Pros and cons of Debt Managment Agencies

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frostie

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For anyone who is in financial difficulty, the appeal of these sites you will see on Google when you look for 'debt help' or 'debt advice' could be the answer to your prayers. The fact is that the new 'Irish Government Insolvency Act' does not actually exist!

The majority of debt management companies who offer this service are generally UK-based, and as the industry as it stands is unregulated, outside the scope of any regulatory body in Ireland. What they are offering is a poor alternative of the UK's Individual Voluntary Arrangement.

Be advised, the closest alternative we have here in Ireland is called a Formal Scheme of Arrangement, where a portion of your debt can be written off. The difference is, that where the UK put through over 50000 IVAs in 2010, in Ireland, only 10, yes 10 Formal Schemes were entered.

The reason for this is that in Ireland any FSA must go through the High Court, and there are huge risks involved in even proposing one. If less than 60% of your creditors agree, the FSA will fail and you will probably be declared bankrupt immediately. The cost of an FSA is similar to bankruptcy, up to €30000, sometimes more.

Generally these sites offer this as a hook, to get you to pay up your initial fees first, then tell you that you can only enter a 'Debt Management Plan(DMP).'

Until new legislation becomes a reality in 2012, a DMP is generally the only real solution to dealing with your secondary debts such as credit cards and unsecured loans. But again, beware of the charges you are agreeing to. Most of these companies charge one, two or even three months worth of charges, subject to a minimum of €500 a time.

The result is that your creditors will not receive any payments until your initial fees have been paid to the management company, potentially up to six months, seriously damaging an already fragile relationship with these creditors.

Look carefully at the small print, ask what the costs of a debt management plan are, as any DMC worth their salt will offer advice free of charge, and only charge you the equivalent of your disposable income for one month as a set up fee. The problem is, that when you have paid a large initial fee, there is less of a reason for that management company to ensure you stay on track with your plan. If you opt out, or run into difficulty further down the line, they are less likely to assist you.

www.frost.ie
 
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"Write off up to 90% of debt - New Government Insolvency Act"
The fact is that the new 'Irish Government Insolvency Act' does not actually exist!

What is the point of mentioning an act that does not exist? This seems more like an advert highlighting your company's services rather than offering advice or asking a question about the lack of modern debt management remedies in Ireland.
 
"


What is the point of mentioning an act that does not exist? This seems more like an advert highlighting your company's services rather than offering advice or asking a question about the lack of modern debt management remedies in Ireland.

I want to make people aware that this act does NOT exist, while others are advertising that it does. The purpose being that there are legitimate debt management companies out there, including MABS, who do not charge excessive fees, and who do not bluff people into taking up the ridiculaous offers that companies like this make - just google debt management or debt help and you'll find out who they are. These are the people giving legitimate companies a bad name - you'll probably have heard their name on Joe Duffy etc.

I have constantly been on to the financial regulator, national consumer agency, advertising standards authority, central bank, financial ombudsman, competition authority et al, yet none are in a position to do anything about misleading advertising on the web.

The fact is that this misleading advertising, and the industry in general, is completly unregulated, something which we have challenged, yet most recently, a bill before the Oireachtas to set down remedies and codes of conduct etc was blocked in the Seanad by the government, the Family Home Bill, which had attached, the Debt Advisors Bill.

That is exactly the point I am making - that there are virtually no debt remedies, except through negotiation through a debt management plan, and the fact that these guys are offering something that just doesn't exist is something that the public should be aware of. Some of these companies offer solutions, and extort money from people in dire need, only to turn around and tell them after fees are paid that 'no you can't qualify now to write off 80% of your debt, but you can go into a debt management plan.'

It's nothing short of thieving from desperate people, when a debt management plan was the only option from the outset. Just want to make sure that the public are aware of it.
 
. The purpose being that there are legitimate debt management companies out there, including MABS, who do not charge excessive fees, .

That is misleading. MABS is free, impartial and is guaranteed to work in the interest of those in financial difficulty. Why anyone would pay someone, particularly when their problem is debt, when MABS is free is beyond me.
 
That is misleading. MABS is free, impartial and is guaranteed to work in the interest of those in financial difficulty. Why anyone would pay someone, particularly when their problem is debt, when MABS is free is beyond me.

While MABS is free, and they do excellent work, there is at present a long waiting list for people who are in financial difficulty, to get an appointment with MABS. The approach is also slightly different.

The difference between MABS and commercial DM companies is that while MABS will advise the customer and point them in the right direction, commercial debt management companies effectively take the customer by the hand from point of contact right through to the end of the process, and 'consolidate' the monthly repayments into a single payment, and then disperse the payments to creditors. So instead of managing a number of creditors themselves, the customer, generally does not require any further contact with their creditors.

It takes the stress off the customer, and having examined the customers income and expenditure, the customer can get on with their life, just making sure to pay their ordinary bills, rent/mortgage, groceries etc, and their other debt is taken care of in one payment.

The DM company also deals with any hassle the customer would normally get, eg credit card companies calling them every day. One of the major problems customers have is that despite all the best intentions, they make promises to creditors that they cannot afford to keep. Instead of contacting the customer directly, the creditor has a point of contact who the creditor can contact if there are any problems that may arise.

Also, because the nature of any debt management plan is flexible, it means that should there be the possibility of a missed payment for example, the customer can contact their management company to liaise with the creditors, instead of having to contact all of their creditors individually themselves and then being cornered into paying extra to catch up on arrears - again money they cannot afford to pay out.

Creditors also accept the role of debt management companies, and the negotiation process is much easier. As the creditor is no longer dealing with the customer, the creditor also understands that they can't badger the customer for more than they can afford to pay, ie putting their debt ahead of another creditor.

Another benefit for the creditor and customer alike, is that the creditor would have expensive debt collection and legal fees, which would ultimately be added to the customers debt, and these are avoided with a managed plan, and in many cases interest and charges suspended, but this can be very difficult for a customer to negotiate on their own.

Commercial debt management works fine in the UK and has done for years, and it is beginning to take off here. With government legislation expected to be brought in by March 2012, commercial debt management companies will be the only way forward, as MABS cannot take on additional staff - it is funded by the taxpayer, and under the same employment embargo as other public sector bodies - the whole new system would be unworkable.

The IMF have instructed the government to get personal insolvency legislation in place by March 2012, and it is expected to closely follow along the lines of the UK approach including debt relief orders, IVAs, administration orders, etc, so commercial debt management will be the future. But the problem is lack of regulation, as stated earlier. There needs to be robust protection for consumers, regulation by the central bank, along with licencing and heavy penalties for DMs that do not follow guidelines and legislation, or take advantage of people in difficulty.
 
While MABS is free, and they do excellent work, there is at present a long waiting list for people who are in financial difficulty, to get an appointment with MABS. The approach is also slightly different.

The difference between MABS and commercial DM companies is that while MABS will advise the customer and point them in the right direction, commercial debt management companies effectively take the customer by the hand from point of contact right through to the end of the process, and 'consolidate' the monthly repayments into a single payment, and then disperse the payments to creditors. So instead of managing a number of creditors themselves, the customer, generally does not require any further contact with their creditors.

In my experience, and I have some, MABS are much more 'hands on' than you suggest and they also have a standing as far as the civil courts are concerned. They will frequently contact creditors on behalf of clients and set up budget plans and negotiate repayments on their behalf.

Having said that, there are waiting lists to see them and companies like yours have some role in society nowadays. I also think you were quite upfront about your commercial links and should not be castigated for pointing out sharp practice by your UK based competitors. I notice that your firm is part of a larger UK based company. Is there any way your parent company can bring these inaccuracies to the attention of your fellow UK debt management companies?

slim
 
In my experience, and I have some, MABS are much more 'hands on' than you suggest and they also have a standing as far as the civil courts are concerned. They will frequently contact creditors on behalf of clients and set up budget plans and negotiate repayments on their behalf.

Having said that, there are waiting lists to see them and companies like yours have some role in society nowadays. I also think you were quite upfront about your commercial links and should not be castigated for pointing out sharp practice by your UK based competitors. I notice that your firm is part of a larger UK based company. Is there any way your parent company can bring these inaccuracies to the attention of your fellow UK debt management companies?

slim

I agree with what you say about MABS, but it seems to be a case of "that was then and this is now" probably because of the demands on their time. I am aware that MABS used to do this, but more frequently, we are receiving calls from people who MABS are unable to help.

To be honest, we have tried every avenue to deal with these rogue debt management companies, whether directly or through the authorities, but ultimately as there is a lack of regulation here, they have no intention of changing their ways. It's working for them! I've also phoned them directly where a number can be found, and researched domain name ownership, but 99% of these use a domain shield to hide the identities of owners, and are registered outside of the EU. It's an extremely frustrating and difficult problem to have addressed.
 
Hi Frostie, your posts are very informative.

I had dealings with a very reputable DM company in the UK. I got speaking with one of their guys who told me that the establishment over here tried all ends up to cause difficulties for them doing business in this country. If this is true it is maddness that they would focus on that aspect rather than putting the rogue companies out of business.
 
Hi Frostie, your posts are very informative.

I had dealings with a very reputable DM company in the UK. I got speaking with one of their guys who told me that the establishment over here tried all ends up to cause difficulties for them doing business in this country. If this is true it is maddness that they would focus on that aspect rather than putting the rogue companies out of business.

Very true Slim, but what is so frustrating is that not even the Advertising Standards Authority in Ireland can act against this. A huge part of the problem is that there is a serious lack of education in the realms of what debt management actually is.

We actually had a lot of difficulty at the beginning ourselves, even opening a bank account took months through the banks head office, before they understood what it is we actually do. It seems to be the usual thing in this country, that if you go through the proper channels, you are met with red tape and bureaucracy, whereas efforts would be better spent in regulating the industry properly.

Things such as outlining fees charged, terms of business, a code of practice etc combined with a licence to operate from the central bank would be a good starting point, and if a company proposes to operate in Ireland, they should have a registered, occupied office here. It would lend to some form of credibility at least!

As an example, if we wanted to operate in the UK, we would have to have a staffed office there to be able or we couldn't take on a single client, and would also not be in a position to get a licence to operate in the first place. In Ireland, a website with no obvious contact information, telephone number or address, other than a form to submit information for a call back, is sufficient as a presence to allow these companies to trade.
 
Yes they also mentioned that they had difficulties opening up a bank account etc and some institutions got pretty annoyed with their involvement and kept giving them the run around by requesting regular documentation.

Funnily enough my mortgage providers were more than happy when I engaged the DM company. They thought I was being very pro-active!

Most of my debt now, is secured so there is very little a DM can do for me unless I go down the bankruptsy route (which is looking more than likely)
 
Yes they also mentioned that they had difficulties opening up a bank account etc and some institutions got pretty annoyed with their involvement and kept giving them the run around by requesting regular documentation.

Funnily enough my mortgage providers were more than happy when I engaged the DM company. They thought I was being very pro-active!

Most of my debt now, is secured so there is very little a DM can do for me unless I go down the bankruptsy route (which is looking more than likely)


They generally are happy to deal with DMs, as debt management companies do have the experience required to deal with this, and some creditors are more than happy when DM companies get involved, as it can also save the creditor a lot of leg work too.

I don't know your circumstances, but bankruptcy is rarely a good option - it costs thousands here. You may have other options though, for example in the UK - it's extreme though as you would have to uproot your life and move to the UK, but if the debt is so substantial that you wont really have much of a life under bankruptcy here, it may still be worth considering. Generalised comments I know, but bankruptcy here, even though it was changed to a 5 year term, the terms of getting the bankruptcy discharged are still punitive to say the least. As I mentioned earlier in the thread though, insolvency legislation under the IMF deal has to be in place for March 2012, so there may be some light at the end of the tunnel.
 
If something appears to good to be true, it usually is. MABS are fantastic, free, and have helped me negotiate with BOS, PTSB and MBNA, getting interest and charges frozen. But best of all, it was me who did it, with their guidance, and that self confidence goes a long long way to positive thoughts. And at least I know that in 4 years, the only debt I will have is my mortgage. If I had gone for DM, and I nearly did in April, I would be in debt for 28 years, paying the company a set amount each week - that adds up to a lot of money over 28 years. Thats how they can reduce your payments by 80% or 90%, your time in debt multiplies by 700%!! For some people it will work, especially for people who have medium to long term loans, and to be fair, I would rather see a private company make some kind of profit which can be put back into the economy, than to keep paying the big back holes which Irish banks have become.
 
this agreement stays in place for many years - in my case about 28 years,

These companies want to sell your debt to third parties ie. debt collection agencies. These agencies "buy" your debts from the lender, usually at less than half of what you owe

A lot of the debt collection firms are in consolidation with the DM companies, so they are raking it in.

Anyone thinking of Debt Management companies, here is some food for thought. Most are in Northern Ireland - trading in Ireland, but can themselves use UK bankrupcy laws, with your money. Most of their websites have no registered address. They pertain to have a Dublin telephone number, this is routed to Derry. And please google the companies. You will find that most of them are actually the same, just operating under different names, and lastly, google one of the names of the people who work in the DM company - you will find they worked extensively all over the UK, before withdrawing their service to come here.

I agree with some of what you say, but you have got the wrong end of the stick about most of this.

Any debt management plan is flexible, no matter who it's with - you can leave whenever you like - it's not contractual or legally binding. You are right to read the small print, and check out any company online - if they have nothing to hide they should have their actual contact details available, outline their fees and T&Cs for all to see - our website has all the terminology outlined to clarify the fact that you can leave a plan whenever you want, see the t&cs - [broken link removed]

Secondly most people who come to a debt management company like us are already in difficulty with debt collection agents. I do agree that some debt management companies try to get two bites at the cherry though - the Consumer show on RTE highlighted an Irish Dublin-based company who were ripping people off, although the Consumer Show didn't realise that they were also a debt collection company as well - they have since changed their name and rebranded since the show, but are still in operation.

A Debt Management company is completely the opposite of a Debt Collection company, and any management company of decent repute would not get involved in this - we certainly don't, nor do we 'buy' debt and re-sell it - that's insane, because it's a cycle of diminishing returns and certainly not profitable either. There is also a serious breach of trust, conflict of interests, and potentially a breach of confidentiality.

Strangely data protection doesn't seem to come into it, because again in Ireland, regulation is so weak, that although MABS and DM companies hold confidential financial and personal information, there is no requirement to register with the Data Protection Commissioner!

The point I made earlier was that this 80% write-off might be a reduction in what you make as a payment, but not to the overall debt at all - over the period of the plan, you would chip away at your debt at repayments which are affordable to you, rather than the higher individual agreed rates you have with your creditors, but ultimately the debt has to be repaid in full - there is no quick fix, as the false advertising suggests, however settlement lump-sum write-offs can be done for example if you had a redundancy or insurance payout. As you also stated, if your circumstances improve, you can leave the plan, or maintain and increase your repayments to your creditors, getting you to the end of your plan sooner.

Another fact is that a debt management company cannot just take your money and declare you bankrupt in the UK - don't know what you mean by that.

As stated earlier, they are not coming here, UK companies are operating here. And again the reason for this is that there is a market for it in Ireland, MABS are stretched, and there is no legislation in place to regualte the industry. If a UK based company is operating legitimately here, and keeps everything above board, then there's no issue.

www.frost.ie
 
If I had gone for DM, and I nearly did in April, I would be in debt for 28 years, paying the company a set amount each week - that adds up to a lot of money over 28 years. Thats how they can reduce your payments by 80% or 90%, your time in debt multiplies by 700%!!

That's a very good point netz, probably should be put in a key post about what to watch out for when you go to debt management companies. Glad that MABS was of such help to you, it's good to know for others on here that there is free impartial advice and maybe they have a bit of a backlog but from other's I've heard in really bad cases they take you nearly immediately. In any case what's a couple of weeks wait in the scheme of things, nothing is going to happen overnight.
 
MABS are doing mammoth work but I cannot forsee them being consistantly pumped with money. The money is just not there. I think a lot of people compare DM's with DC's. I know I did.
 
looks as if commercial debt managers are to be regulated and prevented from handling clients money - which will of course undermine their business model which is based commission driven sales to generate revenues from fees levied on their payment services. Seems to be a few trolls here defending what is labelled a high risk consumer protection business in the UK.
 
looks as if commercial debt managers are to be regulated and prevented from handling clients money - which will of course undermine their business model which is based commission driven sales to generate revenues from fees levied on their payment services. Seems to be a few trolls here defending what is labelled a high risk consumer protection business in the UK.

I'm sure that if you read my earlier comments you will see that regulation is exactly what is needed in the industry here, to bring the industry up to standard. As for not being permitted to handle clients money, how do you propose that legislation will be passed. Will it be the same thing for solicitors for example, not being allowed to handle client's money?

Debt management in the UK is hardly 'high-risk' and it's very heavily regulated. Licences are required, data protection laws must be complied with, and compliance under the OFT regulations is also required. The reason it has such a bad name in Ireland is the distinct lack of regulation.
 
@fostie debt managers are listed as by the OFT and they are not regulated - they are licensed by the OFT and required to comply with its code. Readers should consider the OFT's compliance review for insight into its concerns which have also been reflected here in Ireland.

Your point on solicitors is a naive deflection - debt managers are payment service providers and will have to be authorised and supervised by the central bank. They have a [broken link removed] in the UK where the OFT has recently cracked down - see here also and here and here

Can you point to an independent, objective justification of the business model by a reputable agency? One that is backed up by empirical evidence and facts- not the soft sell rhetoric and marketing hype of relieving people of stress?
 
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