The Office of Fair Trading has found that some debt management companies are posing as charities and have ordered almost half of the firms to sort themselves out within 3 months or risk losing their consumer credit license.
The OFT found widespread problems after visits by trading standards officers, who also conducted a "website sweep" and a mystery shopping exercise. Misleading advertising is the most significant area of rule-breaking, in particular failing to disclose that fees are payable and claiming services are free when they are not.
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.'
We would like to take this opportunity to announce that Debt Free Me, R & R Financial Solutions, or any website linked to us, have been contacted by the OFT regarding this situation and that as founding members of the Debt Resolution Forum we adhere to strict government guidelines.
A damning report into the state of the sector highlighted widespread problems including misleading advertising and poor advice to those who have found themselves in debt. However, many debt management companies welcomed the report, arguing that standards were improving and that there are companies that deceive the public in every industry.
Many people with debt problems go to a debt management company in hope of help in a desperate situation. Unfortunately many companies 'exploit' these vulnerable families and they charge fees for coming up with solutions and providing advice, services which should be free. At Debt Free Me we offer free advice, some solutions may incur a cost but the client has no need to accept our advice and they are free to look for alternative solutions, should any costs be incurred these are clearly explained before anything is agreed.
Three-quarters of those firms checked by the OFT charged their fees at the start of the process. This, the OFT said, would minimise the risks faced by the firms while not dealing immediately with consumers' difficulties.
"In some cases, it appears that business models may be set up to take the maximum amount of money from a consumer regardless of their circumstances," the report said.
"Firms are not giving the advice or offering the solution that is in the best interests of the consumer, but instead that which is most profitable to them."
Debt Management Companies
The OFT has found that even though around 100,000 agreements are reached every year in the UK, the number of debt management companies is unknown, however there are thought to be around 300 companies, other reports have shown there to be far more. Only around 1 in 10 of these companies are members of the Debt Managers Standards Association (DEMSA) and the equivalent Debt Resolution Forum.
Britain's personal debt crisis, with more than £1trillion owed by ordinary families, has created a feeding frenzy for the debt management firms.
"There is no question there are lots of cowboys in the industry," said Michael Land, chairman of DEMSA, who welcomed the report.
The OFT said it had been taking action to close down websites and revoke some licences since 2008, but it has now stepped up the warnings.
"People who are heavily indebted, desperate and vulnerable need advice which makes their problems better not worse and should not be exploited," said the OFT's Ray Watson.
"Debt management firms must be clear about their charges and the options available to consumers. The level of non-compliance we found across the industry is unacceptable."
Debt Free Me are proud to be founding members of the Debt Resolution Forum and fully support the OFT in their crackdown of rogue debt management firms.
The Debt Resolution Forum (DRF), which represents firms in the debt management industry, said a system to audit the companies involved has been set up.
Its chairman, David Mond, said: '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.'
If you have any worries about this news item then don' hesitate to call us freephone 0800 988 7701.
Learn more about Debt Free Me's association with the Debt Resolution Forum.
Visit the Debt Resolution Forum at www.debtresolutionforum.org.uk
