The Office of Fair Trading (OFT) has told 129 debt management companies that they face losing their consumer credit licences unless immediate action is taken to improve their dealings with consumers.
The firms have been warned after an OFT review of the debt management sector revealed widespread problems. The review involved a website sweep, a mystery shopping exercise and on-site visits by Trading Standards officers.
The most significant issue it identified was the use of misleading advertising by debt management firms. Some are misrepresenting their services as free, when in fact the company retains a fee.
The OFT also found that frontline advisers working in some debt management firms were ‘lacking in competence’, and providing ‘poor advice based on inadequate information’.
Fee-charging debt management firms
Debt management companies are fee-charging firms that offer advice and solutions to people with unmanageable debts. Their services may include arranging Individual Voluntary Arrangements (IVAs), setting up debt management plans (DMPs) and negotiating settlements with creditors.
Such services are also offered free of charge by government-funded and charitable organisations such as Citizens Advice, the Consumer Credit Counselling Service and National Debtline.
Ray Watson, director of the OFT’s Consumer Credit Group, said: ‘People who are heavily indebted, desperate and vulnerable need advice which makes their problem better and not worse, and should not be exploited. Debt management firms must be clear about their charges and the options available to consumers.’
Which? borrowing and debt expert Martyn Saville commented: ‘While it’s good that the OFT is cracking down on the worst abuses of fee-charging debt management firms, its findings show how badly disadvantaged some consumers have been after using them. When Which? has investigated commercial debt management companies in the past, we’ve consistently uncovered poor advice given by biased and often ill-informed staff.
‘We’d always recommend that anyone experiencing difficulties with debt should consult one of the free charities, as they offer impartial, honest advice and don’t charge for it.’
If you need help with tackling problem debts, read the Which? How to deal with debt advice guide.
Have you received shoddy service from a commercial debt management company? Email the Which? Money team with your experiences.
Debt management firms to follow new rules
After finding that a number of firms are not compliant with its Debt Management Guidance, the OFT plans to update the document. The new rules will ‘take explicit account of new and emerging unfair business practices.’
Mr Watson said: ‘The level of non-compliance we found across the industry is unacceptable. If any of the 129 firms identified do not improve their standards substantially they will be the subject of licensing action by the OFT.
‘We are also looking to the two main industry bodies to lead the way in raising standards and to meet their commitments to make the industry more professional and responsible.’