Concerns have been raised about the nature and level of fees often charged to people struggling to make ends meet.
Lloyds Banking Group has carried out research into the practice of charging struggling households for debt management plans.
The study, conducted by the Centre for Research in Social Policy at Loughborough University, suggests that debt management plans set up by fee-charging companies were more likely to fail than arrangements where no fee is involved. Other findings from the research suggest this is likely to reflect the poorer practices of fee-charging companies, as well as the additional cost of fee-charging plans.
Particular concerns have been raised about the nature and level of fees often charged to people struggling to make ends meet. The survey findings showed around one in ten (nine per cent) paid all of their fees up front, a practice the research argues should be banned.
It was discovered that half of those who were being charged fees for a debt management plan were not aware that such plans could be set up for free. People struggling with debt were found to be making distressed decisions and not shopping around for the best solution.
Graham Lindsay, group director for responsible business at Lloyds Banking Group, said:
“This research lays bare how many people in financial difficulty are completely in the dark when it comes to getting free, practical debt advice.”
Joanna Elson, Chief Executive of the Money Advice Trust said: “People deal with unmanageable debts in a variety of ways, but far too few people take the one step that stands the best chance of making a real difference, that is seeking free, independent advice. When people do take the brave step of confronting their financial difficulties, we owe it to them to ensure they stand the best possible chance of finding a fair and sustainable way back to financial health.”
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