New regulations introduced for debt management companies

Greater protections have been introduced for consumers using debt management services including a ban on payments for client referrals or leads.

Debt management firms traditionally offer advice on budgeting to meet debts, and negotiating with creditors, but the nature of their activities and the powers they have over clients have now been curbed.

Today, the Central Bank of Ireland outlined several steps to regulate the sector in its revised Consumer Protection Code, including a ban on arranging credit for people in order to pay existing debts or to meet the charges incurred from management services.

There is also a ban on preventing clients from dealing directly with creditors, while service provides must now give clients greater levels of information on the system and how it works.

Payment for client referrals or leads to other third party agents has also been forbidden.

Director of consumer protection Bernard Sheridan said the measures were being introduced to provide additional protections to those in a vulnerable position.

“If a consumer finds themselves struggling with debt, the first positive step they can take is to engage with their lender immediately to try to resolve or manage their debt issues,” he said.

“Before signing any agreement with a debt management firm, the Central Bank encourages all consumers to make sure that they fully read and understand the amount and nature of any fees being charged and are also clear on what services they can expect from the firm in return for these charges.”

From today, those wishing to engage with such management firms have the right to reach full agreement on charges and the nature of payment before engagement.

Firms must consider all options for debt repayment and must outline these, with a full description of what they entail and the consequences clients may face as a result of each.

Also, they must have the consent of the consumer before agreeing to any repayment schedule, and must outline the result of any negotiation on their behalf within three days.

Full details of the regulations can be found on the Central Bank website.