The OFT has launched a review of compliance levels across the UK debt management industry.

The aim of the compliance review is to gain a deeper insight into the evolving practices of debt management firms. The review will inform any subsequent revision of the OFT's debt management guidance and could lead to the OFT taking formal action to stop any identified consumer harm.

The review will include a sweep of online debt management advertising, an online form for consumers wishing to complain about a licensee and a questionnaire to licensees involved in debt management.

Since the OFT's last compliance review in November 2003 the debt management market has changed significantly. The sector has become increasingly complex with a rapid increase in new entrants and a diverse range of business models, including a rise in internet-based advertising. This comes as more and more consumers seek help for debt problems.

The OFT has already taken action against non-compliant traders in the market. Since April 2008 the OFT has undertaken 24 formal actions to either obtain undertakings, impose requirements, or refuse or revoke credit licences held by debt management businesses. The OFT has also warned the industry over misleading IVA mailings, 'look alike websites' and cold-calling.

Proactively tackling problems in the debt management sector is a high priority for the OFT as there is significant risk that consumers who suffer from distressed debt could end up in a worse, rather than better, financial position. Misleading advertising and poor quality debt advice can result in consumers being sold costly debt remedies that are inappropriate to their needs.

Press release oft.gov.uk

DebtWizard comment

Due to the current debt crisis in the UK, the fee charging firms have seen a massive increase in demand for their services because the non fee charging firms, of which there are only a few, are often swamped and can take longer to set up debt management plans. Some see the non fee charging firms as ‘debt collectors for the lenders’ and question their impartiality because of the funding from lenders. 

The concern which has prompted this review is about the quality and varying level of advice given to the consumer. This concern is not just restricted to fee charging firms and the OFT have also seen a rise in the level of complaints, questionable advertising especially through the internet, and an increase in cold calls to consumers. Even I have been getting these calls once a week! 

There has also been the emergence of copycat websites that look as though they represent the government or debt charities. 

I am appalled by the way some ‘debt management firms’ advertise their services. Some are just lead generators, others do not have a consumer credit licence or a postal address and many do not display their data protection registration number or consumer credit licence details. 

I hear of companies and individuals out there giving the wrong advice - playing on the person’s desperation and lack of awareness of their options. This advice can cost people their livelihoods, relationships and health as well as thousands and thousands of pounds in unnecessary fees.   

To put the scale of the debt issue into perspective, it is estimated that around 100,000 consumers enter into debt management agreements every year, with the Citizens Advice Bureau dealing with an average of 9,300 new debt cases every working day. 

The government must know that there is a need for fee charging providers, otherwise without them the charity firms would collapse tomorrow under the strain. Furthermore there is only so much funding the government can put aside for debt advice by charities, so if the profit making firms take a larger share of the market then this could reduce or maintain the current level of government funding needed. 

It is vitally important that customers get professional and correct advice. As the last review on debt management was back in 2003, I welcome this move by the OFT whose report is expected early in 2010. 

More about the pros and cons of using a debt management company and the procedure can be found at the Debtwizard guide to debt management companies

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