New rules introduced today will make it more difficult for debt management companies to advertise their services for ‘free’ if the consumers using them have to pay anything other than essential costs.
Under changes to the Committee of Advertising Practice (CAP) and Broadcast Committee of Advertising Practice (BCAP) codes, firms demanding payment from consumers that exceeds unavoidable costs (such as delivery and response expenses) will no longer be allowed to market themselves as ‘free’ or ‘without charge’.
Up until now, some debt management firms have advertised their advice and services as free even when they have charged customers a monthly administration fee for dealing with creditors.
According to debt charity the Consumer Credit Counselling Service (CCCS), a typical ‘free’ plan from a debt management company could cost as much as £5,000.
Get free debt help
According to the CCCS, too few people are aware that it – along with several other charities such as Citizens Advice and National Debtline – offer genuinely free debt help.
Malcolm Hurlston, CCCS chairman, says: ‘We know that when it comes to debt advice, desperate consumers tend not to shop around; rather, they run for the first port in a storm. Those marketing debt management plans have been clever at taking advantage of this and enticing customers in with the offer of a free service.
‘Our research shows that clients on debt management plans with fee chargers not only pay through the nose, but also take a lot longer to pay off their debts.’
According to Which? money expert Martyn Saville, getting impartial advice from a specialist charity is the best way to approach dealing with problem debts. ‘An independent debt adviser will help you work out the best way for you to tackle your borrowing. On the other hand, a private company might convince you that a debt management plan or individual voluntary arrangement (IVA) is right for you, even if bankruptcy would be the better option – and this is simply because those products are more profitable for them.’
For more information on how to get help if you are experiencing difficulty with debts, read the Which? Dealing with debt advice guide.
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