Could more UK Debt Management Companies Collapse?

Shockwaves were sent across the UK debt management industry last month as not one but two debt management companies went into administration, leaving thousands of clients wondering where to turn next to resolve their debt problems.



The two debt advice businesses that went bust were ‘DCM Money Solutions’ of Nottingham and surrey-based ‘Debt Doctor’ who were both well-established entities within the market.



It appears that both businesses ran similar operations in that they had each franchised their companies to allow agents to ‘buy’ areas of the UK which would become their territories to exclusively operate within. Any clients responding to the companies advertisements would then be passed to the local franchisee in that particular area who would take the clients through the process of signing up to the relevant debt solution. Both businesses also operated a ‘full and final settlement’ scheme in which they would build pots for their clients with the intention of paying off the debts in lump sums. Reports suggest that both clients and the franchisees have been left thousands of pounds out of pocket as a result of the collapses.



At this stage it is unclear what went wrong with both businesses. After all, the market for debt advice in the UK has never been bigger, with a reported 9,000 people per day seeking some form of debt help. It has been reported that at least one of the failed DMC’s actually got between 33-50% of their clients out of debt by using these methods so with that success rate it is even more bemusing that the business wasn’t a runaway success through referrals and recommendations. It could simply have been down to poor management by senior directors making bad business decisions. Or maybe the decision makers of both businesses had decided to cut and run in light of the expected tougher regulation being introduced by the OFT in May 2011.



What UK consumers will be more concerned about, or certainly those currently on debt management programs or considering going onto one, will be – who’s next? Will more debt management companies fail? Do any fail-safes exist to protect victims of bad debt advice?



Concerned clients can make a number of checks to ensure the company that is administering their plan is legitimate, stable and compliant.



Firstly, all debt management companies need to hold a valid Consumer Credit License that includes categories ‘D’ and ‘E’ debt advice, debt adjusting and debt counseling. The register can be searched online by visiting the OFT website and searching the register. Secondly, the DMC should be registered with the data protection act and this number will be displayed on their website. Thirdly, is the company a member or affiliate member of an Independent Organisation such as the Institute of Credit Management? Fourthly, does the company have any other licenses such as a Ministry of Justice License? Other assurances to be looked for include the length of time the company has been operating, the number of clients the company has, and what kind of reviews / testimonials their clients have made about them (search their "company name" followed by "reviews" on your search engine).



One debt advice company currently gaining excellent reviews is UK Money Solutions. They are completely solvent, having never borrowed any money from the banks or used client money for business purposes, have been operating many years and have all the required licenses. They are also one of the few debt management companies to have become an affiliate member of the Institute of Credit management.