Debt companies cashing in on anxious consumers
Published 13/08/2011 | 05:00
DEBT management companies are making millions by charging desperate consumers for services they could do themselves for free.
An investigation by the Irish Independent has found that a typical debt-ridden customer could pay more than €2,700 just to sort out their unsecured debts like credit-card bills -- but would still have to handle crucial negotiations on mortgage arrears themselves.
These kind of charges helped one British company now chasing Irish customers enjoy massive profits last year.
Debt Advisory Centre Ireland (DACI -- see panel), which opened here last year, is part of the Gregory Pennington Group in Salford Quays, England, which last year had turnover of £26m (€30m), pretax profits of £12m (€14m) and after-tax profits of £8.6m (€10m) for the year ended January 2010, according to records in the UK Companies Office.
Financial commentator Bill Hobbs said that these profit margins of 33pc were "supernormal" by normal business standards, and "worrisome" in the context of a company dealing with cash-strapped customers.
Mr Hobbs, who proposed a code to regulate the mushrooming private debt management sector last year, estimated there were now at least 20 such companies with thousands of customers operating in Ireland.
One Irish company, Money Village, meanwhile, quoted a €495 initial payment for management of these unsecured debts, with ongoing charges to them of €35 a month until they were cleared -- meaning the costs could also run to thousands over a number of years.
In both cases the customer would have to deal directly with their mortgage company to reach an arrangement on their repayments and arrears.
The Money Advice and Budgeting Service (MABS), a state body offering free advice and help to cash-strapped consumers, is scathing of the charges levied by private firms.
Spokesman Michael Culloty said it was "truly staggering" how much consumers were being charged to manage just a portion of their debts.
MABS offers the same sort of service free of charge, but it deals with all debt, including mortgages and hire purchase agreements, which private companies do not.
Government and consumer bodies have been calling for regulation of private debt management companies since debt problems escalated.
The Department of Finance said last night that Finance Minister Michael Noonan was "committed to providing an effective regulatory structure for the sector".
Eugene McDarby, CEO of Money Village, said that its service allowed consumers to "get rid of the stress and move on", and was much lower than the cost of employing a solicitor or accountant if debt problems escalated further.