Stepchange

SpongebobUKBF · 20 August 2019 at 9:32AM

I see that a few Stepchange advisors are active on these forums.

A quick question; Stepchange receives most of its financing from the credit industry. It claims to give impartial advice to those affected by debt.

Is there not a potential conflict of interest?

Is there not pressure on Stepchange to offer advice that considers the situation of the creditor as well as the debtor? Will debtors not be advised to enter into some kind of arrangement such as an IVA rather than bankruptcy, which generally involves a total loss for the creditors?

I would have hoped that a Stepchange advisor acted solely in the interests of his or her client, without a thought for the interests of the creditors. Is this the case, given that the organisation is funded by the credit industry?

I am interested as I am considering applying for the role of an advisor myself.

TheGardener · 20 August 2019 at 9:38AM

Being pragmatic - who else would fund it? I don't see that the governance structure would intentionally allow the Credit industry to influence the outcomes of the advice SC give - perhaps study the governance arrangements if its something that concerns you?

terrence45 · 20 August 2019 at 10:39AM

They do seem to push their own debt management plans and things, however it's definitely a good thing that credit companies are providing such a service. Gambling and alcohol companies offer similar schemes for those at risk in those areas. I'm sure they understand that helping people pay off or write-off their debts will actually increase consumer trust in credit (and hopefully claw a little bit back from those who can afford IPAs etc).

Interesting that it's funded voluntarily by credit companies - maybe all credit companies should be legally obliged to fund these charities. National Debtline are 'independent' but may also be funded by voluntary corporate donations, who knows.

debt_doctor · 20 August 2019 at 7:10PM

SpongebobUKBF wrote: »

Will debtors not be advised to enter into some kind of arrangement such as an IVA rather than bankruptcy, which generally involves a total loss for the creditors?

Yes, definitely, seen it and had to put it right many times.
Citizens Advice has it's own issues, just not the one above.

DD

WhenIam64 · 20 August 2019 at 8:16PM

Citizens Advice has it's own issues, just not the one above.

There is a pragmatic side to debt advice which DD will know. The whole sector in one way or another is financed by the financial industry. Same for Gambling, and Alcohol advice.

If there is a better way to do it, then it should be used.

Again as DD says what appears to be correct at the time, may need to be sorted later. Not everyone gives the complete (a.k.a. honest) picture to an advisor first or even second time round.

debt_doctor · 20 August 2019 at 10:08PM

"The whole sector in one way or another is financed by the financial industry."

Absolutely true, to some extent or other.

DD

sourcrates · 20 August 2019 at 10:30PM

Advice is given according to the debtors financial situation and personal circumstances.
That determines which debt solution is suitable for the client, so I don’t think what’s best for the creditor actually comes into it.

If I have one criticism of stepchange, it’s that they encourage people to start there DMP’s too early, before they have a chance to save a good emergency fund, we always advise this on here as a basic precursor to starting debt management.

Also I’d much prefer to see a creditor funded company such as stepchange advising people, rather than fee charging DMC’s.

debt_doctor · 20 August 2019 at 10:51PM

If you have no assets and benefit / very low earned income you will get a bankruptcy remedy from SC.
If you have ' surplus income' you will be directed to a DMP or an IVA.
Same with DRO's.

SC as part of it's mission statement has a 'repayment ethic' - their words not mine.

Citizens Advice has significant accessibility issues, and it is a lottery of how skilled the first adviser you meet is.

I may be controversial occasionally, but I'm always honest.

DD

SpongebobUKBF · 21 August 2019 at 1:29PM

It appears after a little research that StepChange receives its funding almost entirely by taking a cut from creditors of the monies paid by debtors under the Debt Management Programmes they administer.

In what way then, do StepChange differ from any other debt management company? They are a “charity”, yet receive no charitable donations from anyone. Just commission.

How can they claim that their advice is impartial?

I’m genuinely puzzled.

StepChange_Private_Messages · 21 August 2019 at 1:31PM

Hi Spongebob,

I thought I’d come on just to answer any concerns you have about the way StepChange is funded.

Most of the income we receive is through fair share contributions (FSC) which means that when a creditor receives a payment from us through a debt management plan (DMP), the creditor will often send a percentage of this payment back as a donation to the charity. You can find more information about how we are funded here.

As Debt Advisors our focus is solely on making sure a client receives best advice for their circumstances based on their individual financial situation. It’s also worth noting that not all creditors pay FSC. When we send out the payments to creditors, they always receive a fair share of the surplus available whether they pay FSC or not.

Debt Doctor mentioned that we have a repayment ethic at StepChange which is correct, and we read a statement about our repayment ethic to every client before we give advice. The repayment ethic fundamentally means that where a repayment solution is available, we will always recommend this first above an insolvency solution because insolvency solutions tend to have bigger consequences.

Whilst the repayment solution might be the recommended option, we will always let clients know about all the solutions available to them so they can make an informed decision about how they would like to proceed. For example, if a DMP is recommended but bankruptcy is also an option we always let the client know about bankruptcy also. The client is always free to choose the solution they feel best meets their needs.

I hope this helps but if you have any further questions please do not hesitate to get back in touch.

Kirsty

SpongebobUKBF wrote: »

I see that a few Stepchange advisors are active on these forums.

A quick question; Stepchange receives most of its financing from the credit industry. It claims to give impartial advice to those affected by debt.

Is there not a potential conflict of interest?

Is there not pressure on Stepchange to offer advice that considers the situation of the creditor as well as the debtor? Will debtors not be advised to enter into some kind of arrangement such as an IVA rather than bankruptcy, which generally involves a total loss for the creditors?

I would have hoped that a Stepchange advisor acted solely in the interests of his or her client, without a thought for the interests of the creditors. Is this the case, given that the organisation is funded by the credit industry?

I am interested as I am considering applying for the role of an advisor myself.

WhenIam64 · 21 August 2019 at 5:12PM

As Debt Advisors our focus is solely on making sure a client receives best advice for their circumstances based on their individual financial situation. It’s also worth noting that not all creditors pay FSC. When we send out the payments to creditors, they always receive a fair share of the surplus available whether they pay FSC or not.

Indeed they are obliged to do so under the FCA rules. However ......

Must admit the way SC are financed did intrigue me but perhaps the answer lies in the way debt buyers are financed gives a hint.

Debt buyers (Lowell / Interum / Cabot) all raise their cash in 3 ways - Earnings (cash flow), Revolving Credit Facilities (a credit card on steroids) and securitisation bonds (basically a mortgage). They use this cash which can cost between 8% and 11% to achieve an IRR of 15% or more. Not a lot in it unless you are hoovering up a lot of NPL's (Non Performing Loans)

The quality of an NPL depends on predictability and they use actuarial models to look at the quality of the debt they buy both before and after purchase. Predictability i.e. the % of people making regular payments (any regular payment) is a key measure so encouraging people to pay (DMP/IVA) enhances the quality of the debt they've purchased while DRO/Bankruptcy reduces the chances of making that 15% IRR. (Investment banks look for an IRR of 30+%)

So it pays the industry to finance those promoting good payment habits - where it is in the clients best interest. Knock on effect is that it keeps the cost of credit down for everyone else.

Well that's my theory anyway.

Stepchange

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