Response to Debt Management Consultation
OFT DEBT MANAGEMENT GUIDANCE (AND CREDIT REPAIR SERVICES) CONSULTATION
Chapter 1 – Introduction
As the public interest body tasked with reviewing whether the professional and ethical standards of insolvency practitioners (IPs) are appropriate and whether or not they are satisfactorily enforced by the Recognised Professional Bodies (RPBs) that regulate them, we feel that it might be helpful to emphasise the manner in which IPs are regulated and their work is monitored including, over the past five years or so, being required to advise on non-statutory debt management options.
There is a wide difference currently between the monitoring of IPs and the providers of debt management plans (DMPs) who are not IPs. For instance, the conduct of Individual Voluntary Arrangements (IVAs) has been the subject of much criticism from creditors and many improvements to the process have and are still being made under the auspices of the IVA Standing Committee which includes representatives from all parties concerned.
The point to emphasise in this guidance may be that everyone providing debt management guidance, irrespective of which type of consumer credit licence they are operating under (standard or group), must expect to be regulated in a similar fashion. This means that debt management companies must expect significantly more monitoring of their activities than hitherto, not necessarily as much as IPs initially, but approaching that standard. The OFT will therefore be working closely with the Insolvency Service (IS) and the RPBs in future to seek such a balance.
The IPC sees merit in bringing the governance of both statutory and non-statutory remedies for debtors who are unable to meet their financial obligations under one body. We accept that such an arrangement is aspirational at present but should be a long term aim. The OFT proposals, which we welcome, introduce a rigour to the activities of non-statutory remedies which has been lacking in the past and begins to close the gap with the governance arrangements of IPs. We would like to think that this is a first step towards further congruence.
Chapter 2 – Overarching Principles of Fair Business Practice
Advisers should provide debtors with written confirmation of their recommendations and their reasoning in arriving at the specific debt recovery solution in preference to alternatives.
Chapter 3 – Unfair or Improper Business Practices
Q.25 and Q.41
As with IVAs, a charging system needs to be developed for each DMP that provides a balance between the debt being paid off and the advisor collecting fees. For instance, there should be a built-in incentive for both debtor and creditors to embark upon a debt solution that is not only demonstrably fair to all parties but also encourages the best possible solution to be selected and has the best chance of being maintained for its duration unless, of course, unforeseeable events occur along the line. This should go a long way to dissuading debt advisers to “impose” a solution that is weighted too much in their favour. Fees should accrue in line with the debt adviser’s input to the plan and not mostly in the earlier years especially (of an unsuitable plan that was unlikely to last the course).
The IVA Standing Committee has undertaken a substantial review of IPs’ charges, in particular the timings of levying set-up and administration fees. The OFT may wish to refer to this work in providing more detailed guidance in respect of DMP charges
IPs are now obliged to advise on non-statutory debt solutions. Many IPs doing so are covered by a group consumer credit licence issued to their insolvency licensing body, eg, the ICAEW. The FOS’s remit should surely cover complaints against IPs covered by group licences? In this way, redress is possible as it is now following upheld complaints against IPs working under a standard consumer credit licence. Redress is not currently possible under group licensing arrangements. This cannot be right.
We welcome the guidance on setting an eight week target for substantive response to complaints. We believe that it would also be appropriate to send a holding reply within seven days, say, setting out the complaints procedure so that the complainant knows what to expect.
Chapter 4 – Regulatory Compliance and Enforcement
The trade associations referred to in note 91 to para 4.3 are DEMSA and the DRF. The latter is a fledgling organisation currently developing training, monitoring, record-keeping, disciplinary policies/procedures etc.. These activities need to be actively regulated by another body as is the case with insolvency practitioners, ie, R3 is the trade association for IPs but each IP is regulated by a separate recognised professional body that is, in turn, overseen by the Insolvency Service.
The internal monitoring systems referred to in para 5.5 cannot be merely “capable of being operated by the OFT and/or LATSS” but, as with IPs’ firms, must be monitored regularly by a recognised professional organisation. The OFT would be seen here as equivalent to the Insolvency Service (the regulator of the RPBs on insolvency matters). Consideration should therefore perhaps be given to expanding Para 4.6 to indicate how, and by whom, compliance audits are to be undertaken. It does not appear that the OFT is structured to do this at present if looked at in comparison to the Insolvency Service and the RPBs.
There is a need to ensure that all non-IP debt advisers have a better understanding of statutory remedies. We have evidence that even in the not-for-profit advice organisations this is not always the case. In respect of IPs, much of the training is provided by R3. There is currently no comparable organisation in relation to the non-statutory market. We would suggest that if training is to be of consistent quality then this matter needs to be addressed. Furthermore, there needs to be a suitable accreditation regime that provides assurance that front line advisers are up to the job.