The Association of Professional Debt Solution Intermediaries (APDSI) has welcomed the publication of the OFT's revised Debt Management Guidance (‘Debt management (and credit repair services) guidance (OFT366rev )).
Its publication brings to an end a long period of uncertainty and allows both debt solution providers and APDSI members to take on board the changes required to comply with the guidance which can only be good for UK consumers. The changes to the guidance should also help by driving incompetent and non-compliant operators out of the market which, again, can only be good for consumers.
APDSI particularly welcomes the clarification in the main body of the guidance (section 3.3) the distinction between mainstream lead generators and those licensed businesses that ‘refer’ and ‘introduce’ clients (e.g. financial/mortgage advisers, IFAs, creditors and credit brokers) to businesses offering debt management services and Insolvency Practitioners. The OFT has stated that these differ from more specialist ‘lead generation’ since the referral or introduction is made as an adjunct to - or in support of - their main business.
The regulator uses an example of an IFA finding that his client may require specialist help with his debt problem where he may ‘refer’ or ‘introduce’ his client to a debt management business. They have confirmed the requirement for licensed businesses to hold Category E – Debt Counselling – on their Consumer Credit Licence.
The guidance also clarifies the need to be transparent in dealings with consumers where a business is not the debt solution provider (i.e. they are a debt solution intermediary). Disclosure that commission may be paid and the identity of the debt solution providers remain a requirement from the consultation document of June 2011.
As noted in the OFT's press release, the guidance expands on previous versions, providing examples of 'unfair or improper practices' which, if engaged in, could render a business unfit to hold a consumer credit licence and operate in the market. Examples of unfair business practices include:
- Sending unsolicited marketing text messages, email or voicemails.
- Providing inappropriate financial incentives to staff giving debt advice, which may encourage them to promote unsuitable debt management products for personal gain.
- Making false or misleading claims regarding the status of the business, for example operating websites which look like the website of a charity or a government body.
- Businesses are also expected to refer consumers to not-for-profit advice organisations for further help, in certain circumstances, and to have effective measures in place to identify and deal with particularly vulnerable clients, such as those with mental capacity issues.
An overall theme of the guidance is for businesses to be transparent so that consumers have all the information necessary to make informed decisions about the most appropriate debt solutions for them given their financial circumstances.
A practice not highlighted by the OFT's press release but which, APDSI believes, the guidance makes it difficult for debt solution providers to sustain, is that of war-chesting - that is, solution providers retaining the bulk of client funds and releasing only token payments to creditors with a view to making full and final settlement offers further down the line. If this is indeed the effect of the guidance then the association would welcome it.
On a related matter APDSI has noted the formation by the Insolvency Service of a Working Party to look at a Debt Management Protocol - APDSI believes such a move could be more effective and could be implemented more quickly and flexibly than legislation and has indicated to the Insolvency Service its willingness to contribute actively in the Working Party's discussions.
In this context, APDSI believes the industry – creditors, credit reference agencies and debt solution providers – need to revisit the Rules of Reciprocity to ensure that there is a consistency of approach (which currently there isn't) by creditors in reporting accounts which are subject to a DMP to the credit reference bureaux (i.e. Callcredit, Equifax and Experian). APDSI believes that only by achieving that level of consistency can rehabilitated clients be accurately assessed for credit going forward. APDSI welcomes the strengthening of the section on creditor obligations.
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