As momentum behind the personal insolvency regime continues to grow, the environment for Debt Management firms continues to deteriorate, courtesy of the findings of a thematic review of the sector by the Central Bank.

The findings of this review, published at the end of February, show multiple breaches of consumer protection requirements by a majority of practicing Debt Management firms and across a range of activities.

Some six out of 10 firms reviewed failed to meet know the Customer Protection Code.

The Central Bank also found that information disclosed on fees and charges was generally poor with significant variations between firms. Debt Management firms are required to make their fees and charges publicly available including placing a schedule of them on the firms’ websites but the Central Bank found that only one the 26 websites reviewed contained such information.
The Central Bank noted that fee transparency is of particular importance in light of the significant variations in the fees charged by debt management firms, examples including:

•    Initial consultation fees ranging from free to €615
•    Hourly fees ranging from €125 to €246
•    Some firms charging retainers of between €35 and €50 per month
•    Some firms requiring upfront payments (most included a refund)

Terms of Business documents were up to standard with only a tiny minority of the firms reviewed, with lack of information and/or inconsistent or out of date versions commonplace.

“Firms must give consumers a terms of business document which included key information they may need including fees and charges, complaints procedures, details of relevant statutory compensations scheme etc. However, just 12% of the online documents reviewed contained the required content. In addition, just half of firms inspected were able to demonstrate that they had provided each consumer with their Terms of Business.”

There were serious problems with disclosure with out-of-date information on websites, an absence of warning statements and regulatory disclosure being used in a manner which could be deemed to be an endorsement of the firm by the Central Bank.

Finally, there was failure by firms to ensure that staff members were working towards getting the appropriate qualifications. “Since 1 June 2014, persons providing debt management services must meet minimum competency standards. In eight of the 10 firms inspected, staff members providing debt management services had not registered for the first available sitting of the examinations required by the Minimum Competency Code.”

With withering assessment of the Debt Management sector by the Regulator comes hot on the heels of a raft of new consumer protection requirements and prohibitions imposed on the sector since the beginning of the year, including:
•    Ban all payments for client referrals or client leads
•    Ban the arrangement of credit for consumers for the purposes of paying debt managers’ fees or charges for providing debt management services.
•    Ban the prevention of clients from directly dealing with creditors.
•    Establish explicit consumer agreement on charges. (A debt management firm can only charge after the consumer has signed an agreement which clearly specified the charges payable for the service, when they must be paid and the services that will be procided for those charges.)
•    Require the firm to undertake full financial assessments. (Firms must consider the full range of debt solutions available to and suitable for the consumer, based on their personal circumstances.)
•    Require the provision of statement of advice to include an explanation of the options available to the consumer, how these options work and a description of the consequence for the consumer of accepting such options (the consumer must be given at least 5 business days to consider the advice).
•    Require firm to give creditor negotiation updates and consumer consent to agreement.
•    Require firm to provide a standard information template upfront to the consumer on ‘What you should know about Debt Management services’ and to signpost consumers to the availability of free debt advice.
This all adds mounting pressure to a sector whose raison d’etre has been under tremendous scrutiny ever since the arrival of the new personal insolvency regime.

Broadly speaking, debt management firms fall into two categories:
•    Those that advise and facilitate a debt restructure for a fee
•    Those that will manage a debtor’s debt payments. Collecting free cashflow from the debtor and making monthly payments to the debtor’s creditors

It was the collapse in early 2012 of a firm of the latter type, Dunne & Maxwell, and consequent loss of client funds, that began the intensification of regulation of debt management firms. But the requirements and sanctions under the new regulations go well beyond the client funds issue and it is difficult to avoid the conclusion that most Debt Management firms will ultimately find the environment too unfriendly to trade especially with the rising prominence of the Personal Insolvency Practitioner (PIP).