U.K. Consumer Affairs Minister Jo Swinson launched the Debt Management Protocol on Thursday, which will provide protections to consumers who pay for debt counseling and debt management services.
Under the Protocol, providers have agreed to spread their fees over at least the first six months, making debt management services more affordable and sustainable, and consumers will not be charged fees before signing a contract with a Protocol-compliant firm. Companies that sign up under the Protocol are required to provide consumers with information about other debt management options, including free debt advice, Financial Reporter reports.
“This is good news for consumers faced with debt problems,” Swinson said, according to Financial Reporter. “I am pleased to see commercial providers making these changes, which will see them help consumers by spreading the costs of the plan…Under this Protocol anybody in debt who seeks paid-for advice will be made aware that free debt advice options are available before signing any contract with a fee charging provider.”
Last week, the U.K.’s Office of Fair Trading refused to renew the credit licenses of two debt management firms, as well as a business application.
“The government is determined to drive up standards in this industry and ensure that people seeking paid-for advice are not disadvantaged by debt management companies that do not offer value for money,” Swinson said, Financial Reporter reports.
The Protocol, which will be independently monitored to ensure the compliance of participating firms, will help drive up standards in the paid debt management industry and will be supervised by a committee headed by The Insolvency Service, which will oversee the protocol and issue a report within the first year of its operation.
“We welcome today’s announcement as an important step towards raising the standard of debt advice available to customers in financial difficulty,” a spokesperson for the British Bankers Association said, according to Financial Reporter. “Banks provide funding for the majority of free impartial debt advice and will always signpost their customers to free advisors. However if customers do wish to pay for advice it is important that they find a provider who is compliant with these new standards.“