losses pencilled in by the central bank in just four banks (Bank of Ireland, AIB, PermanentTSB and EBS) and with other lenders such as Ulster Bank and credit unions continuing to post large losses, the full extent of consumer indebtedness can only be guessed at.

Ireland remains one of the few advanced countries that does not provide its citizens with a humane debt forgiveness system regarded elsewhere as a fundamentally important economic and social safety net requirement.

The safety net concept is quite simple. It’s called “earned debt forgiveness”. People agree to pay what they can for a certain period of time after which their lenders agree to write off whatever balance is owed.

The Law Reform Commission has set out a blue print for a working system including suggesting how residual mortgage debt could be handled.

While largely thanks to IMF/ECB intervention, legislation to enable this concept is said to be in the works, little if anything is being done on organising an appropriately regulated, governed and operated debt mediation system to manage the sheer volume of individual debt settlement agreements required to work out billions in consumer unaffordable debt. Existing state funded arrangements are wholly insufficient.

Falling between the stools of three government ministers and their officials, no-one appears to be taking the lead. Yet it should be eminently possible for Minister for Social Protection Joan Burton and her officials whose remit includes MABS, to take ownership of designing and implementing a national system.

While unlikely to have the competence and resources required, MABS could become an integral component of a wider more efficient and effective system. Operated on the principle of the “polluter pays” it could be funded by banks and other lenders, governed as a not for profit enterprise and run on commercial service lines.

In such a scenario there would be little need for profiteering debt managers unless they can prove a viable business case to operate under any new personal insolvency legislative and regulatory regime. Meanwhile there appears to be nothing preventing the National Consumer Agency publishing guidelines covering debt managers and working with the Central Bank on a consumer protection code to close the yawning gap in consumer protection exposed by the collapse of Home Payments Ltd.

A version of this article appeared in the Irish Examiner, Business Section, Monday 15th August 2011.


Concerned over the abusive and exploitative aspects of commercial debt managers business model I wrote to the Minister for Finance in early 2010 urging the regulation of the sector and published a draft code of conduct to kick start the process. As expected I heard nothing back from the then Minister or his officials. Perhaps the consumer protection gap exposed by Home Payments Ltd failure will galvanise the new administration to act before its too late.