Consumers who pay for advice on managing their debts will now be protected by a new debt management plan (DMP) protocol launched today (7 February).
Consumer affairs minister Jo Swinson announced that under the new protocol consumers will not be charged before signing a contract with a protocol-compliant debt management company.
Providers have agreed to spread the recovery of their set-up fees over at least the first six months in an effort to make plans more affordable.
Those companies that sign up to it will also be required to provide consumers with information about other debt management options, including the availability of free debt advice by providers.
Swinson said: “This protocol comes in the wake of the refusal by the Office of Fair Trading (OFT) last week to renew the credit licences of two debt management companies and the refusal of the application of a new business.
“The government is determined to drive up standards in this industry and ensure that people seeking paid-for advice are not disadvantaged by debt management companies that do not offer value for money.”
The voluntary protocol will be subject to a standing committee headed by the Insolvency Service, which will report within the first 12 months of its operation.
Credit Today reported in January that the launch of the DMP protocol had been delayed after talks between the fee-charging companies and advice charities stalled.
The protocol was prompted by the OFT’s compliance review in 2010, which highlighted concerns about the quality of advice in the sector.
By Ellie Duncan