Costly debt advisers 'ripping off' consumers
Regulation urged as more borrowers in difficulty
Published 09/08/2011 | 05:00
PEOPLE struggling to cope with large debts are being fleeced by money advisers who charge high fees for helping them with loan and mortgage arrears, the state budgeting advice service said.
Debt advisers are not regulated and charge fees that can amount to between €2,000 and €4,000 over a three-year period.
And there is little incentive for debt advisers to negotiate lower payments for consumers because of the way many of them operate, spokesman for the Money Advice and Budgeting Service (MABSs) Michael Culloty said.
This is because commercial debt advisers tell consumers to cancel all standing orders and direct debits and redirect all payments to the debt advice firm instead.
The debt adviser then makes the payments on behalf of the consumer, but because it is taking a percentage of the combined monthly payments there is no incentive to get a better deal for consumers, Mr Culloty said.
"The higher the monthly payments, the more money these people make. This means it is not in their interests to get the debts reduced," he added.
Vulnerable people are "overpaying" for commercial debt advice in spite of the fact that the MABS service is free.
Mr Culloty said commercial debt advice was expensive.
Firms charge an initial fee of up to €750, with most charging €500. On top of this there is a monthly fee of between 15pc and 20pc of the total of all monthly debts being paid.
MABS said there was an urgent need to regulate debt advisers which were springing up at a rapid rate.
Heavily indebted people were "vulnerable and are like rabbits staring into the headlights. They are intimidated by their creditors and see debt-management companies as offering an escape".
Mr Culloty dismissed reports that there were long waiting lists to see a MABS official.
National Consumer Agency chief executive Anne Fitzgerald supported the MABS call for regulation.
She said many debt-management companies had been making promises which they could not deliver on.
"We have been pressing for legislation for a very long time now and we will continue to. I don't think it should have to take that long for legislation to be passed."
The chairman of the Debt Management Association of Ireland, Eugene McDarby, agreed with the need for regulation, but he denied that people were being ripped off. Debt advisers could only charge people what they could afford, he said.
The Department of Finance said it was urgently looking at the need to regulate debt advice firms.