Frp Advisory Group Regulatory News (FRP)

31 Aug 2006 17:21

Debt Free Direct Group PLC31 August 2006 31st August 2006 DEBT FREE DIRECT GROUP PLC WELCOMES CALLS FOR GREATER REGULATION On 3 August 2006 we issued a statement to the market, calling for regulatorychange. We are delighted to see from recent press coverage that otherinterested parties in the industry are at long last responding to our lobbyingefforts. We have long campaigned for regulation that will ensure that a consumer isalways provided with best advice. That means advising on the best availableoption or options for the individual with the particular debt problem, ratherthan what is best for the advisor. However, the quest for greater regulation affects lenders as well. Impartialadvice should be obligatory, not just when helping an over-indebted consumer outof debt but also when lenders are advancing consolidation loans. Recentcomments by some lenders have suggested that it is the marketing activity ofdebt advice companies that has led to the increase in personal insolvencies.This does not bear scrutiny. Andrew Redmond, CEO, commented: "This suggestion is as ridiculous as tobacco companies blaming the medicalprofession for diagnosing more people with lung cancer." The current regulatory position At present the only regulation in the distressed consumer debt industry is theresponsibility of Insolvency Practitioners (IPs). This means that formalinsolvency proceedings such as IVAs and bankruptcies are strictly regulated toensure compliance with best practice. Debt Free Direct employs 8 IPs at presentand is subject to regulation in these areas. Most debt advisors do not employ IPs and are not regulated. However, theypurport to advise to the same level of competence and professional standards. What regulation is required? Consumers need to know that the advice they receive is impartial and that itconsiders all the options available. Similarly, lenders need to understand how the advice has been arrived at and theprocess that has been undertaken to test that advice. At Debt Free Direct we doexactly that, using our unique Best Advice Model (see attached Appendix whichdetails the process). This approach ensures that consistent and impartialadvice is delivered systematically. We are calling for regulation of the whole area of debt advice, not just IVAs.Such regulation should include advice on entering a debt management plan (DMP)and, critically, it must address those companies that market consolidation loansas a debt solution. Debt advisors should be required to provide accurate details of how they arriveat their advice as well statistics to analyse the advice given between thesolutions available (i.e. what proportion of customers were advised to take outIVAs, remortgages or DMPs, etc.). This level of transparency will provide anindustry benchmark against which advisors can be judged. Advisors should also be required to provide information to lenders and toconsumers of the outcome of the advice given. This information will principallybe in the area of the amount and timing of prospective returns to lenders. We are aware that returns in IVAs vary greatly. The average IVA return from aDebt Free Direct IVA is 45% (based on the last 4,126 IVA cases in the periodended 30 July 2006). The average return from the rest of the market quoted inPwC's recent report ("Living on tick") is 37%. Debt Free Direct represents 20%of the sample quoted in PwC's report. Adjusting to take out the Debt FreeDirect element reduces the average for the remainder of the IVA market to 35%.That comparison shows that, on average, a Debt Free Direct proposal represents a29% better return for lenders than the average produced by the remainder of theIVA market. We would expect a regulator to look into the reasons for thisvariance. However, we are strongly of the view that a thorough verificationprocess is an important element in improving average lender returns. It is for this reason that we are lobbying for a mandatory requirement foradvisors to rigorously test their advice models and to verify the data uponwhich the advice is based. We are concerned that many operators in the IVAindustry do not look sufficiently at corroborative evidence to verify what thedebtor has told them. In the area of IVAs, in particular, this can lead toadvice being given on inaccurate data. How will regulation be achieved? Ideally, we would like to see Government regulation in this area. We anticipatethat this may take a comparatively long time and accordingly we are pursuingother strategies. We recently met with representatives of the InsolvencyPractices Council (IPC). We had a constructive meeting and made our caseaccordingly for more and better regulation. The IPC are very influential and weare hopeful as to the outcome of those discussions. We have also attended a meeting hosted by The Insolvency Practitioners'Association to discuss a "kitemarking" concept. The IPA initiative is mostwelcome, however, it was targeted at debt management companies specifically. Wewould like to see the scope broadened to cover all debt solutions. We also havereservations that the IPA initiative will not go far enough. Debt Free Direct has always adopted an "open house" policy for lenders to visitus and see first hand how we operate. Only very recently have lenders takenthis offer up. In addition, we will be hosting a conference in November 2006 (to which allmajor lenders will be invited). The conference will discuss common industrypractices which we consider to be unacceptable and our suggestions for how weand the credit industry can move together to deliver agreed best practice. Andrew Redmond commented "We are delighted that our lobbying activity in the area of the regulation ofbest advice is bearing fruit. We have always been a best advice company andhave never charged for the advice given. We look forward to working with thecredit industry to agree a way forward at our forthcoming conference." APPENDIX : Best advice to protect the debtor Financial information relating to the consumer is processed through a computeralgorithm ("The Debt Free Direct Best Advice Model") in order to recommend thebest solution suitable to address that individual's particular financialcircumstances. The solutions offered range from practical advice, such assimply destroying credit cards and curbing unnecessary expenditure, to thefollowing solutions: Advised in year Fee ended 30 April 2006 received • Consolidation loans and re-mortgages 3,500 Commission share • Informal arrangements (DMPs) 18,000 None • Bankruptcy 6,810 None Cases in last Fee 12 months received • IVAs 4,164 Fees paid by lenders Enquiries: Debt Free Direct Group plcAndrew Redmond, Chief Executive Officer 01257 240599Paul Latham, Finance Director 01257 240529 Numis SecuritiesIain McDonald 020 7776 1500Lee Aston Financial DynamicsEd Gascoigne-Pees 020 7269 7132Nick Henderson 020 7269 7114 This information is provided by RNS The company news service from the London Stock Exchange