Financial Wellness Group responds to the Woolard Review

Commenting on the Woolard Review, Deborah Ware, chief operating officer at Financial Wellness Group said: “change is needed to ensure that the debt advice sector is funded sustainably and that debt solutions are accessible and work well for consumers. The impact of the pandemic and the resulting increase in the number of people with low financial resilience brings the need for change into even sharper focus.

“The report is absolutely right to highlight that lenders can do more to monitor customers through the lifetime of their credit product and provide forbearance and access to debt advice sooner where it is clear borrowers are starting to struggle.  Early intervention is vital: without it, too many people only seek debt help when they’ve hit a crisis point, with all the mental health issues this entails.

“We also agree that funding for the provision of debt advice and, where needed, debt solutions needs to be put on a sustainable footing. The current ‘fair share’ model by which some providers recoup the costs of Debt Management Plans is unfairly restricted. Fairshare and the FCA debt advice levy fall only on consumer credit regulated lenders – other creditors that benefit from debt advice and solutions do so without contributing to the cost of their provision.

“The proposed Statutory Debt Repayment Plan (SDRP) addresses both of these issues. Firstly, it has a built in funding mechanism that is available to all those that provide it. Secondly, the burden of funding is spread fairly amongst all creditors – including the likes of local authorities, utilities, telecoms providers.  We urge the Treasury to progress plans for the SDRP as a matter of urgency.

“We wholeheartedly agree that Debt Relief Order (DRO) fees should either be waived, or a fund made available to pay them for those in need. DROs are designed to help those people with problem debt who are in poverty with little or no disposable income. By definition many of these customers are unable to raise the fee, which prevents them from entering the solution they so desperately need.  The Insolvency Service is currently consulting on changes to the DRO rules and we’d like to see a waiver of fees, or a system of funding them for those in need, included in those changes.

”With demand for debt advice set to spike this year, change is vital to ensure that consumers that need help are able to access it. We’re delighted to be playing our part in increasing capacity with new teams of debt advisers providing free debt advice starting to give advice later this month.”

With focus also being given to the formal insolvency fee structures, Catherine McNeill, Head of Insolvency at Financial Wellness Group commented: “Chris Woolard has highlighted concerns about whether the IVA and Protected Trust Deed markets are working well for consumers. We share those concerns.

“It’s worth saying that both IVAs and Trust Deeds can be powerful debt solutions for customers: allowing them to protect their assets and clear their debts in a fixed time period. The vast majority of customers who start these solutions, with a good quality provider, do successfully complete them and many benefit from a substantial proportion of their debt being written off at the end of the solution.

“In fact, creditors control IVA and Trust Deed fees, which have been trending downwards for a number of years. Creditors and their voting agents are also leading the move away from upfront fees towards fixed fee models which see creditors starting to receive payments after three months. Marketing costs (driven by introducers), when combined with this downward trend in fees, have contributed to consolidation in the sector.

“Following the Insolvency Service’s call for evidence in 2019, we look forward to it publishing its recommendations on a route forward for insolvency regulation and how it will align it with the broader debt advice regulatory framework.”