New FCA rules on how debt management companies charge fees
From 1st April 2014, debt management companies will be regulated by the Financial Conduct Authority (FCA). One of the changes to the way some debt management companies operate will be the way that their fees are charged.
The new rules regarding fees state the following:
Debt management companies will be unable to keep more than 50% of customers’ monthly payments as fees and charges;
Companies will have to spread their setup costs over a maximum of 6 months. At present they are usually taking most of the money paid into the plan for the first 1 to 3 months. The FCA have made this change so creditors get paid a substantial amount from month 1.
There has been some criticism of the fee charging debt management industry. After a very thorough analysis was carried out on behalf of DEMSA by a leading accountancy firm, Grant Thornton, it was concluded that professional debt management companies will effectively help customers to reduce their debts and provide needed services. The study showed the majority of clients made very good savings over the course of their Debt Management Plan (DMP) and this was primarily due to the successful negotiation to reduce or freeze interest and charges on the debt. It was also found that debt management companies advise on how customers can increase their disposable income, for example, getting the best deal on utilities, and other practical solutions to help them regain control of their finances.
The main argument against the fee charging companies was that their fees were too high and companies were making money out of new clients and then not spending time to keep them happy. The work carried out by Grant Thornton showed this was not the case and that an average of 6 hours goes into setting up a plan and the set-up costs are proportionate to this. It also showed that it is not in a company’s best interest to just add new clients as the business would not survive. It showed clearly that existing clients and keeping customers happy is the only way to have a sustainable business.
If you are seeking help for your financial circumstances and would like to discuss your options, contact Fresh Start UK Ltd and together we can consider the range of debt solutions that are right for you. Our experienced staff team will provide confidential, sensitive debt advice for your individual circumstances and advise you on the best solutions. Call us now on 0800 92 472 44 and one of our team of experts will advise you.