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How does UK Debt Management Differ?

In the UK debt management companies operate in a similar way to those in the US by offering debt help and advice, debt consolidation and Debt Management Plans. However, there is a difference in the way in which they
are regulated. In the UK regulations are tight; debt management companies are licensed and usually follow a strict code of practice, which we will discuss later.

In September 2010 the US Federal Trade Commission issued new rules relating to companies trading in the debt management or debt consolidation industry. This was in response to the many problems that had been faced by US consumers when dealing with these companies.

Under these rules companies are required to disclose certain information to the consumer at the outset. This information includes the amount of fees that are being charged, the period that the Debt Management Plan will run for and the fact that being on a Debt Management Plan can adversely affect a person’s credit status. The rules also state that no upfront fees can be charged, and there are guidelines relating to the operation of bank accounts by debt management companies.

These new rules give the consumer more protection. However, the regulation of debt management companies varies throughout America with each State having its own laws relating to licensing in the industry. This means
that the level of consumer protection also varies.

The UK Position

In the UK, on the other hand, all debt management companies are regulated by the Financial Services Authority, which regulates every business selling financial services in the UK. It sets out guidelines for companies involved in the industry and has the power to lay down rules and enforce the law.

In addition, any company involved in the provision of financial services to consumers must hold a Consumer Credit Licence in accordance with the Consumer Credit Act. The Office of Fair Trading, which is a government department that works on behalf of consumers, has responsibility for keeping an up-to-date register relating to Consumer Credit Licences. Members of the public can search the register to check whether companies hold a licence, and whether companies have been refused a licence or had their licences revoked for any reason.

Another body involved in the debt management industry is the Debt Managers Standards Association (DEMSA), which is regulated by the Financial Services Authority. Although membership of this organisation is not compulsory, it sets standards for its members to follow and has a Code of Conduct. Member companies are required to follow this Code of Conduct and are encouraged to operate to high standards.

There are several debt solutions available in the UK and a debt management company will recommend a suitable one for their clients depending on certain factors. These factors include the level of debt, whether the client is a home owner and how much disposable income the client has available for the repayment of debts. Three of the main types of assistance available in the UK are Debt Management Plans, Individual Voluntary Arrangements and Debt Relief Orders.

Debt Management Plan

A Debt Management Plan is suitable for the repayment of unsecured debts, which should total at least £2000 and be owed to two or more creditors. A person who enters into a Debt Management Plan should have at least £100
available for the repayment of their debts.

This arrangement is less formal than an Individual Voluntary Arrangement (IVA) and is not legally binding. It also enables the individual to retain his anonymity because details are not entered on the publicly available Insolvency Register.

Individual Voluntary Arrangements

An Individual Voluntary Arrangement is a legally binding agreement, which has to be administered by a licensed Insolvency Practitioner who will usually be a qualified solicitor or accountant. It is a more formal arrangement than a Debt Management Plan, and is a means of avoiding bankruptcy. Although the client loses his anonymity, it has the advantage of barring creditors from taking enforcement action against anyone during the agreement.

Debt Relief Orders

This arrangement, debt relief order is usually applicable for non-homeowners who have few assets and little disposable income. It enables the client to have his debts written off after a year. The guidelines are that debts must not exceed £15,000, assets must be worth less than £300 and the client’s disposable income should be less than £50 per month.

Each of these types of arrangements has specific guidelines and members of the public can access details of these guidelines through different companies such as Baines & Ernst, an organisation that gives support to people in debt.

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