Guest blogger Emma Bryn-Jones, from consumer cooperative Zero Credit, questions whether debt management is social.

Ignorance is bliss… or is it? Can we safely say that what you don’t know cannot hurt you? When we eat a duff meal or employ a rogue builder, are we any safer for not knowing that the products and services are dud? No! We depend on an array of recommendations, quality and standards labelling to help us. The same is true of credit.

In a country where average household debt is approaching £60,000 compared to an income of less than £30,000, we have a collective responsibility to manage a change in circumstances. Some of us may very well continue to meet our repayments, but for those of us on shorter hours, lower wages or made redundant, a decade of easy credit is a tough habit to kick.

What the credit industry has failed to recognise is that when a product or service ceases to be exclusive, any problem with it becomes mainstream. This is precisely the dilemma we face with personal borrowing because so many of us have walked into 90% plus mortgages, loans, credit and store cards, that our economy depends on spending beyond our means.

Far from addressing the problem, we seem to be crafting a Dickensian throwback, with people who are struggling, cast as fraudulent wastrels, who deserve everything they get. By turning a blind-eye to no credit checks and dodgy debt advice, survivors of the crunch define their superiority over perfectly good people who cannot sort the wheat from the chaff.

Let us be clear. A good credit history shows evidence of repayment. If you still owe money, there is always a risk that you may fail to repay it and with some £1450 billion in outstanding bills, it is not in your interest or mine to fool anyone into parting with money for a scam. Your security depends on another’s ability to repay.

Like it or not, debt management is integral to our credit history and it is as important, if not more so, to manage credit well when things go wrong. For this reason, I welcome debt management charities and companies to social networks because they encourage people to talk openly about the issues that affect them.

Of course, there are charlatans, as there always will be, but discussion creates a record of integrity that is hard to fake. From CCCS moneyaware, combining light-hearted movie quotes with more serious reminders to keep borrowing manageable, to ThinkMoney’s contributions to the managed banking debate, we are quite literally richer through dialogue.

I may not agree with ClearDebt’s Andrew Smith when he discusses credit caps with Chris Goulden of the Joseph Rowntree Foundation, but my goodness do I welcome the fact that someone who works for a debt management company actually considers and cares about people on low incomes.

I think it would be a mistake for the OFT to restrict social networking amongst debt management professionals because if banking and borrowing can continue to like, comment or share, so too should those who pick up the pieces when it all goes wrong. To prevent people feeling so isolated that insolvency is their only option, social media needs a debt management voice!

We’ve published, below, ClearDebt’s response to the Office of Fair Trading’s just closed consultation on new guidance for debt management companies and charities.

Those of you who also read the Debt Resolution Forum’s (DRF) response will notice many similarities.

The two documents have been principally authored by the same people and the issues are, broadly, those on which most debt resolution companies would agree  (in the case of the DRF response, the views of members have been incorporated too).

ClearDebt’s principal concerns lay in creating a level playing field between fee-charging and non fee-charging providers and also in the industry’s future freedom to market itself (ethically and transparently) on the internet. This topic is discussed in more detail in a recent article in the Daily Telegraph and in a response by our colleague and web marketing consultant, Paul Gailey which you can view here: Response to the OFT Debt Management Guidance.

The OFT consultation document can be found here.

On the 14th June, the Office of Fair Trading published the Debt Management Guidance document and started a period of consultation with interested parties.

The consultation period ends September 5th.

This OFT consultation document represents the draft guidance for all licensees engaged in the licensable activities of debt counselling and debt adjusting (where the debts arise under consumer credit or hire agreements).This OFT consultation document represents the draft guidance for all licensees engaged in the licensable activities of debt counselling and debt adjusting (where the debts arise under consumer credit or hire agreements).  -Office of Fair Trading

This is an important moment for the debt industry and interested parties are invited to voice their concerns and express support for the Guidance before September 5th 2011.

ClearDebt will be publishing their response to the Guidance here on cleardebt.co.uk/blog in the coming weeks.

Download the OFT Guidance  direct from the OFT website (PDF) or view/download it from this page.

Full details of how to respond are detailed on the OFT website.

Dear Tricia and John,

I read both your pieces in the Daily Mirror:

• Why debt management firms should be regulated
• John Denham calls for action against rogue debt management firms

No room for debt rogues

I do agree there’s no room at all for rogue debt management services – and I strongly believe that the coming 12-24 months will see the industry I work in and believe in contract to about half it’s current size – at least in terms of the number of companies trading.

That could be a disaster for debt advice in the UK, of course, because the free-to-client sector tells us they can only deal with half the demand.

But, I believe fee-chargers will be able to take up the slack and that they will do so without causing consumer detriment. Tricia, I believe we are on the brink of being fully regulated and that we will thrive as a result.

John, it was good to see you say that there are some “excellent companies out there”: I really believe that, not long from now, it will be only those companies that are left.

Debt advisors with training and standards

The industry is taking pains to be able to show consumers that we are worth our fees – with a 210 hour study, properly examined, Advanced BTEC qualification for the advisers employed by Debt Resolution Forum (DRF) members, with a truly independent complaints process and with annual independent inspection by a government trusted regulator (the Insolvency Practitioners’ Association).

Debt Advice is not enough

Much of the advice provided by the fee-free sector just stops at advice. Good advice – but that’s all. Often clients aren’t given the robust friend they need to ensure they pay their contribution monthly and that it gets distributed to creditors. And, one can’t be sure it’s always the right advice either. In their 2010 annual report, one of the largest free sector organisations, which advises people at every income level, says that it advises Individual Voluntary Arrangements – a really good deal for creditors and debtors who are suitable – in about seven per cent of cases. That ‘s probably three or four times lower than it should be.

….40 minutes or so on the phone. Roughly half our well-trained advisors time is spent giving good advice for which we will never charge a penny.

Oh – and the advice? Clients sometimes can’t get that either from the free sector. The same organisation’s report says it only offers advice at time of first call to 25% of enquirers. Face to face advice offered by services like CAB is unable to deliver the volumes that are necessary, and, in any case, people with debt problems often need multiple sessions in order to understand their own situation.  Almost all fee-chargers offer this call for free to all their enquirers – and it usually represents 40 minutes or so on the phone. Roughly half our well-trained and yes, well-paid, advisors time is spent giving good advice for which we will never charge a penny.

You both mentioned the OFT found 129 firms in breach with action being taken against 54. And that they didn’t name and shame. I agree – there is a dilemma here, but many breaches were minor – a significant number had already been corrected and, as in every other sector in which they work, the OFT consider revealing names to be a presumption of guilt – and everyone is allowed a fair hearing, right?

Well – I think there will be many more who do lose their licences or who are required to change the way they work and that will be a good thing. But there are also many (take DRF members for instance) who are committed to fairness, transparency and high standards.

Debt procedures could change

Now,  John, I have to take you up on your politics too. You say that Labour left the Tories with the opportunity to act as a result of your 2009 consultation.

If this is the Ministry of Justice consultation on regulated debt management plans then, I believe, it was completed in 2009 and it was a Labour ministerial decision NOT to publish: I may be wrong – but I don’t think I am. It’s now, I’m led to believe, with the Insolvency Service and, I think, likely to form part of a consultation later this year that has a chance of radically changing the landscape for debt solutions. So, the effort’s not wasted. Credit where credit’s due too: The OFT’s new debt management guidance published last week was a result of work almost all of which was done while the last Labour Government was in office.

I absolutely agree with John that simply providing guidance on money isn’t the way to go: time and time again we see debtors situations go from bad to worse if all they get is guidance or advice.

People with debt problems need solutions as well as advice.

Some debtors can afford to pay and there is no reason why creditors shouldn’t pay in almost every case (after all, having priced their products on the basis that they have a good inkling of the proportion that will fail to repay, any return the banks and credit card companies get from debt collection is bunts).

The ultimate disappearance of the OFT is, by the way, probably a good thing for the tighter regulation of the debt resolution sector. Under the Financial Conduct Authority (or whatever it’s called today) we’ll fall under a rules based regime that will make compliance even more central to the way we work than it is today.

For many, the fee-charging debt resolution sector provides good advice and well-managed solutions. Well managed companies in the sector should be working more closely with the publicly funded and creditor funded organisations.

Without us, many would simply go unadvised and more would get good advice, but no real debt help. A move to funding the Money Advice Service might see that get worse.

The Office of Fair Trading (OFT) have issued today new guidelines for debt management companies. Stay tuned for ClearDebt’s coverage of the days events bringing you news of events as reported from various outlets and with reactions from social networks, right here on a special blog post.

Readers are welcome to leave comments here.