OFT issues new debt management guidance

The OFT has today published revised guidance on the standards it expects from businesses offering debt management advice or credit repair services to consumers.

Related topics:  Finance News
Millie Dyson
22nd March 2012
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The guidance expands on previous versions, providing examples of 'unfair or improper practices' which, if engaged in, could render a business unfit to hold a consumer credit licence and operate in the market.

Examples of unfair practices include:

- Sending unsolicited marketing text messages, email or voicemails.

- Providing inappropriate financial incentives to staff giving debt advice, which may encourage them to promote unsuitable debt management products for personal gain.

- Making false or misleading claims regarding the status of the business, for example operating websites which look like the website of a charity or a government body.

Businesses are also expected to refer consumers to not-for-profit advice organisations for further help, in certain circumstances, and to have effective measures in place to identify and deal with particularly vulnerable clients, such as those with mental capacity issues.

An overall theme of the guidance is for businesses to be transparent so that consumers have all the information necessary to make informed decisions about the most appropriate debt solutions for them given their financial circumstances.

The guidance builds on enforcement action taken following a compliance review of the sector in 2010, which identified widespread concerns, including problems with advertising and marketing practices and the quality of advice given.

Following the compliance review, the OFT issued 129 warnings to debt management businesses. Since then, 87 businesses have exited the market, either voluntarily or as a result of enforcement action, and a further 67 warning letters have been issued.

David Fisher, Director of the OFT's Consumer Credit Group, said:

"This new guidance clearly sets out the standards we expect from debt management businesses. All too often it may be particularly vulnerable consumers who fall victim to poor quality debt advice and we will continue to take action against businesses that fail to follow our guidance."

Download the new guidance.

Frances Coulson, R3 President, comments:

“R3 welcomes the OFT’s revised Debt Management Guidelines for businesses offering debt management advice or credit repair services, but believes more should be done to ensure Debt Management Plans are properly regulated.

“Research by R3 has shown that 35% of individuals in a Debt Management Plan said other options for dealing with their debt, such as an Individual Voluntary Arrangement or bankruptcy were not discussed with them before they started their DMP.

“The research also found a significant proportion of those in a DMP ended up in an IVA or bankruptcy anyway - thereby prolonging financial distress.

“While DMPs can play an important role in offering a manageable solution to individuals who are able to pay back their debts there is more to be done. Crucially, we need to know how many people are in a DMP. Recent research by R3 revealed that over 2 million said they were currently in a DMP.

“Difficult economic conditions are leading to more people struggling and indeed recent research by R3 has found that 39% of respondents are concerned about their current level of debt – this equates to 18 million people. What is even more worrying is that 25% of people do not think it is clear where to go for impartial, good debt advice. Some clarity is urgently needed in this area as an online search for debt advice could easily lead to a provider with a vested interested in ‘selling’ a particular product.

“We have seen huge numbers of personal insolvencies in 2011 and so undoubtedly more people will find themselves in need of advice. For this reason we are pleased that steps have been taken to further regulate the debt management market but feel that more can be done. There needs to be an official record of how many people are in DMPs so we have an accurate picture of the current personal debt landscape.”
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