There has been an explosion in the numbers of
private companies offering debt advice and debt management services to
over-indebted consumers. New companies are opening every week, many of them run
by former mortgage brokers. A large number of companies are setting up here.
Not
regulated
Only two countries in the EU do not regulate
debt advice companies – Greece and Ireland,
according to the Law Reform Commission. In the UK,
the Office of Fair Trading (OFT) licenses and regulates debt managers. In
Ireland,
however, there are no legal rules in relation to the debt advice sector.
Heavily indebted people are extremely
vulnerable.
How it
works
A number of debt advisory companies operate a
system where they take over the management of debts of a consumer. They will
negotiate with lenders on behalf of the cash-strapped consumer, and try to
strike a deal with the bank/credit card provider. The consumer agrees to cancel
all standing orders or direct debts and redirect them to the debt management
company which pays the lenders on behalf of the consumer.
High
fees
The debt management company takes a fee of
€500 upfront and up to €50 a month. Alternatively, the first month’s rescheduled
payment is taken by the debt management company and up to 20% of the rescheduled
monthly loan repayments.
Misleading
claims
Some unscrupulous operators are making false
claims. For example, claiming that they can get up to 75% of your debts written
off. Some operators claim to be operating as charities or non-profit
organisations, while others claim to be linked to MABS. Others claim their
services are free when they are not. The reality is that some banks will not
even deal with debt management/debt advice firms.
Problems
Some commercial debt advisers are designing
inappropriate repayment plans. Payments can be made late, or not at all. Some
debt advisers have been accused of predatory practices – by advertising in
credit unions and social welfare offices.
Attempt to have regulation
Some of the more upstanding operators in the
sector have been lobbying the Department of Finance for regulation. A number of
firms have come together to
form a new association and draw up a code of
conduct.
Go to
MABS
The State-supported Money Advice and
Budgeting Service is free and operates in 60 offices around the country. Its
offices are open five days a week between 9am and 8pm. Its website is www.mabs.ie, or
telephone 1890 283 438.
Email: lastwordfinance@todayfm.com