The guidance update follows a review of compliance in the sector which found, amongst other things, widespread problems with misleading advertising and the quality of advice given in the fee charging sector.
Together with targeted OFT enforcement, the revised guidance is designed to address the issues identified by the review.
Today's guidance sets out the standards the OFT expects of debt management businesses and makes clear they must:
- be fully transparent about the service on offer and fees charged
- explain to consumers both the risks and benefits of each proposed solution
- not use misleading names or advertising, including misleading web-based adverts, and
- ensure that the advice provided is in customers' best interests.
The overall theme of the guidance is increasing transparency and ensuring that consumers have all the information they need to make an informed decision about the solution most appropriate for them.
Where appropriate, the OFT will take enforcement action against businesses failing to adhere to the guidance.
Since the OFT published the findings of its compliance review in September 2010 and issued a warning to 129 debt management businesses, 43 businesses have surrendered their licences and action has been taken to revoke 11 consumer credit licences.
David Fisher, Director of the OFT's Consumer Credit Group, said:
"This guidance is designed to leave firms in no doubt about the standards the OFT expects and what they must do to comply with the law.
"The failings identified by our recent review are unacceptable and show that debt management businesses must raise their standards or face enforcement action."
Mr Land, Chairman of the Debt Managers Standards Association, said:
"DEMSA and its members have long agreed with the OFT that there needs to be more exacting measures in place to put clients' interests at the heart of the sector and stamp out new and emerging unfair business practices.
"I am pleased that the OFT has today set out a range of proposals which are designed to put transparency, fairness and consumers' interests first.
"Under the DEMSA Code of Conduct members must provide their clients with fair and transparent information in advance of any service commencing, to enable them to make an informed decision. In addition, members must ensure that all marketing and promotional material is appropriate, accurate and not in any way misleading."
"It is encouraging to note that the OFT has made a number of proposals to ensure that firms closely comply with the guidance such as encouraging firms to undertake an annual audit and provide independent third party verification of compliance.
"DEMSA has continuously promoted the need for firms to have safeguards in place to protect consumer interests.
"All member firms must keep client funds ring fenced in trust accounts and provide a compliance certificate, from a chartered accountant, demonstrating they are maintained satisfactorily and ensure that all payments are passed on to their clients' creditors within five working days.
"In addition all DEMSA members are audited annually and monitored constantly."
Mr Land advised any individual seeking to use a debt management company to look for the DEMSA and OFT logo for reassurance that they are dealing with a reputable firm which is committed to the highest of standards.
Mr Land added:
"It is also pleasing to see the OFT are encouraging firms to take such steps as membership of a professional trade body to ensure they are aware of relevant changes in the law and that their policies and practices are updated accordingly."
David Mond, DRF Chairman and CEO of debt resolution company, ClearDebt, said:
"Whilst we need to examine the consultation document in detail, in many respects, the new guidance just formalises best practice as already undertaken by the majority of DRF members.
"We particularly welcome new recommendations that debt resolution companies should be independently audited every year and that staff should be trained to standards akin to our advanced BTEC - the Certificate in Debt Resolution.
"DRF provides independent audit through its association with government-trusted regulator, the Insolvency Practitioners Association and DRF's members are therefore already ahead of the game.
"DRF is also pleased to see the new requirements on lead introducing companies which, we believe, will put an end to needless cold-calling and ensure consumers are clear whom they are dealing with.
"DRF has just introduced a new membership category for lead introducers, who will be able to be audited to verify their compliance with the OFT's guidelines and will thus be able to assure DRF members that they are working with partners whose standards match their own.
"We were very pleased to note that the guidance incorporates an amendment put forward by DRF which will allow reputable debt resolution companies to make monthly payments to the creditors of weekly-paid debtors, something which has previously disadvantaged the lowest paid."
