Thousands of people face financial misery unless the UK debt management system is reformed.
Debt management firm TDX Group is calling for reform of Debt Management Plans (DMPs) – as the tightening of individual voluntary agreements (IVAs) and the credit crunch mean those in debt troubles see their options reduced.
The firm predicts a doubling in DMPs in 2008, but states the debt management industry is not equipped to deal with the rise in demand.
In 2007 there were 160,000 DMPs – organised by firms or debt charities to reorganised debt repayments – and 2008 could see as many as 320,000,
However, 25 per cent of DMPs to fail in year one.
“The credit crunch cutting off access to refinancing solutions, and stricter criteria being imposed by lenders around the acceptance of IVAs, we expect demand for DMPs in 2008 to explode,” said Mark Onyett, chief executive of TDX.
“But what concerns us is that the current lack of consistency in the DMP industry means that often these plans are not set up to succeed.”
TDX Group is now calling for formal practices and procedures to be established between debt management firms or charities and creditors.
In particular there are calls for standardised fees – as in some cases creditors re-apply fees and interest after a set periods – and the length of a DMP.
Also a debtor’s plan can be put at risk through a single creditor’s behaviour.
“Demand for DMPs has grown exponentially over the past few years. But our concern is that it is still acting as a disparate industry,” added Mr Onyett.
“High breakage rates don’t benefit anyone. Debtors often end up back at square one – or worse, creditors miss out on potential returns on their debt, and debt management companies lose their ongoing management fees.”
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