Advice Expert Advises Caution over Debt Management Firms

16 June 2011

People struggling financially should continue to approach commercial debt management services with extreme caution whilst the Office of Fair Trading works to tighten up the industry, according to the chief executive of DAWN Advice.

Liz Chadwick has welcomed revised guidance for the debt management industry which aims to increase transparency, while helping people to make an informed decision about the debt solution which is right for them.

However, she warned that many people already in debt are potentially risking their financial situations even further by signing up to debt management programmes through unscrupulous companies - which will never disappear overnight.

She said people needed to remain wary as it will take time to eradicate unethical firms, and even when using companies which follow regulations by the book, Chadwick said people still needed to ensure they chose the right debt solution to match their situation.

Liz said: "A number of commercial debt management agencies appear to 'promise the world' to customers who are potentially extremely vulnerable and unfortunately too trusting, but in fact some firms are actually making their lives much worse."

Following the recent BBC investigation, which revealed several companies delay handing over their clients' repayments to creditors, the Office of Fair Trading has promised to continue its crackdown on the debt management industry and firms will now face much stricter rules.

Liz added: "I'm pleased that the Office of Fair Trading has promised to continue working to improve standards and clean up this industry in order to help protect the thousands of people already finding it difficult to cope with their debts. However, regardless of this people should still remain cautious when approaching fee-charging firms. 

"Money worries can often leave people feeling helpless, isolated and trapped with no where to turn for help.

"It can feel like such a lonely place and problems can quickly spiral out of control if not managed correctly. It's no wonder that people in this situation are so easily convinced that commercial firms, which are able to spend tremendous amounts of money on advertising campaigns, are their only way out - but this is certainly not the case.

"I would urge anyone considering using a private service to always seek free, impartial and independent advice - especially before agreeing to pay a fee to make certain they are confident that they have chosen the right option to resolve their financial problems as quickly as possible."

It was revealed in May 2011 that some debt management firms delay passing on their clients' repayments to creditors in a bid to negotiate a lower settlement. This leaves people already laden with large debts much more vulnerable, often without them even being aware of the risks - should the company fail while a client's funds are still in its account there is a strong likelihood that their money will be lost and their debts barely reduced.

Anyone concerned about their financial situation should contact the Northern Debt Line for free, confidential and independent advice on 0300 3333 445.

DAWN Advice is a social enterprise which offers free advice to people across the north east and nationally on issues relating to debt, housing, employment, welfare benefits and family law - it is part of the national Citizens Advice service.