A clampdown on dodgy debt-management firms looks likely after the Government published a consultation document on Friday, questioning whether the firms need to be regulated. "Taking tough, swift action against firms which fail to operate within the rules and which provide sub-standard services to consumers with problem debt remains a high priority," said the Ministry of Justice.
The clampdown can't come soon enough for the estimated 150,000 people who enter debt-management schemes each year. They often end up paying unnecessarily for bad debt advice and help when there is plenty of decent, free advice out there. Many firms set up debt-management plans which are ostensibly designed to reduce monthly repayments, but once the firm's fees are added in, the repayment can end up more expensive than if they hadn't set up the plan at all.
Struggling families also often end up hassled by creditors because the advice they've been given just hasn't been good enough. "Often these companies only sell debt-management plans or consolidated loans, whereas people may be better off taking another route, such as bankruptcy," points out Beccy Boden Wilks of the Money Advice Trust, a debt charity.
Tim Moss, the head of loans and debt at Moneysupermarket.com, says: "The debt-management industry is in desperate need of full regulation. There are an estimated 800 debt-management companies operating in the UK, some of which are one-man-in-his-bedroom type operations, acting under no law or guidance. Without regulation, debt-management companies are free to act in ways that are clearly harmful to the consumer."
That's the problem with many of the new firms. They prey on hard-up folk, desperate for help. And when someone turns up with a promise of sorting out their finances, they grab hold like a drowning man clutching a lifeline. But in many cases, the so-called lifeline can leave them in an even worse situation than before.
Have you ever wondered what happened to all those commission-hungry financial salespeople who flogged unsuitable endowment policies in the Eighties and Nineties before turning themselves into sub-prime mortgage brokers to profit from the property boom? Many have remade themselves as debt advisers; they know that it has become a growth market and with fat fees can fleece cash off the unwary.
There are plenty of reputable debt firms around that can help people without charging them the Earth. But finding them among the mass of smooth-talking salesmen more interested in lining their own pockets can be impossible – which is why we need action now.
Ditch the dogs
Some of Britain's worst-performing funds were named and shamed last week in a report by independent financial advisers Chelsea Financial Services. Some 64 funds are in the Relegation Zone report, including funds from well-respected names such as Scottish Widows (seven funds named), Legg Mason and Rensburg.
The funds were compared against others in their sector, and the results make for grim reading. But excuses of global recession and market volatility just don't wash any more. As Chelsea's Darius McDermott points out: "The credit-crunch excuse is beginning to sound like a broken record. There is a great chasm between posting losses of 5 per cent and 40 per cent."
If you're stuck in a dog of a fund then get your cash out quickly, before your losses deepen.