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Debt Management - UK - September 2010

  • There are signs that those most likely to need help managing their debts are slightly more positive about debt management firms. A fifth of those who owe at least £10,000 in unsecured borrowing think that you’re able to negotiate a better deal with creditors if you have one of these companies on your side.
  • This is a sizeable and fast-growing market. Mintel estimates that there are around 600,000 debt management plans (DMPs) in force, with around £9 billion of funds under management, and generating around £262 million in fees in 2010.
  • Only a minority of consumers will ever be potential targets for debt management firms, but currently some 6% of all UK adults – around 3 million people in total – are seriously struggling with their finances. Even relatively minor financial shocks could tip them over the edge.
  • People with money problems have a strong preference for informal support mechanisms. The majority of people (58%) say that if they were struggling with debt, they would turn to friends or family for debt advice, with just 2% saying they would go to a commercial debt management firm.
  • The most common attitude towards debt management firms is that they are an absolute last resort (over half of all UK adults think this) – a quarter say that they just prey on desperate people.
  • A lack of regulation means that the industry’s image has been tainted by the behaviour of a number of unethical firms operating in the market. Reputable firms should do all they can in order to hasten introduction of stricter regulation if it means that rogue operators will be forced out of the market.

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Table of contents

  1. Issues in the Market

      • Key issues
        • Scope of the report
          • Definitions and market context
            • Debt solution providers
              • Debt solutions
                • Regulation and the Recognised Professional Bodies (RPBs)
                  • Abbreviations
                  • Future Opportunities

                    • Faster lifestyles require a faster response to problems
                      • Increasing transparency by proving business success
                      • Market in Brief

                        • Debt management firms have benefited from the recession
                          • Figure 1: Debt management plans in force, September 2010
                        • Possible regulation of the DMP sector in the future
                          • More people struggling with debt due to the recession
                            • Figure 2: Number of calls to the CCCS helpline, 2007-09
                          • A number of alternative debt solutions exist
                            • Three firms dominate the market
                              • Total sector adspend has fallen significantly
                                • Firms deliver a predominantly telephone-based service
                                  • Figure 3: Main method of service delivery by fee-charging debt management companies, June 2009
                                • Just 6% of all UK adults currently have debt problems
                                  • Figure 4: Consumers' financial position, June 2010
                                • Most people would ask for help from friends or family
                                  • Figure 5: Potential sources of debt advice, by consumers' financial position, June 2010
                                • Two fifths of people regard DMCs as being a last resort
                                • Internal Market Environment

                                  • Key points
                                    • Consumer credit-related complaints have soared
                                      • Figure 6: New complaints about consumer credit products and services, by type/sector, 2008-10*
                                    • Government initiatives aimed at helping people in debt
                                      • Increasing consumer awareness and transparency
                                        • The OFT cracks down on the industry
                                          • IVA firms accused of misleading advertising
                                            • The high cost and high failure rates of DMPs
                                              • Unrealistic repayment levels lead to DMP failures
                                                • New rules should put a stop to misleading DMP adverts
                                                  • Industry efforts to combat mis-selling
                                                    • Regulatory issues
                                                      • A sector which is not currently regulated…
                                                        • …but this may be about to change
                                                          • The OFT has also proposed reform to IP regulation
                                                            • The IVA Protocol aims to increase efficiency
                                                              • The introduction of DROs
                                                                • Possible changes to bankruptcy applications
                                                                • Broader Market Environment

                                                                  • Key points
                                                                    • The rising number of people with debt-related problems
                                                                      • Figure 7: Number of calls to the CCCS helpline, 2007-09
                                                                    • The decline in consumer credit could have a long-term impact
                                                                      • Figure 8: Total consumer credit, net amounts outstanding (seasonally adjusted), January 2000-May 2010
                                                                    • Higher unemployment has prompted a rise in debt problems…
                                                                      • Figure 9: Rate of UK unemployment, Q1 2005-Q2 2010
                                                                    • …as have rising arrears and repossessions
                                                                      • Figure 10: Mortgage arrears and repossessions, 2003-09
                                                                    • Rising bad debts have prompted tighter lending criteria
                                                                      • Figure 11: Default rates and write-offs for consumer credit, Q3 2007-Q1 2010
                                                                  • Competitive Context

                                                                    • Key points
                                                                      • Debt consolidation loans can help to restructure payments…
                                                                        • Figure 12: Purpose of most recent loan, 2008-10
                                                                      • …but credit conditions in the personal loan market are tight
                                                                        • Figure 13: New gross unsecured loan advances – total market and MBBG, 2004-10
                                                                      • Renegotiating with creditors independently
                                                                        • Sale-and-rent-back schemes
                                                                        • SWOT Analysis

                                                                            • Figure 14: Debt management – SWOT analysis, 2010
                                                                        • Who’s Innovating?

                                                                          • Key points
                                                                            • Baines & Ernst launches the first prepaid card current account
                                                                              • Gregory Pennington also offers a credit-impaired current account
                                                                                • Fairpoint Group taps into the aggregator market
                                                                                  • ClearStart launches a new low-cost DMP
                                                                                    • Increasing functionality and non-core services
                                                                                    • Market Size

                                                                                      • Key points
                                                                                        • A target market of just 3 million UK adults
                                                                                          • Figure 15: Consumers' financial position, June 2010
                                                                                        • Only a tiny minority have dealt with commercial debt management firms
                                                                                          • Figure 16: Actions taken to reduce debt, by most popular consumers' financial position, June 2010
                                                                                        • Around 600,000 DMPs in force
                                                                                          • Figure 17: Debt management plans in force, September 2010
                                                                                        • Level of debt varies widely
                                                                                          • The free-to-client sector accounts for a quarter of all DMPs
                                                                                            • Figure 18: Total debts under management by the CCCS, Q3 2005-Q1 2010
                                                                                          • A plethora of fees and charges exists
                                                                                            • Figure 19: Fees charged by commercial DMP providers, 2010
                                                                                          • Personal insolvencies have increased significantly…
                                                                                            • Figure 20: Individual insolvencies in England and Wales (not seasonally adjusted), by type, Q1 2000-Q1 2010
                                                                                          • …with bankruptcy being the most common
                                                                                          • Market Share

                                                                                            • Key points
                                                                                              • An expanding and complex market
                                                                                                • Gregory Pennington and Baines & Ernst lead the DMP market
                                                                                                  • Debt Free Direct is the leading IVA provider
                                                                                                  • Companies and Products

                                                                                                    • Fidelitas Group/Moneyplus Group
                                                                                                      • Figure 21: Organisation structure of Fidelitas Group and Moneyplus Group
                                                                                                      • Figure 22: Fidelitas Group Ltd, financial performance, 2009
                                                                                                      • Figure 23: Moneyplus Group Ltd, financial performance, 2008 and 2009
                                                                                                    • Kensington Financial Management Consultants (Money Advice Group)
                                                                                                      • Debt Free Direct (Fairpoint Group)
                                                                                                          • Figure 24: Debt Free Direct Ltd, financial performance, 2007 and 2008
                                                                                                        • Baines & Ernst (Paymex Group)
                                                                                                            • Figure 25: Baines & Ernst Ltd, financial performance, 2007 and 2008
                                                                                                          • Gregory Pennington/Freeman Jones (Think Money Group)
                                                                                                              • Figure 26: Gregory Pennington, financial performance, 2008-09
                                                                                                              • Figure 27: Freeman Jones, financial performance, 2008-09
                                                                                                          • Brand Communication and Promotion

                                                                                                            • Key points
                                                                                                              • Total sector adspend has declined significantly
                                                                                                                • Figure 28: Topline adspend in the debt management services market, 2007-10*
                                                                                                              • Debt Free Direct spends the most on advertising
                                                                                                                • Figure 29: Debt management services adspend, by company (top ten*), 2008-10
                                                                                                              • For examples of advertising – look to daytime TV
                                                                                                                • Figure 30: Debt management services adspend, by media type, 2010*
                                                                                                            • Channels to Market

                                                                                                              • Key points
                                                                                                                • Most DMCs deliver their services via telephone
                                                                                                                  • Figure 31: Main method of service delivery by fee-charging debt management companies, June 2009
                                                                                                                • Many providers also rely on fully packaged leads
                                                                                                                • Financial Health and Debt Ownership

                                                                                                                  • Key points
                                                                                                                    • A very small target market target
                                                                                                                      • Figure 32: Consumers' financial position, June 2010
                                                                                                                    • Creditors are also to blame
                                                                                                                      • Young adults are more likely to be over-indebted
                                                                                                                        • Figure 33: Consumers' financial position, by demographics, June 2010
                                                                                                                      • Two fifths of people have outstanding unsecured debts…
                                                                                                                        • Figure 34: Products on which consumers have outstanding debts, June 2010
                                                                                                                      • …which tend to be the main cause of problems
                                                                                                                        • Figure 35: Consumers' financial position, by most popular products on which consumers have outstanding debts, June 2010
                                                                                                                      • The more people owe, the more likely they are to struggle
                                                                                                                        • Figure 36: Consumers' financial position, by total value of all outstanding unsecured debts, June 2010
                                                                                                                    • Sources of Debt Advice

                                                                                                                      • Key points
                                                                                                                        • Most would turn to friends and family for help
                                                                                                                          • Figure 37: Potential sources of debt advice, June 2010
                                                                                                                        • Over-indebted people just bury their heads in the sand
                                                                                                                          • Figure 38: Potential sources of debt advice, by consumers' financial position, June 2010
                                                                                                                        • DMCs should perhaps target mid-market tabloid readers
                                                                                                                          • Figure 39: Sources of debt advice, by demographics, June 2010
                                                                                                                        • ABs are more likely to use a debt consolidation loan
                                                                                                                        • Attitudes towards Debt Management Firms

                                                                                                                          • Key points
                                                                                                                            • Debt management firms would be a last resort for many…
                                                                                                                              • Figure 40: Attitudes towards debt management companies, by consumers' financial position, June 2010
                                                                                                                            • …but there may be scope for them to improve their image
                                                                                                                              • Low earners may be the traditional target…
                                                                                                                                • Figure 41: Attitudes towards debt management companies, by demographics, June 2010
                                                                                                                              • …but it may also be worth considering the more affluent
                                                                                                                                • DMCs should focus on people with larger debts
                                                                                                                                  • Figure 42: Attitudes towards debt management companies, by total value of all outstanding unsecured debts, June 2010
                                                                                                                                • DMCs may consider expanding their product range
                                                                                                                                  • Figure 43: Potential sources of debt advice, by attitudes towards debt management companies, June 2010
                                                                                                                              • Methods Used to Reduce Debt

                                                                                                                                • Key points
                                                                                                                                  • Unsecured debts are more likely to lead to trouble
                                                                                                                                    • Figure 44: Actions taken to reduce debt, June 2010
                                                                                                                                  • People with debt problems still explore alternative remedies first
                                                                                                                                    • Figure 45: Actions taken to reduce debt, by most popular consumers' financial position, June 2010
                                                                                                                                  • The financial burden of children is clearly a factor
                                                                                                                                    • Figure 46: Actions taken to reduce debt, by demographics, June 2010
                                                                                                                                  • Targeting people living in rented accommodation
                                                                                                                                    • The vicious cycle of debt
                                                                                                                                      • Figure 47: Actions taken to reduce debt, by total value of all outstanding unsecured debts, June 2010
                                                                                                                                    • Referrals could be a good way for DMCs to grow
                                                                                                                                      • Figure 48: Actions taken to reduce debt, by attitudes towards debt management companies, June 2010
                                                                                                                                  • Consumer Target Groups

                                                                                                                                    • Key points
                                                                                                                                      • DMC Advocates are the hot prospect…
                                                                                                                                        • Figure 49: Attitudes towards debt management companies, by target groups, June 2010
                                                                                                                                      • …and are also more likely to have debt problems
                                                                                                                                        • Figure 50: Consumers' financial position, by target groups, June 2010
                                                                                                                                      • Alternative Sourcers not keen on asking friends or family for help
                                                                                                                                        • Figure 51: Potential sources of debt advice, by target groups, June 2010
                                                                                                                                      • DMC Advocates are more likely to have dealt with a firm before
                                                                                                                                        • Figure 52: Actions taken to reduce debt, by target groups, June 2010
                                                                                                                                      • A broad range of potential targets exists
                                                                                                                                        • Figure 53: Target groups, by demographics, June 2010
                                                                                                                                    • Appendix – Internal Market Environment

                                                                                                                                        • Figure 54: Key features of possible debt solutions, 2010
                                                                                                                                    • Appendix – Broader Market Environment

                                                                                                                                        • Figure 55: New complaints about consumer credit products and services, by type/sector, 2008-10
                                                                                                                                    • Appendix – Financial Health and Debt Ownership

                                                                                                                                        • Figure 56: Consumers' financial position, by demographics, June 2010
                                                                                                                                        • Figure 57: Total value of all outstanding unsecured debts, June 2010
                                                                                                                                        • Figure 58: Number of different products on which consumers have outstanding debts, June 2010
                                                                                                                                        • Figure 59: Total value of all outstanding unsecured debts, by the number of different products on which consumers have outstanding debts (including secured debts), June 2010
                                                                                                                                    • Appendix – Sources of Debt Advice

                                                                                                                                        • Figure 60: Potential sources of debt advice, by demographics, June 2010
                                                                                                                                        • Figure 61: Potential sources of debt advice, by demographics, June 2010 (continued)
                                                                                                                                    • Appendix – Attitudes towards Debt Management Firms

                                                                                                                                        • Figure 62: Attitudes towards debt management companies, by demographics, June 2010
                                                                                                                                        • Figure 63: Attitudes towards debt management companies, by demographics, June 2010 (continued)
                                                                                                                                    • Appendix – Methods Used to Reduce Debt

                                                                                                                                        • Figure 64: Actions taken to reduce debt, by demographics, June 2010
                                                                                                                                        • Figure 65: Actions taken to reduce debt, by demographics, June 2010 (continued)
                                                                                                                                    • Appendix – Consumer Target Groups

                                                                                                                                        • Figure 66: Products on which consumers have outstanding debts, by target groups, June 2010
                                                                                                                                        • Figure 67: Total value of all outstanding unsecured debts, by target groups, June 2010
                                                                                                                                        • Figure 68: Target groups, by demographics, June 2010

                                                                                                                                    Companies Covered

                                                                                                                                    • Age Concern England
                                                                                                                                    • Association of Chartered Certified Accountants
                                                                                                                                    • Baines & Ernst
                                                                                                                                    • Baker Evans
                                                                                                                                    • Bank of England
                                                                                                                                    • Blair Endersby
                                                                                                                                    • British Bankers' Association (BBA)
                                                                                                                                    • Buchanan Roxburgh Limited
                                                                                                                                    • Chiltern Debt Management
                                                                                                                                    • Citizens Advice Bureau
                                                                                                                                    • Consumer Credit Counselling Service
                                                                                                                                    • Council of Mortgage Lenders
                                                                                                                                    • Debt Free Direct Group Plc
                                                                                                                                    • Debt Managers Standards Association
                                                                                                                                    • Fairpoint Group plc
                                                                                                                                    • Fidelitas Group Limited
                                                                                                                                    • Financial Services Authority (The)
                                                                                                                                    • Freeman Jones
                                                                                                                                    • Institute of Chartered Accountants in England & Wales
                                                                                                                                    • Kantar Media
                                                                                                                                    • Kensington Financial Consultants Ltd
                                                                                                                                    • Law Society (The)
                                                                                                                                    • Legal Services Commission
                                                                                                                                    • Market & Opinion Research International (MORI)
                                                                                                                                    • Money Advice Group Limited
                                                                                                                                    • Money Advice Trust
                                                                                                                                    • Money Plus Group Limited
                                                                                                                                    • Money Tailor
                                                                                                                                    • Oak Loans & Mortgages Ltd
                                                                                                                                    • Office of Fair Trading
                                                                                                                                    • Paymex Group Limited
                                                                                                                                    • Secure Trust Bank
                                                                                                                                    • SolveMyDebt Limited
                                                                                                                                    • Student Loans Company Ltd
                                                                                                                                    • The Finance & Leasing Association
                                                                                                                                    • Think Money

                                                                                                                                    Debt Management - UK - September 2010

                                                                                                                                    £1,995.00 (Excl.Tax)