The Debt Management Protocol

The Debt Management Protocol

The Debt Management Protocol was launched in February 2013. It is a voluntary code of conduct by which debt management service providers should conduct their business.

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What is the Debt Management Protocol

On the 7th February 2013 a set of rules known as the Debt Management Protocol was launched by the Insolvency Service. This is designed to govern the way that Debt Management Plan (DMP) solutions are advertised and managed.

The Protocol aims to protect the interests of consumers who decide to carry out one of these solutions with the help of a debt management organisation.

It covers a range of areas such as the way Plans are advertised, the way initial debt advice is given, the fees that can be charged and the ongoing management of the Plan.

The standards introduced by the Debt Management Protocol have now been included in the FCA rules which all authorised debt management providers must now follow.

The Standards Introduced by the Debt Management Protocol

One of the key aims of the Protocol is to ensure that consumers are given the right advice about DMPs and made aware of the full range of debt management solutions available to them.

A key concern highlighted about the debt management industry prior to the launch of the protocol has been that consumers have only been made aware of the solutions that the organisation they are speaking to is prepared to offer. The protocol aims to reverse this criticism.

The protocol also introduces rules for the way that commercial debt management companies charge for DMPs. Importantly it makes clear that if initial fees are charged they should be recovered evenly over a period of at least the first 6 months of the plan thus allowing for payments to credits to begin immediately. Charging initial fees up front before payments to creditors begin is no longer allowed.

The overall estimated cost of the Plan and the time it will take for debts to be paid must also be made clear to the consumer prior to the plan commencing allowing them to make an informed decision as to whether it is the right solution for their needs or not.

Before entering into a contract with a debt management company the consumer must also be given information about how they can obtain further free debt advice and services.

Are the Standards introduced by the Protocol Mandatory?

It is not a legal requirement for DMP providers to follow the rules laid down by the Protocol. As such in theory debt management companies can chose whether to practice the rules or not.

However, the Insolvency Service have made clear that providing services in accordance to the Protocol rules will be a requirement for companies in order to retain their Consumer Credit License which is required before such services can be offered. As such it is expected that all reputable companies will adopt the Protocol.

In addition it has to be said that such companies recognise that the implementation of the Protocol rules is key to improving the image of an industry which has had some bad press over recent years.

Interestingly however, the free to consumer sector have shown disinterest in the Protocol and have stated that they do not wish to be bound by it. Instead they are currently engaged in developing their own set of minimum standards.

Why these organisations have chosen to remain outside of the Protocol remains unclear however this does leave a worrying concern that the standard of advice received by the consumer could continue to wary widely.

Note – Now they do

Will the Debt Management Protocol be Effective?

There has been a general welcoming of the Protocol within the commercial debt management industry. Although following it is not mandatory most major reputable players plan to adopt the rules.

There is no doubt that this is a very welcome development. Given the expected widespread adoption in the commercial sector, it will provide a significant improvement in the service delivered to consumers.

The protocol should help to build confidence that consumers are being provided with a service which is in their best interests and compliant with the required standards.

Having said that, it is strange that the Government has chosen to introduce a set of rules which it will not enforce across all the different providers of debt management plan services, particularly the free to consumer sector.

The section regarding fees notwithstanding, all the other sections regarding quality of advice and the administration of DMPs seem entirely desirable for any organisation operating within this sector.

Therefore there remains the underlying concern regarding double standards and the possibility that organisations which do not adopt the Protocol rules will provide sub standard advice which is ultimately not in the best interests of the consumer.

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