What does SDAP mean for Creditors?

Why should creditors be interested in this project?

We want the project to work for all stakeholders, including creditors as well as clients and advice centres, and we want to hear their views. This will enable us to fine tune the process model to better meet their needs. Creditors should benefit:

  • Improved sustainability of debt repayments.
  • Fewer payments to process through the use of Payplan’s streamlined payment disbursement system.

How can the project improve funding for free debt advice?

We are extending the Fair Shares model to provide more funding for debt advice agencies. Under a Fair Shares model, a debt advice agency receives contributions from creditors based on the debt repayments being made by clients. These contributions are normally calculated as a percentage of the client’s debt repayments. Fair Shares is good for creditors:

  • Research has shown that where advice is given to a client, creditors on average collectively recover in excess of £1,000 more per individual. So if Fair Share contributions lead to more organisations being able to provide more advice to clients, the rates of collection for creditors are likely to increase.
  • Fair Shares supports fair distribution of payments between creditors, with debtors’ payments correctly prioritised.
  • Fair Shares incentivises clients and agencies to set up long term, sustainable debt repayments, so creditors continue to receive contributions with a debt strategy that is right for the client. This is in contrast to debt advice fee-chargers, who obtain most of their fee income during the first few months of debt repayment.
  • A Fair Share contribution is much less than the fee charged by a not-for-free debt advice agency, leaving clients with more funds with which to make repayments.

Questions and Answers

What funding gap is Fair Shares aiming to fill? Isn’t the Money Advice Service funding face-to-face debt advice?

There is a significant gap in debt advice provision. Up to 5 million individuals have a potential need for debt advice, but the free-to-client sector only provides advice to about 1.4 million individuals p.a. . The Money Advice Service is not providing new funding, but has taken over funding for face to face contracts that were previously managed by the Department for Business, Innovation and Skills. Fair Shares complements funding that already exists, it does not duplicate it.

Is there a danger that clients will be locked into making token payments for a long time, rather than as a temporary arrangement?

Agencies still have an obligation to review arrangements regularly with clients, so if circumstances change then the client’s debt strategy should also change. The evaluation at the end of the pilot will be assessing whether this is an issue.

Will this improve the advice provided to clients?

All agencies are being carefully trained for this project. If more funding is available to advice agencies, this should improve the quality of advice and could result in more debt recovery as clients select more realistic debt repayment strategies.