Thursday 18 January 2018

Six debt firms pull plug after audit by the Central Bank

Charlie Weston Personal Finance Editor

SIX commercial debt management firms audited by the financial regulator have closed down in the wake of the investigations, the Irish Independent has learned.

Debt management firms target householders in financial difficulties.

They charge thousands of euro to sort out their debts, such as mortgages and credit cards arrears, and the number of these firms has increased significantly in recent years.

There is no formal regulation of the sector as long-promised new rules have not been introduced by the Government.

However, investigations by the Central Bank aimed at imposing stricter standards on debt managers have prompted a string of firms to pull the plug on their operations.

The Central Bank clampdown involved audits of all 15 major debt management firms by financial experts from consultancy Ernst & Young.

The action has prompted six of these companies to shut down. Two firms collapsed in the past few months in the wake of the audits, leaving consumers out of pocket -- debt management firm Dunne & Maxwell and budgeting service Home Payments Limited.

Central Bank officials wrote to customers of Dunne & Maxwell after it became concerned about how it was handling client funds and told them to suspend all payments to the firm.

And the regulators also told similar firms handling money on behalf of consumers that they must abide by stricter rules under the EU Payments Services Directive, which safeguards consumer funds.

Upfront fees of as much as €750 are demanded by many of these firms, with 15pc of all cash the customer hands over to pay off debt being swallowed up in monthly fees by the advisory firm in some cases.

This means that someone making payments of €350 a month could end up shelling out €2,000 in fees to a debt firm over two years -- an upfront fee of €750 and fees of €52.50 a month. The rest goes to pay off the debts.

Pressure

Among the firms no longer operating here are Debt Advisory Centre, Gregory Pennington and Debt Plan Ireland.

Rent & Co, a bill-payment company based in Dublin, wrote to its customers in February to say it was closing.

That followed pressure from the Central Bank to provide precise details on how quickly it was paying the likes of the ESB and banks on behalf of its customers.

Despite the Central Bank action, not all of the activities of debt management firms can be regulated under the payments directive.

The head of MoneyVillage, Eugene McDarby, pointed out that firms which take payments by cheque are exempt from the provisions of the directive.

However, he said his expanded firm did not use this loophole and abides by the new Central Bank standards.

Irish Independent

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