Government To Consider Regulating Debt Management Firms

Fri, 18 Sep 2009

The government is to launch a consultation into the rapidly growing debt management industry to determine whether it should remain unregulated.

Debt management companies operate by negotiating with lenders on behalf of clients to extend or reduce repayment terms.

However, these firms have been heavily criticised by consumer groups and the Ministry of Justice for failing to properly inform or advise clients and charging excessive fees.

Government officials said there is a need to examine the sector more closely and find out whether companies are providing suitable help to customers struggling to tackle their debts .

Sue Edwards, head of consumer policy at Citizens Advice, said: "Our evidence shows that there is a need for statutory regulation of debt management schemes."

"Unfortunately this isn't always the case at the moment and while we do see some good practice, we also see cases where people doing all they can are still being harassed by creditors and threatened with enforcement action, extra costs and added stress," she added.

The consultation by the Ministry of Justice is expected to conclude in December and could result in either the introduction of a new code of practice for debt management companies or the introduction of a formal system of regulation.

Bridget Prentice, justice minister at the Ministry of Justice, said: "Debt can affect all kinds of people, especially in the current global economic downturn, and it is important that we protect borrowers from sliding deeper and deeper into debt ."

"We aim to benefit both debtors and creditors, ensuring debts can be paid off without the vicious cycle of charges, interest, fees, confiscated assets and relentless creditor contact that can turn a debt problem into a debt nightmare."
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