It has been widely reported recently that 2 of the most well-known debt management companies have gone bust, sending shockwaves throughout the industry. ‘DCM Money Solutions’ of Nottingham and ‘Debt Doctor’ of Somerset both recently announced that their businesses had failed, leaving thousands of clients for whom they had promised ‘debt help’ to in limbo.

One can only sympathise with any clients of these two companies who may have lost money as a result of these collapses. However historically, business failures in the debt management sector have not been common so it is a strange coincidence to see two businesses go to the wall within a month of each other.

Although exact details of the business operations of each of the companies is sketchy at this stage, it is rumoured that both companies operated a system whereby they would pay creditors token payments and build a ‘pot’ up with the remainder to be used as full and final settlements. Sounds like a fantastic plan in theory, as this would help clients to clear their debts much faster than a traditional debt management plan that could take years and years to complete. However, as is all too obvious, this method can carry many risks for any clients who have signed up to it, because if a company that is holding client funds runs into trouble, suddenly client’s money is at risk through no fault of their own whatsoever.

This whole sorry episode has come at a challenging time for the debt solutions industry, as the OFT has already begun a campaign to ‘weed out’ any unscrupulous firms that may be operating in the sector. Could there possibly be a link between the OFT’s investigations and the two liquidations?

One theory as to the collapses of the two companies could be down to the ‘debt management guidance’ as set out by the OFT which was last updated in 2008 and soon to be updated again this year (2011). In the guidance, the OFT advises that creditors should be paid the full distribution of a client’s monthly payment towards their debt plan within 5 days of the DMC receiving cleared funds. If the rumours – and I must re-iterate that these are just rumours – are correct, then this would pose very big problems for the two companies in question. The success of their models depended upon retaining a proportion of the client’s monthly payment in order to ‘save up’ the money for full and final settlements. If the OFT have told these companies that this can no longer be done because it against their code, then those business models become defunct overnight. Could this be the reason why the directors of each of these debt help companies decided to cut and run? Only time will tell…

For any victims of this whole sorry episode – the advice is do not despair just yet. ‘Clear Debt’ have already bought the DCM client book and have promised to complete the plans for those clients with no further fees to pay or to switch them onto the less-popular ‘IVA’ debt solution. Although many DCM clients will be left out of pocket, at least they are receiving guidance to help them come through it. Free debt advice is available from charities such as the CAB. There are also some debt management companies offering a ‘rescue package’ to victims of the collapses.

One such company is UK Money Solutions who have said they will waiver their usual first payment fee to anyone switching their plan across from one of the failed DMC’s.

Author Bio: UKMS have stated that the advantage of using their debt help service is that they may be able to reclaim mis-sold Payment Insurance and unfair charges which could reduce the debts significantly, which may not compensate fully for money lost by clients to these failed debt management companies but could go some way towards redressing the balance.

Category: Finances
Keywords: debt management, debt help