We need a National Debt Advice Service

The brutal reality of the impact of fiscal austerity measures means that thousands of households will slide into long term financial distress, joining over 100,000 others who have no hope of ever repaying what they owe in full.  

The consumer debt crisis is a unique event requiring a unique response that can only be provided by the Government. With over 150,000 people needing help, resolving billions in unaffordable debt will require hundreds of thousands of debt settlement agreements with multiple creditors such as  banks, credit unions, revenue, local authorities and utility companies.

No one existing service provider has the resources or operational competencies to do this and leaving it to the private sector is not a realistic option.

With no consumer protection regulations governing the provision of debt advice, resolution negotiation and settlement, current service offerings fragment across a state funded agent, not- for- profit services and a host of differing commercial operations.

 

MABS, through its national network of independent self-governing autonomous offices, is doing its best to respond. The demand for advice has spawned a plethora of commercial debt advisers. Some are charging fees of people in debt. Others are using free advice as a lead generation tool to sell life insurance and credit products.

Many are using exploitative tactics, baiting people with emotional marketing and misleading promises. Some are deliberately playing on people’s fears by falsely claiming they will instantly relieve psychological stress. Fabricating client testimonials to sell their services, they use suicide and clinical depression statistics to market free financial advice.

Debt advice, resolution and settlement services are regarded as high risk consumer protection activities as there is a heightened risk of exploitative business practices, including the provision of bad advice and predatory selling of unsuitable products and services.

Yet, exploitative marketing claims and misleading statements are being made by regulated financial intermediaries who are subject to consumer protection codes of conduct when selling financial service products. The very people who became quite skilled at getting people into unaffordable debt are now claiming they are skilled at getting them out of it. 

The provision of debt advice/resolution services is an expensive, inherently unprofitable business unless it’s paid for by creditors. No operator has the financial resources or capacity to deliver on the scale and scope of services required to deliver a comprehensive service.

Even if a private commercial operation could charge enough, it would need well over 50,000 customers to break-even. The likelihood of any private company having the resources to invest in achieving this scale is non-existent. Furthermore private operations cannot provide the scope of professional debt resolution services required.

It is also the case that the sheer scale of the need for advice and resolution is the result of a one off, non-recurring event. Any service response will have to have the capacity to deal with large numbers of customers and their multiple creditors using standardised, efficient and effective processes. Achieving this will need improved codes of conduct and protocols governing debt enforcement and resolution.

The principal of the “All Debt” approach has been widely accepted as the appropriate service model. All debt includes mediating resolution agreements with the full range of principal creditors-credit institutions, revenue, local authorities and utilities. The service should provide advice, financial affordability assessment, recommend solutions, draft multi-creditor settlement proposals, make representations and negotiate realistic settlements with creditors.

The only realistic solution is for the Government to establish an independent, all debt advisory and resolution service.

Designed to fit with whatever non-judicial mechanism and process is finally legislated for it should be governed and operated on a not-for-profit, commercial basis and should include for two components - secured home mortgage debt and other debt.  How the unaffordable element of mortgage debt is resolved is not really an issue. The key is that all debts are dealt with, through an integrated approach.

Working with other stakeholders, the debt resolution service should be empowered to improve the existing consumer protection framework, ensuring that people are afforded the professional representation they need, protection from abusive enforcement tactics and standardisation of creditor collection and settlement approaches.

The current situation with hundreds of debt advisors, offering varying degrees of service, in an unregulated market, is a recipe for consumer exploitation. 

As the scale of the crisis and scope of services required by people means that only one agent has the power and resources to respond to their needs, will Government act to create a national debt advice and resolution service and allocate the funding needed in the budget ?

A version of this article appeared in the Irish Examiner, Business Section, Monday 5th December 2011.