ClearDebt’s Andrew Smith responds to comments made by ITN’s Chris Choi on “Britain’s Growing Debt Burden” and gives his thoughts on why the fee vs free debt advice debate isn’t black and white.

There has been a lot of coverage, in the last day or so of a report on payday loans and debt management by a committee of MPs (the House of Commons Select Committee on Business Innovation and Skills). ITN’s Consumer Editor, Chris Choi, was one of the journalists that wrote a blog on this.

Possibly unfairly, I’ve singled him out because I think the MPs’ report has already been overtaken by events and because I believe the media’s usual conclusion that free advice on debt is good advice is often not the case – and that the fee-charging debt industry is not as high risk as we are portrayed. At least, in parts (which I know is an issue that must be addressed) The OFT is on the case, supported by the debt management trade associations like DRF, and their members.

I thought a comment on Chris’s blog would give me an opportunity to put the case for fee-charging debt management but, as I write, the comment (supplied yesterday) is still in moderation – so I reproduce it here:

It’s rather more complicated, as regards debt management, than portrayed above.

First, the MPs report (I was a witness) skates over a lot of issues and does not join up the dots.

The Money Advice Service, who are now the ringmasters for consumer debt advice in the UK, say that roughly 2 million people in the UK need debt advice. Last year the free advice agencies, like Citizen’s Advice, who provide face to face debt advice, managed 100,000 interviews. So, 5% of what’s required . This year they are being challenged by Money Advice Service to do 150,000 cases. On the same funding. Pips will squeak.

Then, there’s this assumption that free advice is always good advice. Most plans from agencies like CA do not involve distributing the money you can afford to your creditors. And, MAS is advocating much more “self help” in the future. For people who often can’t help themselves? Recent research from the Royal College of Psychiatrists shows that 50% of those people who need debt advice are exhibiting symptoms of mental illness. So, one in two of all the people with debt issues, not just the most vulnerable, are unlikely to cope with self-help debt advice.

Whilst I’d be the first to agree that the fee-charging debt resolution industry has had low standards and poor behaviour . Take members of the Debt Resolution Forum (DRF): They have a code of practice that is higher than that required by the Office of Fair Trading, a 210 hour, three exam, academically accredited qualification for advisors and administrators, annual on-site inspection by a government trusted independent monitor and an independent complaints committee, with a majority of members from outside the industry.

Things will continue to change. The new guidance from the OFT, the work being done by the Insolvency Service on protocol or regulated debt management plans and the huge changes planned by MAS between now and autumn 2013 will all change the landscape hugely. But, I think that a mixed economy of free and fee-based debt advice is the only way to meet Britain’s need for educated, capable consumers who know how to manage their money.”

With the publication today of the Business, Skills and Innovation Committee report into debt management we are collecting reactions from around the web to the MPs report into Payday loan and Debt Management companies.

Andrew Smith, Director of External Affairs of ClearDebt has commented about the report.

If you have a view about the Committee report, please leave a comment below.

We will be updating reactions as the days events unfold.

Last week the Insolvency Service released figures showing that debt relief orders are more prevalent among 25-34 year olds than any other age group.

These figures were released to launch a “Dealing with your debt” campaign by the Insolvency Service which “aims to help the young deal with their debt in the most appropriate and effective way”.
The campaign gained a lot of publicity, being featured on BBC News programmes across the country as well as regional radio stations. BBC used a case study to illustrate the issue, which you can view below:

I’m all for raising awareness about personal debt and the solutions available, but sadly from some of the comments I saw on twitter about this story, people were focusing on the notion that a debt relief order is an “easy” way to write off irresponsible spending, rather than looking at the real reasons why more and more young people are struggling with debt.

Here are some of the comments left on twitter:

I’m no expert on debt relief orders, however I have studied them as part of the training towards my CertDR qualification and one thing which stands out to me is the strict criteria required in order to apply for a one, including:

• Your total assets must not be more than £300.
• Your disposable income after deducting all normal living expenses, must not be more than £50 per month.

From my experiences here at ClearDebt, the reason most people find themselves in debt is because of a change in circumstances. They took on credit when they were in a secure position to pay it back, but then a job loss, an illness, a divorce, a pregnancy or some other life-changing event affected their ability to make the repayments.
There are of course some people who are in debt due to poor money management and a “buy now, pay later” attitude, but these are a minority and I don’t believe that any debt solution should be considered an “easy” option.

The Office of Fair Trading released their new debt management guidance in June this year and debt management companies were invited to take part in a consultation process. One aspect of this guidance was the use of social media by debt management companies. It appeared that fee-charging debt management companies might be banned, by the OFT, from using Facebook, Twitter and, possibly, Google Adwords.

ClearDebt’s Andrew Smith has been quite outspoken on his disagreement with the idea that debt management companies could be banned from using social media and was quoted in the Telegraph last month saying:

What they are looking at are today’s methods of mass marketing, and they are not giving us the opportunity to compete. Also, they are limiting one of the best ways of exposing the cowboys. When cowboys turn up in our industry one of the best ways of exposing their lack of knowledge or experience is by debating with them on social media.

Here are some of the other reactions to this, as expressed through the social media channel Twitter, you can view the OFT’s response at the end of this blog post.

The deadline for submitting responses to the new debt management guidance was 5th September. You can read ClearDebt’s response here.
You can also follow Andrew Smith on Twitter @andrew_f_smith.

Since we wrote this article, the OFT have told us that there is no intention to ban debt resolution companies from using social networking, but that companies will have to be careful that statements they make will be clear and truthful. This seems right and fair, but we look forward to seeing the OFT’s detailed guidance on the issue – and will continue to watch the story, and comment, until then.

The OFT (Office of Fair Trading) announced revised set of guidelines for debt management companies today.

Andrew Smith, marketing director of ClearDebt and spokesperson for the Debt Resolution Forum discussed the guidelines with BBC Radio.

Hear excerpts of the BBC interviews below.

Reproduced under licence from BBC Radio – © 2011 BBC. The full Radio programmes are available for a limited time from the BBC.

• Radio 4, Today
• Radio 5, Wake Up To Money