Much fanfare has surrounded the new debt management protocol especially how it will significantly impact the position of many of the most disadvantaged debtors in the market, but could this new protocol actually have a negative impact on those most at risk?
At present, there are over 100,000 new Debt Management Plans (DMPs) created every year and with the exception of the free sector, these DMPs typically attract a fee to the debtor of around 30-35% of their repayments. Whilst most Debt Management Companies (DMCs) will quote fees in the 10-15% range, there are often minimum fee levels applied that increase the percentage significantly.
This new voluntary protocol will forbid the charging of upfront fees and will make the process more transparent for debtors which, on the face of it, should be good for the sector.
Our challenge as an industry, is that the code is voluntary. We know that competition amongst the key DMCs tends to be played out on the online forums, Google and generic online advertising. Unfortunately for the debtor, over the last three years competition has increased the price for some keywords on Google Adwords to unsustainable levels. So DMCs have sought to recoup this through greater upfront fees and attaching other products around DMPs to retrieve a greater slice of the repayment.
For those DMCs who volunteer for the new code of practice, there will be a significant issue around generating new leads. They are likely to be comprehensively ‘out-marketed’ by those providers who do not volunteer for the code, and will therefore be able to charge upfront fees and afford the best advertising slots. In short, the larger, more reputable DMCs will be out-promoted by those providers who do not sign up to the protocol, potentially making things worse for the consumer.. As a result there is a view that non-protocol compliant DMCs may acquire new accounts in a non-compliant fashion only to ultimately sell their portfolio or business to the compliant operators once the accounts have matured and up front fees paid.
Given this it is not surprising that the free sector has not endorsed the protocol and remains focused on providing quality debt management services for individuals in genuine need of impartial debt advice.
One final major underlying issue is that the current DMP product serves many different types of debtors (from token payers to short term rehabilitators), with many different needs, and, as a result will continue to fail most of people who take them up.
By Stuart Bungay, Managing Director - Strategy, Marketing and
International, TDX Group.