| 12.5°C Dublin

Sinead Ryan: Don't be ripped off ... loan companies are not the answer

It's surprising to hear an organisation using the words "fleeced", "ripped off" and "expensive" about its own industry but when it comes to so-called "debt management" companies, it sounds about right to me.

The organisation doing the name-calling and looking for strict regulation, is MABS -- the State-funded "debt management" agency which offers its services for free. I'd go one step further and call for an outright ban on all other operators.

Charging initial fees of up to €750 and a hefty monthly charge of up to 20pc of all the debts it purports to 'help' you with, you'd have to wonder why anybody uses them at all. Well, one of the reasons, from debt-ridden people I've spoken to, is that they are embarrassed to contact an organisation which they regard as next up to St Vincent de Paul. Making an appointment with MABS is seen as giving up.

Making an appointment with a "debt management agency" is seen like contacting an accountant, or solicitor -- it's for "professionals". Nonsense. If people want to give away hundreds of euro they already haven't got to someone who has nice headed paper and a glossy website, then that's fine; if you actually want help, for free, then MABS is the only place you're going to get it.

Michael Culloty, of MABS, says people use high-cost companies because they're at the end of their tether. "They're vulnerable, like rabbits staring into the headlights. They are intimidated by their creditors and see them as offering an escape". The National Consumer Agency agrees, saying such companies "are making promises they can't deliver on".

Private debt advisers are not regulated. The maths works like this: "We'll work out how much you're paying for all your loans and get a much nicer, easier loan which costs you less." What could possibly go wrong?

Well, logic for one. Just what is the magic ingredient these companies have which makes banks, credit card companies and car finance companies capitulate at the mere mention? Well, what you are actually getting is one big loan, over a much longer period. Time is the trick along with massive payments in the long run.

The hastily formed umbrella these recession-thriving companies are under is the Debt Management Association of Ireland. On its website, it has a code of practice which it hopes 'members' will follow. It can't make them of course, so it's aspirational. It says they should tell customers that: "Administration and/or management fees will be payable." No lie there.

"If a first payment goes to the [debt management company] rather than to the creditors, customers must be warned that they will go further into arrears with their creditors.". Quite. It warns of "the likely impact of the debt management programme on the customer's credit rating, that they might not be able to obtain credit in the short, medium or long term" and of "the likelihood that existing bankers may not wish to continue banking facilities ... on basic bank accounts". Hmm.

Sensibly, although buried on page 7, is the offering: "Where it appears that applicants are not suitable for a fee charging debt management plan due to the severity of their financial position, members should, where appropriate recommend such clients to fee-free companies and advice centres".


Well, for goodness sake, that's MABS, so why not direct them there in the first place? Surely every client is aware of the "severity of their financial position" or they wouldn't have called in the first place?

As for the agencies, one offers, "debt solutions that offers you compassionate, honest debt advice". Another promises to "help you live a stress free life" or "have interest on your loans frozen or reduced, saving you thousands in interest repayments".

Baloney. And expensive baloney at that.