In March 2016, the clients of Compass Debt Counsellors found out their debt management firm had gone into administration. Many people had thousands of pounds being held by Compass and may not get this money back.
In This Compass points to Debt Misery, Legal Beagles points out:
“This form of daylight robbery is hugely rewarding because no one ever seems to go to prison for such crime. If I walked into someone’s home and sneakily removed £5000 in cash that I found tucked away, I would rightly expect a prison sentence but if I telephone that same homeowner, flog them a debt management plan, send them some paperwork, then take money off them monthly for the next two years, keep it all to myself or buy Range rovers and Porsches as company vehicles, then shut down as the heat turns up, I can confidently say I will not go to prison.”
This article argues that the “debt settlement” model that Compass were using is both flawed and very risky. The FCA should not authorise any firm which is using it.
The debt settlement model
In a standard Debt Management Plan, a client makes a single payment to the debt management company each month. The DMP firm takes out its own fee and divides the rest up between the client’s creditors. The DMP carries on until all the debts are repaid in full.
But in the “debt settlement” model that Compass were using, the creditors are only offered low or token payments, and the rest of the client’s monthly payment is retained in a “savings pot” for the client. The plan is that in a few years:
- the firm will use these “savings” to offer a full and final settlement to the creditors;
- the client will be happy as the debts will be settled sooner as they are not being paid in full;
- the creditors will be happy to get any money after just getting low payments for years.
The problem about this scheme is that the creditors are being ripped off. They are being offered a lower payment every month than the client can afford to make.
The bargain between the debtor and the creditor in a standard DMP is that the debtor pays what they can towards their debts and the creditor freezes interest. With Compass-style DMPs, there is no reason why a creditor should agree to freeze interest or to accept the offered full & final settlement. And that can leave the clients in a much worse position after a few years, having had interest added to their debts and not getting the hoped-for write-off.
It’s very high risk
There are three different risks with the debt settlement model:
1) operational risk This clever-sounding plan won’t settle the client’s debts in the predicted timescale unless the creditors freeze interest and accept settlement offers. Indeed the debts may increase if interest is being added and the monthly debt payments are less than this.
2) advice risk It is likely the firm won’t adequately explain the potential problems to the client at the start. For a client to make an informed decision that they want to go with the Compass debt settlement model, the firm would have to go through the potential disadvantages in great detail and get confirmation that the client is aware of the operational risk.
3) risk of client money being mis-appropriated Because the firm is holding large amounts of client money over a prolonged period, this risk is much larger than for normal DMP firms. Compass isn’t the only firm using this settlement model that has gone into administration. In 2014 Bournes Debt Solutions went under, reportedly with half a million pounds of client money unaccounted for and nothing has yet been returned to the clients. This simply doesn’t happen with normal DMP firms – they have to be careful with client money, having the usual administrative headaches in trying to reconcile it and trace payments without the proper references, but the vast majority of the money coming in is distributed to the creditors the same month, so there is no ever-growing pot of client money that has to be protected.
How can this be an acceptable approach to debt management?
The FCA said in its Review of debt management advice:
“Individuals trying to deal with problem debt, however, can be amongst the most vulnerable in society and can be prey to firms that do not have customers’ best interests at heart and do not treat them fairly.”
I think that is exactly why FCA should refuse to authorise any firm using the debt settlement approach. It may sound great to someone facing a big debt problem but it is simply too high risk to be sound debt advice.
So the question is, are there any more firms using this approach that are currently applying for FCA authorisation?
14 April 2016
(1) news about Compass
It seems increasingly likely that Compass clients’ money was not in any form of protected bank account. More bad news – a firm of solicitors, Abbey Solicitors, seems to have taken on many Compass clients with the aim of getting many of their debts written off as unenforceable. This sounds like another high risk, bad idea for the clients.
That article however also contains what may be good news for at least some Compass clients – Legal Beagles are asking some of the largest debt purchasers to take into consideration the amounts the clients have paid to Compass.
(2) other firms offering the high risk debt settlement model
Immediate Financial was an FCA regulated debt management firm operating the debt settlement model. (EDIT – they closed in 2018 and clients’ money held was, so far as I know, returned to them.)
Total Debt Relief ltd seems to be a business with interim FCA authorisation also offering debt settlement. (EDIT – TDR was put into liquidation by the FCA in 2018 – many clients lost money.)
Settle My Debts appears to be an FCA regulated firm operating the debt settlement model but their website says “We have ceased to take on any new clients while we work with the Financial Conduct Authority to improve our procedures and communications, ensuring the fair treatment of our customers. We hope to overcome these issues in the near future.”
Elite Debt Solutions who seem to have operated this settlement model are shutting down. Clients are being directed to High Street Solicitors.
If you know of any other firms, add a comment below and I will add them to this list.
Is it ever good to pay for a DMP?
Debt Clever clients sent to Clever Law
Ask for the CCA agreement for old debts
Nick Pearson says
Hi Debt Camel. The elephant in the room is the creditors who supported the model by accepting these full and final offers – they encouraged the firms by, albeit reluctantly I imagine, by agreeing to the deals.
Sara (Debt Camel) says
Indeed. Although it would be interesting to see exactly what the I&Es presented to the creditors showed… it is possible they may not have been entirely accurate I suppose? In which case the decision to freeze interest and / or sell on the debt may not have been based on accurate information.
Kate Briscoe says
Great article DebtCamel!
I’ve always struggled to understand how the Compass debt model is legal at all. By creating a savings pot, surely the DMP needs to be obeying banking type regulations with all the associated protections? Once again, the regulatory system has not been sharp toothed enough and daylight robbery has taken place. Personally, I’d take things much further with debt managers subject to the most stringent rules and minimum costs, after all, if consumers have been brave enough to tackle their indebtedness, get a DMP organised and pay monthly, they should be protected in the strongest possible terms because the emotional impact to all the Bournes/Compass clients is enormous. Mental health issues, family breakdown, loss of home and even suicide are all potential consequences of such weak regulation and frankly it isn’t good enough.
Guy Skipwith says
Didn’t the OFT revoke the licence of First Step Finance (that involved Ahmad Butt) in 2012 for using the ‘fell and final settlement’ model?
Sara (Debt Camel) says
yes: https://www.insidermedia.com/insider/northwest/80395-
Mike says
Immediate Financial seem to offer this as well. Quick company check doesn’t look promising.
Sara (Debt Camel) says
yes, I have updated the article to mention them.
Tracy says
I was with Immediate Finance for years until recently and cancelled with them because my debts were taking too long to clear. I was at a vey low point in my life and the fees were not explained clearly to me. I’ve just found out they have taken hundreds of pounds in fees for unsettled debts. I’ve now gone to the financial ombudsman to see if they can help me.
Nick Pearson says
Another similar firm has emerged on our radar – settle-my-debt.co.uk who are based in Wokingham.
Sara (Debt Camel) says
thanks, added to the list
Morag says
Hi I have been in a DMP for the last 2 years it was over 10,000 debt but i have paid some creditors off and been settled at a lesser amount although I have been paying fees to Elite Debt Solutions.I was in Debt Negotiation Plan with them.
I have 1 creditor left the RBS a bank loan and overdraft with them of 7500 and EDS have informed me today that the Director of the company is withdrawing the negotiating service. As they are no longer regulated by the FCA or Ombudsman. They are an English based company. They have offered me different options, as I live in Scotland of Trust Deed, Sequestration (Bankruptcy) Minimuum Asset Process, formal and informal arrangement debt plans.
They said I wont get any fees back as work has been carried up to date. I will get money back thats paid into the accumulation fund but their isnt much. I have asked for a full and final settlement option so I can pay this debt off, they are going to get back to me tomorrow as they said this maybe another option. I dont want to go down any of these routes they have mentioned as their is costs involved with some of them. I want to pay debt off by getting a loan or manage a dmp myself and contact creditors direct. I was paying £80 to £100 per month on a monthly income after tax £1100.
Can a debt management company do this to you, what rights do I have they have went back on their agreement of settling and negotiating debt management….the RBS bank loan cant prove that this is an enforceable debt as dont have proof of original agreement so this could be settled for lesser amount and the overdraft could be settled as well, but dont know if charges have been added. or frozen. Is it worthwhile contacting RBS and make a settlement offer to them. direct. EDS are looking at this F&F settlement option, but are sending letters out to all clients about their decision of withdrawing their negotiationg service to clients.
Sara (Debt Camel) says
It’s a pretty safe bet that EDS isn’t closing because it is small, it is closing because the FCA has refused to authorise it. Basically you have had a lucky escape – other clients with this type of firm have lost all the money they paid in – at least you had a few debts settled!
I suppose you may have a case for having been mis-sold this DMP, add up the amount you have paid in, less whatever refund they are giving you, and compare that to the value of the debts which have been written off or settled – have you lost money?
Have you seen the letter from RBS confirming that they don’t have a CCA for you for this loan? If you haven’t you should ask EDS for a copy of it. If this is clear (and I suggest you should discuss this with National Debtline on 0808 808 4000) then there is no reason why you should pay any money to this debt as it is unenforceable so hopefully they will take a VERY low F&F offer to settle it and get it marked as closed on your credit record. National Debtline can also talk through what your options are fro dealing with the overdraft and any other debts.
Sharron says
I received an email today from elite debt stating ” we are pleased to let you know that we are able to introduce you to a law firm, high street solicitors, who will be able to challenge the enforceability of your debts. They will be able to identify breaches and any non compliance by the lender in regard to your existing debts, potentially leaving a lower balance to be paid or settled” I am really worried as I have been paying 110 per month and still have 13000 worth of debt. Will I be entitled to any fees and the accumulation fund they have of mine and a full list of my creditors and contact numbers.
Can anyone confirm if elite debt solutions based in Stockport Manchester is closing.. Thank you
Louise says
Hi all
Unfortunately I was a former client of compass debt counsellors ,
I have been for many years now
I was lead to beleive that in 5 years I would be debt free , as that is exactly what I was told at the time when I had my first appointment with compass
Wrong now they have gone in to liquidation , I am still in debt and to add insult to injury I was told at the time of signing up with compass , I had to pay them a £5000 fee , I do not think for a minute I will get this money back .
How could they do this to so many people who trusted them to help each and every o e of us to become debt free
In my personal option they have stole from us and should be put in to prison . I was then told by compass that I should go over to a firm called abbey solicitors , I have read so many bad reports about that company , They have had a lot of compass clients , go over to the max they are worried about the debt now compass have go through. Stay away from abbey solicitors , they are no good they try to get you in to paying them for a year £4000 but you re still left with all the stress and all of the debt .
Marie says
Let’s not forget that the customers of First Step Finance and Debt Help and Advice lost over £7million and yet all that has happened is that the Directors Adrian and Christine Whitehurst have been struck off as directors.
Reading the Total Debt Relief website they charge 49% for the first 6 months then 30% of the total debts for a 60% debt write off promise (not sure how they do this?)
Trevor Young says
I was a compass client who lost £2400 plus management paid of £1800 Which they took from account I the first year.these people should be helled accountable for there actions as to me it is just fraud as for the director who wife was MP saying she had on business in the company but she lived off the money the was stolen from all the compass client’s.Weshould be able to take them personally through the county courts by naming them and not the company on the writ.
janet Ford says
Just found this site and I’m feeling sick. My late mother was with Compass. They also made her take out a life insurance which never paid out either. Like most of you I have all her paper work showing how Compass took their monthly monies to pay off her debt but they never did. Worse just found out that even Abby solicitors were taking the same amount of money off her too!!!!
Have been in very long phone calls with the FCSA and FCA….. confirming what most of you have all said about Compass. What I am now trying to find out is can me and you do them for mis selling??? like a PPI…. any advice fellow totally screwed customers.
Sara (Debt Camel) says
It may be worth investigating what this life assurance was that hasn’t paid out.
But I am afraid there is no way to make a “mis-selling” claim against Compass.
janet Ford says
Hello all. After so many phone calls I can finally tell you all about the outcome of Compass.
The Life policy was not worth the paper it was written on. Seems Compass used many ‘names’ and used many other companies to do their ‘dirty work’. The life policy I got hold of the company who told me that Compass used them for these policies incase of death of client so debt and families would be paid. But the company had to cancel their deal with Compass as it stop paying them. They lost money too.
FCA says it cant do anything about trying to claim monies back as Compass was an unauthorised company so that’s how they could take our money and run. FCA have just asked me to put in writing about Compass which they say will help them in the future!!
So if I ever have some money I will put it under the mattress as they say.
janet Ford says
Hello, fellow Compass clients. I have to share with you a tiny bit of good news. After going around and around and hitting brick wall after brick wall I feel there could be a bit of help coming. As I said I was told that an unauthorised company had no come back…! The FCA after I wrote a stinking complaint letter have been checking out all my moans. If any of you have heard of a company called RMR Financial services limited or AABRS they were investigating Compass. They were also the company who gave Compass a period of being AUTHORISED while the HMR were deciding (sorry but I’m trying to understand and put in words as so many legal jargon which is don’t get) around Nov 14′ – June 15′ but as I said I will let you know.
So if any of you think, ah ha, dig out your papers and check and check.
janet Ford says
Hello all. Right. News. RMR Financial registered 2 entries. They’re listed as an Appointed Representative of Stonebridge Mortgage Solutions between 5th Nov 14′ – 25th June 15′. Stonebridge is authorised!
Then again as an INTERIM PERMISSION – means Compass was authorised! 1st April 14′ – 8th March 16′ but then their permission became lapsed. Once their permission is lapsed they can not trade….. which they did.
So hoping this is help to you all?
Funny, I suddenly got an email ( i didn’t contact them) from RMR stating that they had little “level of realisations at present, highly unlikely there will be a return to any class of creditor but they are still making enquiries and should a dividend become payable, you will be informed”.
Well well. Think I may of stirred up a few problems.
Guy Skipwith says
It is my understanding that from 1 April debt management companies will come under the FSCS providing that they are authorised to hold client money and failed on or after 1 April.
The maximum compensation will be £50,000 per person per firm.
For more, http://www.fscs.org.uk/what-we-cover/debt-management/.
I know that this won’t help people who have already lost money but it perhaps provides some hope for the future.
Also, following the FCA’s review of debt management (www.fca.org.uk/news/press-releases/fca-puts-spotlight-debt-management-firms) maybe the FCA will look more closely at debt management authorisations.
Guy
janet Ford says
Hello. Been six months since I wrote. I have the FOS (financial ombudsman 0203 0696402) who have been investigating RMR Financial and Stonebridge. Gave them so much information but those of you who are still as mad as hell as I am, contact FOS as that may help their investigation?
janet Ford says
Hello all. Very sad news. FOS have just confirmed that they can’t help as those thieves have no money in their account. But FOS have acknowledge that it was a ‘con’ but didn’t use those words. So no money. I’m keeping all my papers just in case!!!!!
Sara (Debt Camel) says
That isn’t a surprise but it as, as you say, sad news. You have been let down by the UK regulatory system.