Oversold Debt Management Plans

hose of you who know me or regularly read my website will know just how ‘anti’ I am of DMPs.  This is because I regularly come across people who have been sold a DMP when it was really not the right answer for them.  What is more fightening now is that sellers of DMPs are using automated call generation systems to phone numbers randomly with a message suggesting that if you are in debt you should press a number to be put through to a debt ‘expert’: I know, we regularly get these calls after hours in the office, I always follow them through, tell the expert a pack of lies as to my circumstances, get put through further up the line to someone with ‘greater experience’ then make them look fools for having advised me down the wrong route.  Cruel I know, but I cannot resist it!  Funny, but when I tell them late in the conversation that I am a Licensed IP and that I have great issues with their advice, and explain where they are wrong, they put the phone down, angry that I should waste their time (they are obvioulsy commisssion based) – it matters not that these largely ill-trained peddlers of misery are creating misery in the lives of debtors and their families in the pursuit of a quick buck.

I have set out below a copy of R3’s recent press release, which shows that there are currently believed to be about three quarter’s of a million people in DMP.  A huge number.  In some ways what is more frightening is the fact that almost half of the people surveyed either took the wrong option (an IVA or bankruptcy would be better if the DMP is due to last over 5 years) or simply did not understand what they had got themselves into, they had entered into a financial commitment the length of which they did not know.  The findings of the R3 survey come as no surprise to me, indeed I suspect more than half of the people in DMPs have no real idea of what they have got themselves into nor properly assessed all of their options – put another way, they have been oversold to by DMP salesmen.  This will all end up in tears some time down the line, I know not when but it must do so, all other major missellings of financial products have led to the governing bodies/government stepping in (normally when things have got so far out of hand that they had not option but to do so) with all the proponents of the misselling simply disappearing or themselves going into liquidation/bankruptcy, leaving many thousands with the problem.  So when will the appropriate bodies act? – surely the time has now come?

28 May 2009

One million people insolvent in the UK

Around 700,000 people are currently left off the official British insolvency figures, even though they are technically insolvent. Added to the official figures, this means the total of insolvent individuals in the UK is now approaching 1 million. These 700,000 ‘hidden debtors’ are the latest estimate from a YouGov survey, conducted in consultation with R3, of the number of individuals in Great Britain who are currently in a Debt Management Plan (DMP). The 700,000 DMPs dwarfs the combined total of those in an Individual Voluntary Arrangement (IVA) and declared bankruptcy which amounted to 190,000 by the end of 2008. The number of DMPs has also jumped an astonishing 17% in seven months (from August 2008 to February 2009).

“The official figures are only the tip of the iceberg in counting the UK’s insolvent individuals. If the government wants to take an accurate picture of our debt problem, DMPs should be included in the official figures,” said R3 President Peter Sargent.

DMPs are unofficial but formalised agreements with creditors who often prefer this route to formal insolvency procedures, even though such people are technically insolvent. DMPs may not always be the best deal for those in financial difficulty as unlike statutory procedures there is no debt forgiveness, no freeze on interest nor are DMPs binding on either creditor or debtor.

The survey reveals that 26% of those in a DMP had the terms of the plan changed, with 64% of these people seeing an increase in the amount of their monthly repayments. Moreover, 18% of those in a DMP stated the DMP was due to last longer than ten years, with another 27% didn’t even know how long the plan was due to last.

“We hear of people being strong-armed in DMPs when clearly an IVA or bankruptcy was in fact the right solution. Sometimes people will then end up in a formal insolvency procedure anyway. While DMPs are appropriate in certain cases, they are not the only option and they come with strings attached, the most troubling being the length of the plan; effectively ‘debt slavery’.

“The latest statutory measure, Debt Relief Orders (DROs) introduced in April will only take a tiny percentage of this group into formal insolvency procedures. DROs are targeted at those with low income and very low assets only,” concluded Peter Sargent.

Notes to editors:

  • The data included in this paper represents the findings from the third wave of the quarterly YouGov debt tracker. Data is taken from a nationally representative sample – total of 3804 adults aged 18 and over between 16th and 23rd February 2009 in Great Britain. Where relevant, data has been compared with the first and second wave of the tracker which took place in July and October 2008 respectively. All figures, unless otherwise stated, are from YouGov Plc.
  • The figure of 190,000 UK insolvencies is made up of 125,000 in a typically 3-5 year IVA and 68,500 declared bankrupt in 2008 in UK, source The Insolvency Service.

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