14th October 2013
In July 2013 the debt management plan provider Smooth Financial collapsed into administration. The administrators, according to TheBusinessDesk.com, are now reporting that around £850,000 of client money is missing from the firm’s client account.
The administrators, Royce Peeling Green, have announced that they have notified the police regarding their concerns. They appear to have serious concerns about loans made to directors and other companies connected to Smooth Financial. It’s considered possible that these loans were funded with client payments that should have been forwarded to their creditors rather than being used in this manner.
Periodically the debt management industry in the UK has suffered a damaging reputational blow such as this. Smooth Financial becomes one of a longer line of DMP firms that have gone out of business over the years with client money seemingly missing. How can anyone using a debt management plan, or considering starting one, make sure that their money isn’t put at risk by a rogue debt management provider?
It’s important to understand that most debt management plan providers have been subject to relatively little scrutiny over the years. Their regulator, the Office of Fair Trading, has worked hard to drive standards in the industry upwards but has lacked sufficient resources to physically get into debt management firms sufficiently adequately scrutinise their handling of client payments. The FCA will take over this role from April 2014 and we’ll find out whether they’re better resourced to carry out this task.
In the current absence of regular external inspection of all debt management plan providers it’s important to look out for those firms that have voluntarily exposed themselves to scrutiny by the outside world. They’ve formed two trade associations, DEMSA and the DRF, which employ insolvency practitioner regulatory bodies to inspect their debt management provider members periodically. While the inspection of client accounts isn’t conducted in any great depth as part of these inspections the fact that these firms are happy to open themselves to such inspection is a positive sign.
Many of the firms that make up the memberships of DEMSA and the DRF are currently seeking to achieve “approved” status under the new Debt Management Protocol. Five DMP firms have already achieved this status, including Bright Oak Ltd which provides the IVA Advice Forum advice team. These firms will have to have their client account independently inspected each year as well as retaining evidence of regular client account reconciliations. This is another really positive sign that users of debt management plans can utilise to ensure that they’re only dealing with reputable firms that will manage their money dutifully and properly.
If you intend to start a debt management plan, or if you’re already in a DMP, don’t become a victim of the next Smooth Financial client account incident. Choose a firm that’s a DRF or DEMSA member and which is also already approved under the Debt Management Protocol. Following these two steps will not take you long but will go a long way to ensuring that your cash is kept safely and paid to your creditors promptly. Our advisers will point you towards such firms if you get in touch with us.