DMP Providers - charity or fee-based?

[chairmanmiaow]

Hi,

After a long chat with an IP, for various reasons I think a DMP may well be the sensible route for me, at least for now.

My next question is - what are the benefits of using a fee-charging DMP provider (such as Brightoak) versus one of the "charitable" ones like Payplan or CCCS?

I'd be really interested to hear the views of professionals and people who've done DMPs...


Thanks,

CM

[Andrew Graveson]

Hi CM,

My view (which I confess might be biased):

Fee-Free: If you feel after contacting a fee-free DMP company that they will leave you enough money to live reasonably, and that they will provide the service levels that you expect, the fee-free model will clear your debts quicker.

Commercial: There are charges which will mean in the long-term it could take longer to clear debts. As a commercial company may choose to support you in making a DMP case based on what you really need to spend, rather than what you are being told you should spend, you might find that the arrangement is much more manageable for you which could be equally as important to you as the speed of debt clearance.

If the fee-free arrangement is too tight then the chances are that you will drop out at some point and therefore the fee-free model might not, in the long-term, help you to clear debts quicker.

I think making a comparison that is personal to you will help you to choose. Perhaps pick up the phone and speak to a couple of both?



Andrew Graveson
Mortgage Broker & Bright Oak Debt Management
andrew@brightoak.co.uk
www.brightoak.co.uk

[Skipper]

You mention a firm that post here. But I'll say this - unless someone can convince you the merits of paying for a service,do not. A fee levied could be 18% of your monthly contributions. Creditors some have preferences for free DMP-(Egg for one)

If you do graduate into an IVA, CCC can can also help as they have their own IP without an external referral. Everything under one roof if you like...

<<My motto:I am proud of black culture and is against racist bigotry>

[Skippy]

I'm wary of the CCCS - their expenditure seems to rigid. They are funded by creditors so I'm not convinced that they will offer unbiased advice. In a lot of things you get what you pay for, and I can't help feeling that this is one of them.

Yesterday is history, tomorrow is a mystery, today is the present - a gift to make the most of.

View my blog at http://skippy13.blogs.iva.co.uk/

[Welsh Boy]

Skippy

I would endorse that statement, you get what you pay for although some fees can be excessive. If any one is looking towards DMP then I would have no hesitation in pointing them towards Andrew Graveson at Brightoak, they are a first class outfit and Andrew is certainly worth having on board working for you, so reluctance to pay a fee may seem a false economy. Tony

F.P.C. 1,2,3 Qualified
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Managing Director : Debt Advisory Bureau
Principal : All Mortgage Products

www.debtadvisorybureau.co.uk
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Directly Authorised with FSA :304244

[johnz]

I'll 2nd what Welshboy said. I looked at both and the only way I could afford it was to go through Brightoak. As for Egg, they're one of my creditors and they've been great. No stress and no hassle from them. They're fine with my choice of DMP company.

Also, while their fee does extend the length of my debt, their service so far has been outstanding, so I am more than willing to pay.

Johnz

[catullus]

A further consideration is the attitude of CCCS and Payplan to IVA's.CCCS are on record as saying that only 3% of candidates are suitable for an IVA, a statistic that I think is highly questionable and probably motivated by their close proximity to lenders who presently would prefer you to be in a DMP rather than in an IVA.

A commercial DM company is far more likely to monitor your circumstances and alert you sooner if they consider that you are now more likely to get an IVA approved.

And only from observation, people who I have seen coming out of CCCS and Payplan DMP's have been given very tight budgets. So, for me it would be the fee paying company and if necessary shop around a few.

[Cybus]

I don't have experience of DMP's other than I know there are those that charge a fee and those that do not charge a fee.

Surely though at the end of the day it comes down to what the individual concerned has the ability to pay as with an IVA?

With IVA's there are those creditors who have guidelines they suggest be followed in determining appropriate expenditure levels, but they are not so rigid as to not allow some degree of flexibility.

Does the same not apply to Debt Management?

Personally, if I were in the position that I would have to use debt management, I would be trying to ensure that as much as my money went to my creditors as possible and as such if I could find a non fee charger, I would go to them.

Perhaps a representative of those who charge fees could explain what the fees are that they charge and how those fees are calculated.

For example, I believe there are those that take the first payment as a straight fee (For setting up the scheme) and then a percentage of successive payments. I would be interested to hear how they feel they can justify taking the whole of that first payment in such a way. To me that is very unfair on the debtor. If they are to charge a fee to 'Set-up' a debt management plan, then that fee should be set to a level that applies across the board whether the debtor is paying £50 per month or £300.

What does it actually cost to 'Set up' a debt management plan?

Why does that figure not apply across the board? I suspect you will tell me there is a lot of negotiating to be done with creditors.

But ...

Presumably the Debt Management Company must already have an established relationship with creditors and as such know or at least have a very good idea what the creditors are looking for?

With an IVA You are dealing with set fees that can and often are restricted by creditors, because they want to see less going on fees and more to them.

With Debt Management, are the creditors actually fully aware of how much has already been taken in fees prior to them receiving any payments?

I ask the questions because I am interested to know as I am sure are others.

Tell it like it is.

[Andrew Graveson]

Hi Cybus,

I think you ask some very fair and important questions. I can tell you only how Bright Oak works; I am not a representative of the industry.

We do not tell our clients what they should and should not spend their money on. We will make a proposal based on the figures that are real to them. At the same time we have to be mindful that the creditors will expect a sincere and fair effort to repay debt as fast as the client is able. Where we feel that a client's proposal will draw attention due to a certain expenditure item we caution on this in advance. Some clients will agree to reduce the item, some decide not to. Should it subsequently become an issue preventing agreement with a creditor we will put the alternatives to our client and act on their instruction.

We do charge the first months payment as a fee for negotiation. There is definately a logic to saying that this is not fair as clients will pay varying amounts for similar amounts of work. There is also a logic to say that this is entirely fair because the payment is based on the individuals ability to pay. A one-month charge also provides a consistency of expectation for the creditors as they know when to expect their first payment. It would be unfair to expect a creditor to wait three months for a payment simply becuase the client could afford to pay a relatively small amount each month.

If, for example, we needed to earn £250 or £350 from the first fee to cover our expenses I do not think it would be fair on someone who could fund a DMP to the amount of £100 per month. Their debt would not be touched for 2.5 to 3.5 months, and we would collectively alienate the creditors with a long period of non-payment. This could have negative implications for all involved.

On occasion where we have taken what we would consider to be large contribution cases we have reduced the first fee. In these instances we felt that keeping the full payment would not be justified in return for the work done. We have agreed a fee with the client and used the remainder to issue a part-payment to the creditors accompanying the debt management proposal.

We operate a sliding scale on monthly charges. Typically we charge 15% of the contribution for ongoing management, issue of payments, regular reviews, and the handling of frequent sale of debts from one party to another. We also offer to handle all phone and written correspondance received by the debtor on the debts. We have high contribution cases where we are charging 7.5%.

We fully disclose the fees that we have collected, and our future charges, in the proposal sent to creditors.

I have witnessed external debt management proposals where the debt management company are charging 35% of each months contribution as a fee. I have also witnessed external debt management proposals that require three months payment prior to distribution to creditors.

To us at Bright Oak there is a balance to be found. This is our work and we work very hard and long to do the best job we can for our clients and to provide fair recovery to the creditors. In return we charge what we believe to be fair for our efforts.
We decided before we opened the business that if we had to charge more than we thought to be fair in order to make a living that we'd go away and find something else to do.

Ultimately however fairness is judged by our clients and potential future clients; not us.



Andrew Graveson
Mortgage Broker & Bright Oak Debt Management
andrew@brightoak.co.uk
www.brightoak.co.uk

[Cybus]

Hi Cybus,

I think you ask some very fair and important questions. I can tell you only how Bright Oak works; I am not a representative of the industry.

We do not tell our clients what they should and should not spend their money on. We will make a proposal based on the figures that are real to them. At the same time we have to be mindful that the creditors will expect a sincere and fair effort to repay debt as fast as the client is able. Where we feel that a client's proposal will draw attention due to a certain expenditure item we caution on this in advance. Some clients will agree to reduce the item, some decide not to. Should it subsequently become an issue preventing agreement with a creditor we will put the alternatives to our client and act on their instruction.

We do charge the first months payment as a fee for negotiation. There is definately a logic to saying that this is not fair as clients will pay varying amounts for similar amounts of work. There is also a logic to say that this is entirely fair because the payment is based on the individuals ability to pay. A one-month charge also provides a consistency of expectation for the creditors as they know when to expect their first payment. It would be unfair to expect a creditor to wait three months for a payment simply becuase the client could afford to pay a relatively small amount each month.

If, for example, we needed to earn £250 or £350 from the first fee to cover our expenses I do not think it would be fair on someone who could fund a DMP to the amount of £100 per month. Their debt would not be touched for 2.5 to 3.5 months, and we would collectively alienate the creditors with a long period of non-payment. This could have negative implications for all involved.

Please forgive my lack of understanding. In such instances, what would happen? Would I be correct in making the assumption that some of those funds/fees realised from the initial payments of those paying higher contributions would be utilised in assisting with expenses incurred in the lower contribution paying cases? Otherwise, how do you avoid, to use your term, alienating the creditors of the debtor whose payment is £100 per month?

It is this which I am having trouble grasping.

If the fees you need to earn to cover expenses amount to £250-£350, then are those debtors paying a higher amount subsidising your costs of those paying a lower amount? As such are the creditors of your high contribution debtors not missing out because you have retained a higher percentage of their first contribution as fees in order to accomodate your £100 per month debtor?

Is that why there is not a 'set fee' to 'Setup' a Debt Management Plan?

A Nominee in an IVA proposal has a set fee.

I appreciate the one moth period gives some consistency in when creditors should expect first payments, but I don't grasp why the debtor's ability to pay determines the Set up fee in a Debt Management Plan

On occasion where we have taken what we would consider to be large contribution cases we have reduced the first fee. In these instances we felt that keeping the full payment would not be justified in return for the work done. We have agreed a fee with the client and used the remainder to issue a part-payment to the creditors accompanying the debt management proposal.

We operate a sliding scale on monthly charges. Typically we charge 15% of the contribution for ongoing management, issue of payments, regular reviews, and the handling of frequent sale of debts from one party to another. We also offer to handle all phone and written correspondance received by the debtor on the debts. We have high contribution cases where we are charging 7.5%.

We fully disclose the fees that we have collected, and our future charges, in the proposal sent to creditors

I have witnessed external debt management proposals where the debt management company are charging 35% of each months contribution as a fee. I have also witnessed external debt management proposals that require three months payment prior to distribution to creditors.

That I would consider daylight robbery [:(!]

To us at Bright Oak there is a balance to be found. This is our work and we work very hard and long to do the best job we can for our clients and to provide fair recovery to the creditors. In return we charge what we believe to be fair for our efforts.
We decided before we opened the business that if we had to charge more than we thought to be fair in order to make a living that we'd go away and find something else to do.

Ultimately however fairness is judged by our clients and potential future clients; not us.



Andrew Graveson
Mortgage Broker & Bright Oak Debt Management
andrew@brightoak.co.uk
www.brightoak.co.uk

Please don't take me as very anti Debt Management, I am trying to understand how it works and my thinking in this post may be flawed. [:)]

Tell it like it is.

[Adam Davies]

Hi
You can have a "free" debt management plan or a "fee" paying one,all that is important is that it is affordable and that it lasts the course and gets you back in control of your finances.
What is better,paying at least 15% more to your creditors via payplan or CCCS but it possibly failing at month 21 [Industry average] or paying a realistic amount and going the full term[whatever that may be] with a reputable DMP company ?
Of course there is no easy answer but I tend to agree with Skippy that you will get what you pay for,like most things in life !!!
Regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp

[Skipper]

I am not covinced on the expertise arguement made by fee paying DMP company.The inportant thing about DMP is creditors reducing and not charging interest. Not a single DMP firm or charity can dictate that to creditors or stop CO been issued. No fees means more for I/E or/and to creditors.

It is not a hotel or restaurant service where paying more produce a more rewarding experience-it is about clearing your debts.



<<My motto:I am proud of black culture and is against racist bigotry>

[Andrew Graveson]

Hi Cybus,

I think I'm being very honest and open about our business and our philosophy. I'm also posting under my own name and the company I own so have absolute ownership of, and accountability for, my comments on the site. I stand by everything I previously wrote. I'll deal with the points you raise one by one....

I did not say that we need £250 to £350 to cover out set-up costs. I used it as an example. I believe that you are absolutely incorrect to say that IVA nominee fees are set. They are not; if you are talking about a TIX compliant proposal they vary according to monthly contribution level. Where is the difference that you refer to?

Do you consider the statement about Bright Oak's charges that I wrote to be "daylight robbery" or the examples that I provided of cases I have seen handled by other DMP companies? It's unclear which part of the section of my post that you quoted you refer to.
If you think our charges are "daylight robbery" perhaps you might compare what the annual collection on a £250 per month case would be for a DMP versus a supervisor fee in an IVA?

Since we started trading we have lost less than 4% of our clients. We have not yet had a debt management plan upon which we could not reach agreement between creditor and debtor. I would suggest that this compares reasonably to the IVA industry.

I understand (from creditors) that an average DMP lasts 22 months. This means an approximate 5% drop-out per month.
Many creditors refer clients to organisations such as CCCS and Payplan. I do not know the drop-out figures at these organisations.

I would contend however that based on the evidence our methods probably offer a slightly lower monthly return to creditors (compared to the creditor funded sector), but one that is likely to offer a much better long-term return to them. The reason for this is that a DMP client who can reasonably afford their monthly payment and is happy with the way they are being served is more likely to maintain a long-term repayment arrangement.

If you think about it this is a win-win-win situation. A client who pays what they can afford and who values the arrangement, a creditor accepting a reasonable return with a reasonable expectation of a long-term arrangement, and a DMP company that can make a reasonable living from the work it does.

Perhaps an open-minded and bold creditor might trial this method against the referrals made to the "free" sector to see what works best for them?

My previous post on this thread makes it clear that a client who believes that the repayment proposed by a "free" DMP company, and who believes that they will get the service levels they expect, would be best served by using one of the "free" companies. For many people CCCS and Payplan do a wonderful job.

In previous threads I have also noted that I believe that in most cases, where an IVA is available, that an IVA will be a better option than a DMP. I wonder why Payplan and CCCS seem to recommend this option less than other debt assistance agencies?

There are however many people for whom an IVA is unavailable and for whom the criteria applied by the creditor-funded DMP sector are completely unrealistic.

Last night I had a conversation with a career soldier who will be entering into a DMP with us. His "clothing allowance" exceeds the "set" criteria because he feels the need to buy kit for himself to serve in operations overseas (which he has been doing for most of the past 2 years); kit that the MOD do not or cannot provide for him. He also has a disabled son that he looks after every weekend necessitating a 4-way trip across the country every weekend when he is in the UK. This trip means his travel expenditure is well beyond the "free" parameters.

I defy anyone to state that his expenditure should fit into the neat boxes that exist elsewhere; and frankly from experience I would suggest that when his creditors see the detail in the proposal they will feel exactly the same.

It's about people and choice.

Andrew Graveson
Mortgage Broker & Bright Oak Debt Management
andrew@brightoak.co.uk
www.brightoak.co.uk

[MelanieGiles]

Hear Hear Andrew. I have been away from the office all day, so have not contributed to this ongoing thread, but I would not hesitate to recommend any clients of mine to you who do not meet current IVA criteria, or who favour the DMP as an option.

My understanding is that 80% of DMP arrangements fail within the first two years with creditors not being repaid. So how can the "free" service be better for the debtor with such high drop off?





Regards, Melanie Giles, Insolvency Practitioner for over 20 years.

To have me propose an IVA for you, please visit:
http://www.melaniegiles.com/ivaEnquiry.asp

See customer feedback at:
http://www.iva.com/iva_companies/IVA_Advice_Bureau.asp

[Adam Davies]

Hi Skipper
The point is that anything saved on fees,hence more going to the creditors,will be lost if the DMP breaks down early.By having allowances that are realistic,not set by CCCS or Payplan,there is more chance of the DMP lasting longer and paying off more of the debt.....as you said it's all about clearing your debts
Regards

Andy Davie
IVA.co.uk Spokesperson

About me:
http://www.iva.co.uk/andy_davie_profile.asp

IVA Helpline: 0800 197 4838
http://www.iva.co.uk/iva_helpline.asp