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Firms warned over ‘misleading’ debt adverts

Businesses given four weeks to sort out the ads


Cascading pound coins.

A government watchdog has warned 17 firms promoting Individual Voluntary Arrangements (IVAs) to stop using adverts which could potentially mislead consumers.

The Office of Fair Trading gave the businesses four weeks to comply with its demand or face formal action.

It follows action by the OFT in November in which 124 newspaper adverts and 57 websites were checked.

IVAs – a formal agreement between debtors and creditors – are increasingly being used by consumers in debt as an alternative to bankruptcy.

IVA claims

With the agreement of the majority of the creditors, individuals are allowed to pay back a proportion of the amount they owe over a set period.

Some of the claims made about IVAs were considered by the OFT to be in breach of its guidance.

As such, the 17 firms identified have been told to remove or amend potentially misleading statements.

Of the adverts found to be at fault, one falsely claimed that ‘up to 90 per cent’ of debt can be written off. The maximum would in fact be in the region of 60 to 70 per cent.

Another ploy identified was the false implication that firms can guarantee a favourable outcome by the use of such phrases as ‘stop all interest and charges’.

Credit rating

Other adverts failed to state that set-up and administration fees will be charged, neglected to mention that homeowners may be required to remortgage their properties after three years, and made no mention of the effect an IVA would have on an individual’s credit rating for six years.

Alan Williams, Senior Director of Markets and Projects at the OFT, said: ‘IVAs are still a solution for many, but those supplying them must be clear and honest about what they can and cannot achieve for consumers in debt and the possible negative implications of entering into such arrangements.

‘IVAs are only one of a number of options for people in debt and should only be recommended when in the best interest of the consumer.’

He added: ‘We will take firm action against businesses which engage in unfair and misleading practices when promoting IVAs.’

Code of conduct

In a separate development, banks, insolvency practitioners and debt management companies today hammered out details for a draft standard IVA protocol.

During a Debt Summit, industry representatives agreed to a number of principles to make up the code of conduct, which is designed to eliminate the ‘potential or perceived abuses’ that currently exist.

Under the draft protocol, debt firms will be obliged to avoid misleading advertising and tighten up the advice process so that it takes on board an individual’s personal circumstance.

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