The money merry-go-round of debt advice
27 March 2019
Authors: Peter Wallwork, CEO Credit Services Association (CSA) and Henry Aitchison, Head of Policy.
Few, if any of us, working in the financial services sector, would deny the need for debt advice. The argument, if that is not too strong a word, has been more around how such advice should be funded, and by whom.
The debate has not been helped by a clear lack of transparency and data regarding the current funding channels and sources. Little surprise, therefore, that the Single Financial Guidance Body (SFGB) and its predecessors also found it difficult to unravel the ‘money merry-go-round’ of debt advice, and why the CSA is keen to work with them, in finding a workable solution. And it is important to note at this point that we are not at loggerheads over this issue. Far from it.
What all of us can agree on, is that any future funding contributions should be fair, equitable and transparent, and that any future thinking remembers that it is not only financial services businesses that ‘benefit’ from debt advice and informal debt repayment plans. There are clearly firms and organisations that benefit from debt advice, but who currently contribute nothing towards it. They may contribute in other ways, but without data, the conversation can quickly fall on deaf ears.
Transparency is also an issue; without transparency on who contributes currently, the industry ends up blaming one another and pointing fingers, often in the wrong direction.
What we hear is that funding needs not only to be fair, but also clear where and to whom it is going. What is also critical is that any money spent is spent well in delivering real help to the consumer and not being lost in inefficiency and un-necessary overhead. Our members tell us that a better understanding on these points is an essential next step in the funding debate. There may also be other ways of contributing to help debt advice agencies more directly, to help drive efficiencies to enable the funding to go further.
There is, however, a sense of understandable frustration among many about the lack of clarity and meaningful data to support the value that debt advice ultimately returns. Economic impact papers from the SFGB suggests a value is there, but do not perhaps tell the whole story.
What we do know – and most of that has to be estimated - is shown in the infographic. The size of the funding pot for 2019 is about £172 million, divided into three parts: £56.3m in the SFGB debt advice levy; £55.7m in fair share; and approximately £60m made up of ‘other contributions’ being donations, grants and similar. We also know that in addition to the above, firms are now being asked to contribute to the £20 million FSCS debt management levy – a fund that customers interacting with our members, can never benefit from and that would be better spent on free to use debt advice, than effectively bailing out debt management firms that go bust!
To give some idea of where the money has been spent historically, in 2017/2018 Money Advice Service (MAS) spent £43.3 million on 487,000 debt advice sessions. This means that almost half of all advice sessions in 2017/2018 were funded by industry payments to the debt advice levy alone. Unfortunately, our understanding starts to falter at that point as we try to understand which organisations have received some of this money, and how many sessions each organisation produced. Analysing annual reports can help fill some blanks but even then, we enter the realms of guesswork, with money moving between advice providers, partnership arrangements and so on. Beyond this, however, the picture becomes even more opaque.
Indeed, this gets to the very heart of the current problem; the industry has no clear global idea of what its contributions pay for, or visibility of their true impact beyond broad statements we have to take on trust. We have no clear idea how the fair share percentages are calculated, how those percentages could be reduced (i.e by widening the pool of contributors) or how many debt management plans are in existence. Similarly, we do not know the cost of creating a debt management plan, or what services need to be funded (e.g initial consultation, negotiating with creditors, annual reviews etc) in order to have one agreed.
What we do know is that it is wholly wrong for the funding of debt advice to continue to fall primarily into the lap of the financial services sector, and the concept that ‘all who benefit should pay’ is similarly questionable; many creditors benefit beyond those that appear on a debt management plan! Thankfully, and amongst this web of questions, there is general consensus that ‘something must be done’ and it is pleasing to report that following many conversations, debates, and discussion alike, actionable steps are now being put in place.
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 2018/19 Single Financial Guidance Body funding requirement allocation – FCA Regulated Fees and Levies 2018/19 – Policy Statement 18/13 [July 2018, Annex 3, Page 3].
 Various estimates place current Fairshare contributions between £53 and £58 million. Relevant Statements of Financial Activities/Particulars for providers not yet available. CSA members alone contributed £25.5million in the last year to Fairshare providers.
 Based on Supportive Council Tax Recovery [December 2018, page 10] – Money Advice Service.
 2017/2018 Annual Report and Accounts [2016, page 59] – Money Advice Service.