Close dodgy debt managers but don't leave struggling clients out in the cold

Debt management firm PDHL won't be the last to be closed down by the City watchdog, which is alarming, says Simon Read

Low income families typically had £95 in savings this winter compared to £136 the same period last year (Rex Features)

You may have missed the story this week about debt management firm PDHL. It was closed down by the City watchdog after it discovered that the company had been putting customers on unsuitable repayment plans.

Good news, you might think. The Financial Conduct Authority (FCA) has already warned that it considers the debt management sector to be high risk. That it has been full of companies not really playing by the rules is demonstrated by the fact that more than 100 firms have closed rather than apply for a licence, presumably because they realised they wouldn't get one.

But PDHL's demise is alarming because of the victims it leaves behind. There are 16,000 of them.

People turn to debt managers because they're desperate. Around 16,000 had some sort of debt plan arranged by PDHL, and even if it was the wrong solution – as the FCA's action suggests – they had taken action to try and deal with their debts.

Now? They could fall prey to creditors demanding payment, pushing them into a deeper debt spiral. Or they may get picked off by another unscrupulous debt manager that charges them another set of high fees without making sure they have the best debt solution. If they're lucky, they'll end up with an impartial, and free, debt adviser – such as StepChange or Citizens Advice – which will help them on the road to financial recovery.

Campaigning Labour MP Yvonne Fovargue fears that other debt managers will be closing over the coming weeks. She has written to the Treasury to ensure it is aware of, and prepared for, the danger of tens of thousands more people being plunged into financial confusion when their debt plan collapses.

"The Treasury needs to take urgent action to ensure that free debt solutions are sufficiently funded and sufficiently distributed across the country to cope with the sudden influx of all these extra people needing help," she told me.

We certainly do need a cleaned-up debt management industry, but the Government and regulators must ensure that struggling people don't suffer further as a result.