2 October 2017|: Debt Management Plans (DMPs) have been increasing in popularity over the past few years as they offer a non-formal way for an individual to deal with their debts. Essentially, a DMP is an informal arrangement whereby an individual will pay their creditors a set amount per month over a period of time in settlement of their debts. This will be set up via a DMP provider who will negotiate with creditors on an individual’s behalf and subsequently collect the individual’s monthly contributions and pay these over to creditors.
The advantages of a DMP are that it is informal (i.e. not recorded on the publically-available insolvency register) and an individual makes a set monthly contribution so can budget accordingly. The main disadvantage of a DMP is that it is not legally binding and any creditor can break ranks at any time and take their own recovery action. Also, there is no obligation on creditors to freeze interest and it is difficult to get all creditors to agree to a DMP and remain committed to it.
A DMP can be set up via a free provider or a provider who charges for their services. A fee-charging provider will usually take an up-front fee followed by a percentage of monthly contributions. This is where a potentially murky industry has developed as, whilst a DMP provider needs to be registered with the Financial Conduct Authority, we have heard a number of horror stories of people signing up to a DMP but finding out months or even years later that hardly anything has been going to their creditors and they still owe nearly as much as they did at the start of their DMP. A recent anecdote told to us related to a 95 year old lady who had signed up for a DMP at £10 a month for 10 years.
This all begs the question whether DMP’s are being mis-sold to people who do not fully understand the concept or implications – hence the title of this article. It would come as no surprise at all if in future we hear of certain fee-charging DMP providers being investigated for mis-selling and we hope that any who have exploited the vulnerability of people in debt for their own commercial gain are held to account.
If you are an individual in financial difficulties, please ensure that you seek advice from a reputable licenced insolvency practitioner or a debt charity in the first instance. BRI are happy to provide a confidential, no obligation initial advice meeting at any of our offices free of charge. Please contact any of the BRI Management Team should you wish to arrange such a meeting.