WOULDN’T IT be great to be able to leave all your money woes in the hands of steely-eyed professionals who could stare down the idiot bankers who threw money at you in the good times and are now hassling you week in, week out because you have fallen behind in your repayments? While our economy has tanked and most of us find ourselves staring at mountains of debt wondering how we are going to scale it, there is one group of “professionals” who appear to be doing quite nicely amid all the gloom. They are the debt-management companies.
Their websites are slick and persuasive and are filled with promises to step in and stop the stressful phone calls from lenders. They will sit you down, organise all your loan repayments, and get interest rates reduced. In short, they make the problem go away.
It is not, however, as simple as that. They can charge huge fees – to people who can least afford to pay them – offer little by way of guarantees, and despite the fact that they handle millions of euro, are allowed to operate in an area which is completely free of regulation – thanks to the abject failure of successive governments.
The not-for-profit organisations who help Irish consumers manage debt are increasingly concerned at the proliferation of such companies and they urge caution when it comes to such services.
The Money Advice and Budgeting Service (Mabs), the Free Legal Advice Centres (Flac), and the National Consumer Agency (NCA) have almost nothing positive to say about the companies.
The chief executive of the NCA, Ann Fitzgerald, told Pricewatch last week that successive governments had been so focused on dealing with a larger financial crisis, that they had ignored the growing problem of a deregulated sector handling tens of millions of euro of consumers’ money. “Debt-management companies have only sprung up in Ireland in the last couple of years since the financial crisis took hold, many of them came in from the UK and have been making promises which they cannot deliver on. Many of the people they are targeting are very vulnerable and on their uppers and are being lured by false promises and are paying money they don’t have to unregulated companies for services they don’t need. We have been pressing for legislation for a very long time now and we will continue to. I don’t think it should have to take that long for legislation to be passed.”
Mabs, the organisation that knows more than most about the issues surrounding personal debt, does not believe private companies have much to offer the people most in need.
Its spokesman Michael Culloty says it sees a lot of people who have already been through debt-management companies “and have been burned”.
He warns that some financial institutions will not deal with the companies because they believe the fees eat into the money they are owed. He also points out that because so many of the companies operate off a percentage of the repayment amount agreed, it is in their interest to agree higher repayments with lenders.
“The higher the repayment a client agrees to, the more money they make, it is as simple as that,” Culloty says. “We have had cases where we have been able to agree less in repayment amounts than private agencies and one of the reasons is we are not looking for any financial returns. They are looking to maximise theirs.” He says that for some people, people who can afford to pay for such services, debt management companies have a role, but stresses that their targeting of people with little or no disposable income and large debts is “irresponsible”.
He says these people “are vulnerable and are like rabbits staring into the headlights. They are intimidated by their creditors and see debt-management companies as offering an escape”. He says Mabs offers a more holistic approach and does not just look at money owed. It can assess how best a person can maximise their income and its staff are trained to watch out for signs of depression among clients and then refer them to other agencies for help.
“It is true that some of our services are under pressure but we do work our way through the waiting lists and if a person is in the middle of a crisis they can be dealt with on a priority basis.
He says the mistake many people make is they do not sit down and make a plan and they react to the creditor which applies the greatest pressure – typically, unsecured lenders tend to be the most vociferous when it comes to looking for cash. And they are the ones who should be left until last.
Pricing structures vary from company to company but when people are already drowning in a sea of debt, any additional fees can be too much. Prima Finance, for instance, charges an initial fee of €750 and a monthly fee of 15 per cent of an agreed repayment. They say there is a minimum monthly charge of €35 and a maximum of €100. If you spent three years paying off your debts using the company’s service, it would end up costing you €4,350.
Money Village says that some of its services are free – over the phone, the company would not discuss fees and we were told its advisors would discuss charges at an initial consultation. Its website, however, had “an initial instruction fee” of €495 plus monthly fees of between €35 and €50, depending on the amount of debts being looked after.
Other providers charge similar fees.
“We are trying to get people to manage the situation themselves with the help of Mabs and we would never advise people to use the services of a debt-management company,” says Yvonne Woods of the Free Legal Advice Centres (FLAC). She warns that some of the companies “look for huge money up front and then they want a percentage of the debt on an ongoing basis. It seems like lunacy to sign up to something like this but some people are really desperate.
“The companies claim that they will ultimately save the person money by reducing their debt but what we say in return is that Mabs will do that for free.”
The big problem, according to Woods, is that “people are intimidated by institutions. They are scared and they are mortified. They blame themselves for getting into so much trouble but most of the time people borrowed thinking they had safe jobs which guaranteed them a certain level of income and then they either lost their jobs through no fault of their own or saw their income dip dramatically, again through no fault of their own. Then there were the people who put their rainy day money into property which they were advised to do and now they are in real trouble.”
According to Fitzgerald, it is “not acceptable to have to wait until next year” for legislation. “We have to get it done in the autumn. It is not complex and much of the framework is already in place.”
WHAT TO ASK
What are the fees for the service and when do I have to pay the fee?
Is the fee paid upfront?
If the fee relates to the size of the debt, what percentage of the total debt is payable?
What exactly will I get for that fee?
Will you work on and resolve all of my debts?
Will I pay a fee even if you cannot assist me to get the solution I want, or a solution that works for me?
Are you connected to any other organisation that sells financial products?
What training or skills do your debt advisors have?
Source: itsyourmoney.ie
