What happens when Debt Management Companies shut down?

Since the Financial Conduct Authority (FCA) assumed responsibility for regulating consumer credit firms in April 2014 and introduced tighter controls in order to raise standards in the sector, over 100 firms have closed their doors.

 
When firms close, either by choice or otherwise, they leave behind thousands of worried, vulnerable people.  Many of these people, having already received bad advice from a previous firm, may even look to enter the same or a similarly unsuitable solution with another commercial provider.
 
The story of debt management companies disappearing will be one which we will hear of again and again in the coming months, as companies either concede that they are unable to meet the new regulatory requirements and decide not to continue or are closed down by the FCA.
 
So what happens then? Those who have been told that their debt management company is closing should contact a not-for-profit debt advice charity such as Debt Advice Foundation, which they can do via the Money Advice Service website.  Anyone affected by the closure of a debt management company will receive a letter from the FCA informing them of the decision and outlining their options in due course.
 
There are some significant differences between the commercial and not for profit sectors, the main difference being the nature of the solutions offered.  Commercial firms wills generally recommend a debtor funded debt management plan, in which, around 15% of the client’s monthly payment goes towards administration fees, whereas not for profit agencies will usually recommend a creditor funded plan, which is free to the client and which enables them to repay their debt 15% sooner than a debtor funded plan on average.
 
David Rodger, CEO of Debt Advice Foundation said;
 
“The bottom line is that the consumer debt advice industry has been beset by inconsistencies, both in terms of what organisations say in their advertising and in terms of the advice that they give to clients.
 
“The crackdown on the debt management industry is certainly good news, but we must ensure that people don't suffer further as a result. We hope that those who are struggling are being signposted to a free debt advice service so that they can finally be on the road to genuine financial recovery.”