U-turn puts debt advisers in line for regulation
Published 17/05/2010 | 05:00
THE Department of Finance has performed a U-turn by admitting it needs to regulate commercial debt advisers.
The change in direction comes after months of department officials saying it had no plans to introduce rules for the sector.
New firms are setting up every month offering commercial debt counselling or debt management services, responding to a growing crisis among consumers.
The companies are unlicensed and unregulated. The only other country in the EU that does not regulate debt advice companies is Greece.
Twice this year the department told the Irish Independent it had no plans to regulate commercial debt advisers.
But the legal advisory body, the Law Reform Commission (LRC), put pressure on the department by recommending the extension of a protocol on dealing with heavily indebted households -- and the department has decided to introduce legislation.
The present protocol only applies to lenders that are members of the Irish Banking Federation, but the LRC has endorsed moves to have it extended to subprime lenders, utility companies and credit unions.
The LRC has also called for immediate action to be taken to change the bankruptcy laws. At the moment it takes 12 years before someone can be discharged from bankruptcy.
The LRC wants this changed to six years as an interim measure before a new low-cost, non-court process for dealing with rescheduling of debts is put in place.
Ray Byrne, of the LRC, said it would take up to two years for such a non-judicial debt settlement system to be put in place.
Problems with regulation in the debt advice sector have previously been highlighted by bodies such as the state-supported Money Advice and Budgeting Service (MABS).
MABS says some commercial debt advisers are preying on cash-strapped families.
These firms offer to restructure debts and get some of the loans written off -- but often the charges are exorbitant. It can cost in excess of €3,000 to get debts restructured, finance experts have said.
A number of debt advisory companies operate a system where they take over the management of debts of a consumer.
They will negotiate with lenders on behalf of the cash-strapped consumer, and try to strike a deal with the bank/credit card provider.
The consumer agrees to cancel all standing orders or direct debts and redirect them to the debt management company, which pays the lenders on behalf of the consumer.
The debt management company takes a fee of €500 upfront and up to €50 a month.
Alternatively, the first month's rescheduled payment is taken by the debt management company and up to 20pc of the rescheduled monthly loan repayments.
And MABS complained recently that some unscrupulous operators were making false claims. It accused some commercial operators of falsely claiming they can get up to 75pc of your debts written off.