Should debt advice companies by pro consumer, pro creditor or somewhere in the middle?

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talkabout
Sat, 16/05/2009 - 21:37

I had a really interesting debate the other day on whether debt advice companies should be pro consumer, pro creditor or in the middle and it became quiet heated.

Let me use the IVA to illustrate my point. Let's create an individual with £50,000 of debt who is able to pay £300 a month to their creditors. When considering whether an IVA or bankrupcy is the best option, you may find that if our individual was a homeowner, an IVA would be a good solution as their home would be protected, and creditors get to £300 a month for 5 years. If the individual is not a homeowner you may take the view that bankruptcy may be a better option as they're likely to be discharged after 1 year and have to pay nothing to your creditors, even if they can afford to make a contribution over a much longer period of time.

More and more people are happy to take the bankruptcy option and this scenario is common. But did you realise that what is right for the individual may not be right for rest of the population. Why? Because the less creditors recover, the greater the bad debt provisions they need to make and the more it costs everyone else to borrow as their profits rarely take the hit.

Is it reasonable to expect people to pay as much as they can afford over a longer period of time than bankrupcty allows for? It's an interesting one. What's your views?

External references: www.talkaboutdebt.co.uk, www.cccs.co.uk

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Guest (not verified):

I agree wholeheartedly with these comments. The present insolvency regulations, along with the recent irresponsibility of lenders, mean that it is all too easy for people to incur debts which they are unable (and often unwilling) to repay. While debts are "written off" for the debtor at the end of the bankruptcy period, they are simply recovered by the lenders by charging high interest rates to those borrowers who actually repay their debts. The bankruptcy system is much abused, as will be the recently-introduced Debt relief Orders. I work as a volunteer for a charity which gives debt advice, and for every client who is genuinely the victim of circumstance (unemployment, sickness, an unexpected pregnancy) I see three or four whose debt is simply the result of the desire to have a lifestyle that is clearly beyond their means. At one time there was a stigma attached to bankruptcy. Paying one's debt was a matter of personal responsibility, dare I say of honour. These considerations no longer apply.

Wed, 27/05/2009 - 11:16
talkabout:

Thanks for your comment and honesty. I think the debt industry also isn't helping as many of the debt management companies are charging too much for too long, when free solutions are available. A bit of honesty on everyones part would not go a miss. Source: www.talkaboutdebt.co.uk/debt-management/debt-management-companies

Tue, 18/08/2009 - 07:42
Money Bright (not verified):

I think that the only fair way for debt management companies to operate is impartially. If they were pro-consumer then they would have a harder time negotiating with the creditors. If they were pro creditor then no consumers would trust them.

There's a difficult balance they have to strike and while the best of the companies manage this successfully, way too many fail miserably. The OFT is currently reviewing the debt management industry - a review long overdue, as it has been almost 7 years since the last one and the industry has grown hugely since then.

In addition, the Ministry of Justice is currently considering the possibility of regulating the entire industry - something that seems to me like it should have been done a LONG time ago!

Tue, 22/12/2009 - 09:33