20) Information to be provided before the contract is signed

Consumers must be provided with adequate information about the service to be provided, and the consequences and costs of it prior to entering into an agreement. All documentation must be clear and in plain language and must state clearly the implications of entering a debt management programme. In particular:

a) Where the DMC contacts a potential client after a referral from a credit broker or lender, the DMC must disclose at the outset of the conversation how they have obtained the consumer’s details, what service they offer and that they cannot themselves provide a loan.

b) Where a DMC operates by means of any distance communication it must comply with the requirements in the Consumer Protection (Distance Selling) Regulations 2000 to provide (among other things) certain information to the consumer before the contract is concluded. In particular the consumer must be told that it has a cooling off period of seven days during which the contract may be cancelled.

The DMC cannot contract out of this cooling off period unless (i) it has given a clear warning in writing (or other durable form) which is delivered before the contract is entered into and (ii) it has with the clients’ agreement begun to perform the contract in that period.

c) The nature of the service that is being offered; the total cost to the consumer of the service including any initial or fixed charge fee or deposit, the periodic management fee to be paid to the DMC multiplied by the estimated length of the contract; the amount to be repaid; and the likely duration of the contract must be clearly explained at the outset.

d) Where it is not possible to establish at the pre-contract stage the cost or duration of the contract, the consumer must be given a realistic estimate of cost and the duration of the contract. This should be accompanied in close proximity by a clear warning that it is an estimate.

The assumptions on which the estimate is based should be set out. If during the pre-contractual stage it becomes clear that the estimate does not adequately reflect the consumer’s circumstances a revised estimate must be given.

e) If an initial up front fee or deposit is payable the consumer must be given clear explanation of:

l what aspect of the service is covered by the fee or (as the case may be) what the deposit is held for;

l the manner in which it is to be calculated; and whether it is refundable, with due regard to the principles of contract law in relation to deposits and part payments.

f) The consumer must also be advised that he will be given the opportunity to withdraw from the contract if, when he is informed of the total cost of the service, he decides that the service is unsuitable (see paragraph 21g) below).

g) Consumers must be clearly warned in writing:

l where the first payment goes to the DMC and not to the creditors (whether as an initial up front fee, as a deposit or for some other reason) that they will miss a payment to their creditors and will therefore go into arrears or further into arrears;

l that creditors are not obliged to accept reduced repayments or to freeze interest and that, unless they do, repaying the same debt over a longer period of time will lead to an increase in the total amount to be paid;

l that collection actions, including default notices and litigation, can ensue and that there is no guarantee that any existing or threatened proceedings will be suspended or withdrawn. The possibility of default notices – including that they may incur costs that are added to the debt – must be made clear;

l 9) l of the likely impact of the debt management programme on the consumer’s credit rating. In particular it should be stated that they might not be able to obtain credit in the short term and that there is some likelihood that they will not be able to do so in the medium to long term either. Consumers must not be misled into thinking that their credit rating will improve

earlier than when the payment of their debts is completed, or even immediately thereafter: records are retained by credit reference agencies for a further six years;

l of the importance of meeting debts such as mortgage, rent and utility payments; and

l not to ignore correspondence or other contact from creditors or those acting on behalf of creditors.

h) The nature of those commitments that will and – especially importantly – those that as a matter of the DMC’s own decision, will not be included within the repayment plan must be made clear to potential clients. The DMC must exercise all due care to ensure that debts that it says it cannot deal with are not included in programmes by mistake.

i) Where a DMC is aware that a particular creditor refuses to deal with it, (for whatever reason and whether or not the DMC regards this refusal as justified), the consumer must be told of this as soon as the DMC is aware that the consumer has an account with that creditor.

21) Contract terms

a)Contract terms and conditions should be fair, written in plain, intelligible language and easily legible;

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