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Debt management companies mislead consumers over fees

The Office of Fair Trading has warned 129 debt management companies they risk being shut down in an attempt to crack down on poor standards across the industry.

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by Victoria Bischoff on Sep 28, 2010 at 08:42

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Debt management companies are misleading vulnerable and over-indebted consumers into believing the service they provide is free, when it is not, it was today revealed.

One hundred and twenty nine debt management companies face losing their consumer credit licences unless they take immediate action to comply with its debt management guidance, the Office of Fair Trading (OFT) has warned.

Debt management companies provide advice and solutions, such as individual voluntary arrangements (IVAs) and debt management plans, to consumers with debt problems. However, unlike free government funded and charitable services they charge consumers a fee for their service. According to the OFT debt management fees are expected to reach a total of £250 million by the end of this year.

In its investigation the OFT found:

Misleading advertising is the most significant area of non-compliance, with many firms failing to disclose to consumers that a fee is retained by the business.
Frontline advisers working for debt management companies are lacking in competence and providing consumers with poor advice.
There is a low industry awareness into how consumer complaints should be dealt with by the Financial Ombudsman Service (FOS).

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 not worse and should not be exploited. Debt management firms must be clear about their charges and the options available to customers’.

‘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,’ he added.

David Mond, chairman of the Debt Resolution Forum (DRF), welcomed the OFT's report and argued steps are being taken to help improve standards.

He said: ‘We have been working with DRF’s members since the spring to ensure that they are compliant with the OFT’s Debt Management Guidance and are confident that most of our members have already addressed the issues identified by the OFT and are now fully compliant’.

‘The OFT report is a welcome wake-up call for the industry and we hope it will encourage many of Britain’s hundreds of debt management companies to take standards and regulation seriously and to join the DRF,’ Mond added.

The formal warning to the 129 firms comes as the OFT publishes a review of the debt management sector in which it has highlighted widespread problems across the industry. The OFT’s report sets out a detailed action plan explaining how it intends to clamp down on ‘debt sale’ scams and improve standards across the industry.

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9 comments so far. Why not have your say?

The OFT and related Trading Standards are a joke. They have not taken immediate action, they are giving them 3 months to comply.

http://www.oft.gov.uk/news-and-updates/press/2010/101-10

They identified 129 debt management firms that do not comply to guidelines i.e. the "frontline advisers working for debt management companies are lacking in competence and are providing poor advice".

If these companies are the cowboys that certain people assume they are, that is another 3 months to poorly advise people, if not just rip them off !!!

Worst of all, THEY CANT EVEN NAME THEM!

OFT and Trading Standards are useless.

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How ironic that the OFT announces this on same day Government says its going to use debt collection firms to chase unpaid tax! But putting that aside many of these firms have been abusing OFT rules for 10 years - so why is it only getting tough now? I’m sure the OFT’s appearance on the Qango axe list last week is just a co-incidence.

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Why not regulate them like other financial institutes and have advisers needing FSA approval and qualifications?

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@Newtownhousewife

You are at cross purposes. This report addresses Debt Management Companies that offer to rid you of your debts (such as the ones that advertise on Daytime TV).

The government proposes to use Debt Collection companies to chase tax and other debts from feckless individuals who feel it to be acceptable to live in the UK and benefit from the institutions that are funded from the public purse without paying their fair share of the cost of those institutions. Why that should be at all controversial escapes me.

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Why have these dodgy companies not be named?

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@Keith Simmonds - Sep 28, 2010 at 11:56

The below quote gives the technical reason. Maybe this act should be updated?

Quote from the OFT Press Release:

http://www.oft.gov.uk/news-and-updates/press/2010/101-10

The OFT is not able to name the 129 companies because of disclosure restrictions under Part 9 of the Enterprise Act 2002. Where the OFT uses its formal powers under the Consumer Credit Act 1974 to refuse or revoke a credit licence, decisions are made public on the Consumer Credit Public Register.

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I daily have an array of automated phone calls from these companies, and all are 1471 number disguised. This alone makes me not trust them.

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re: Ian Grumpy

I am not at cross purposes - in many many instances debt collection and debt management companies are one and the same thing, they begin by chasing a debt and then persuade vulnerable people into unsuitable expensive solutions.

I am not against people being chased for unpaid tax - but perhaps if so many HMRC people hadn't been let go we wouldn't have so much unpaid tax.

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Anonymous 2 needed this 'off the record'

Sep 29, 2010 at 08:49

Just shows yet again that our world leading financial services sector are yet again leading but unfortunately in misleading, and mis selling

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