Debt Management and the Law
A Debt Management Plan (DMP) is an informal agreement with your creditors to reduce the amounts you repay them each month. It is not legally binding on either party. There is no law in the UK governing how the Plan should work. If you wish there is nothing to stop you negotiating directly with your creditors and setting up a DMP yourself. When you propose reduced payments your creditors are under no obligation to accept these. If they do the agreement has no legal standing and can be undone at any time.
The Debt Management Protocol 2013
On the 1st October 2013 the major debt management companies agreed and implemented a common standard for the way that debt management plans should be implemented and administered. This is standard is known as the Debt Management Protocol.
One of the key features of the Protocol was to introduce a standard for the way that debt management companies charge their fees. Companies that comply with the protocol no longer charged fees upfront to implement Debt Management plans. Instead these were deducted from the first 6 months payments into plan. This meant that creditors would start to receive money faster and were more likely to agree to the Plan. In return many major commercial creditors committed to more readily accept DMPs proposed through debt management companies.
DM4U Tip: The charging of any kind of set up fees has now largely been phased out by most fee changing debt management companies. Generally speaking they now just apply their standard ongoing management charge from the first month of the Plan.
Financial Conduct Authority (FCA) regulation of Debt Management services
In April 2014 the Financial Conduct Authority (FCA) took over the regulation of debt management companies. The FCA has imposed a set of strict rules on all debt management service providers whether they are fee charging or not. The aim is to ensure that consumers with debt problems can be confident that the advice they receive is appropriate and in their best interests and they are treated fairly.
All organisations providing debt counselling and debt management services must now be authorised by the FCA and display an authorisation (or interim permissions number). To provide debt management advice or services without this authorisation is an offence.
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