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The Credit Services Association (CSA)
By Peter Wallwork, Chief Executive of the Credit Services Association
Fair Share is an issue around which there are many opinions. As most will know, ‘Fair Share’ is a voluntary arrangement whereby the creditor is asked to pay towards the cost of giving advice and setting up and maintaining a payment plan, ensuring the service is free to the customer.
Whether the current system is ‘broken’, or in any way needs ‘fixing’ is a particularly moot point, and the subject of a recent Independent Review of the Funding of Debt Advice under the auspices of Peter Wyman CBE.
Wyman’s recommendation was that Fair Share should be continued but made truly fair in that all who benefit from it should pay. A contribution should therefore be made pro rata by all who receive payments from a Debt Management Plan within the Fair Share model, and that the contribution should be the full amount requested by the debt advice organisation requesting it.
The CSA’s principal position is that only the owner of the debt should pay the Fair Share and that whilst it should be paid at a rate that is deemed to be reasonably demanded by the respective debt advice organisation, there needs to be safeguards in place to ensure this cost does not escalate. It cannot simply give carte-blanche for those firms that operate under the Fair Share model to charge whatever they want.
Wyman recommended changes be made to our Code, and while they sound reasonable in theory, in practice they are fraught with issues. We would suggest that the fairest way of describing who should pay would be to think of it as those who benefit from the payments.
When an account is placed with a debt collection agency (DCA) acting as an agent for the owner of the debt (the beneficiary), the DCA is nearly always paid on a commission basis and typically on a similar or lower rate of commission than the Fair Share percentage charged. This makes it commercially impossible for DCAs to pay the Fair Share. In some cases, the creditor or the owner of the debt pays the Fair Share as well as the commission to the DCA. In other cases, however, they do not, or when they do, they often recall the debt from the DCA, leaving that DCA out of pocket.
Whilst it could be argued that in some cases the DCA has not done the work of examining the income and expenditure of the customer, nor put in place a repayment plan, it is often the intervention of the DCA in signposting the customer to free advice that has resulted in the payment plan being created.
In other cases, the DCA will have undertaken considerable effort in contacting the customer, completing an I&E review and entering into a payment arrangement, only for the customer to subsequently seek debt advice on other debts and for the DCA to have the account withdrawn!
This is, of course, a commercial matter between the creditor and the DCA, but it is something that needs to be addressed or the vital role that an agency plays in achieving the right outcome for the customer may be lost. Indeed, the use of legislation to force the payment of Fair Share, without addressing this key issue, could be disastrous from this point alone. It also needs to be understood that the original creditor or debt buyer can find themselves paying three times over to support the debt advice sector: through the FCA Levy; Fair Share; and a voluntary charitable donation.
If all beneficiaries of payments were obliged to pay Fair Share, then the amounts raised would be more than adequate to fund the running costs of the organisations that charge them. Wyman’s report proposes that free-to-client providers should strive to achieve 20 percent efficiency savings over the next two financial years. It is an admirable notion, though one that would be near-impossible to police. Yes of course the sector should look to harness new technologies to ensure resources are not squandered, but a better way of ensuring they have the money to fund the vital role they perform is for a wider number of beneficiaries to contribute to the pot.
The Wyman report did not only focus on Fair Share, though it is perhaps the one area that prompts the fiercest debate. The concept of breathing space was also addressed. Any scheme that results in more people getting the debt advice they need, when the need it, can only be a good thing. However, we are campaigning hard to ensure that whatever Her Majesty’s Treasury (HMT) does propose, it does not as a consequence undo the good work that currently takes the form of what we describe as an ‘informal’ breathing space as described in the FCA’s CONC7 and also mirrored in the CSA’s own Code of Practice, which we believe already works extremely well.
The FCA Levy also came under scrutiny. Outside of Fair Share contributions, the report calls for debt advice to be funded solely via the FCA on behalf of the Money Advice Service (MAS). This means that only those firms that fall under FCA authorisation will pay. Whilst we acknowledge an argument that debt buyers and those organisations that lend for profit should be the first call for funding debt advice, we would also argue that if it is right for all recipients to contribute to the cost of payments from an organisation funded by Fair Share, then it is right for all to fund debt advice generally. We shouldn’t single out those debt advisors funded by Fair Share just because they find it hard to cover their costs.
We would argue that whilst it might be more difficult to collect a wider levy for debt advice, that should not mean it does not happen, as long as a fair formula can be agreed to acknowledge the fact that some are, as the report calls them, ‘unintentional creditors’ and that some make lending decisions and others including most of our members, do not. It would be entirely fair, for example, for the water, power and communications regulators, all of which are becoming more alive to the way in which they regulate the collection of debt in those areas, to also charge a levy within their regulatory perimeter (the unintentional creditors), the same way the FCA does for the MAS.
Of other areas discussed in the report, such as taking legal action only after a customer has been made aware of the availability of free advice, were not of particular concern since the use of enforcement agents by our members (other than for collecting Council Tax or parking fines) is following a judgement and again only if other methods of engagement have failed. Apart from anything else, litigation is an expensive option and one that our members would use only after all other routes had been exhausted.
We are concerned, however, that some of the less controversial recommendations, such as the use of the MAS Debt Advice Locator Tool could have the unintended consequence of frightening a customer away by convoluting the journey, just at the point they were receptive to being helped. It was also notable that the CSA is not yet represented as part of the MAS Debt Advice Steering Group, despite our members being key contributors to the cost of debt advice.
But on the principal discussions the CSA is agreed: we support the ambition of MAS to create a contribution formula that’s fair and equitable for all concerned. And that means the current funding models need to be refined.