Debt firm rakes in fees
Britain’s largest provider of personal debt advice, Debt Free Direct (DFD) has seen its fees top £1m a month for the first time, due to the growing number of people veering towards bankruptcy.
The number of people turning to the Lancashire-based company for help in setting up Individual Voluntary Arrangements (IVAs) has risen to 266 over the last six months compared with just 100 a year ago, it added.
Debt Free Direct said yesterday that its average turnover a month had rocketed to £1,059,000 — a rise of 106 per cent on last year.
The company’s figures reveal that more and more people are turning to debt restructuring specialists for advice amid a big leap in the number of insolvency cases.
The number of IVAs, in which people agree to make monthly contributions to creditors and in which companies such as DFD take a monthly fee, has exploded with 83 per cent more cases this year.
That comes against a background of a 46 per cent jump in the number of people crashing into insolvency, according to latest figures from the DTI.
DFD is making its money from three income streams. It charges a £2,700 “nominees” fee for putting together a legal agreement for each IVA case.
It then charges a “supervisory” fee of up to £75 a month for five years for collecting the payments.
The third income stream comes from taking a share in brokering a mortgage.
This occurs when a customer is told by his financial adviser that he is solvent rather than bankrupt, but nevertheless needs to restructure his debt.
It is growth in all three fee incomes that has helped DFD increase its average monthly revenue to more than £1m a month.
Andrew Redmond, chief executive of DFD, said: “For increasing numbers of consumers the ‘party is over’.”
He added: “The current weakness of the unsecured debt market will be exacerbated by impending economic triggers, such as the weak housing market and the prospect of interest rate rises as inflation continues to creep upwards.”
The company said it anticipated profits in line with market expectations after yesterday’s trading update.
Brokers at Daniel Stewart raised its expectations for pre-tax profits of £4.3m rather than £4m.