Debt management firms are facing a new crackdown by the Office of Fair Trading. Explaining the review which will examine the advertising and business practices of the firms Ray Watson, OFT director of consumer credit, said: "A recent increase in formal OFT enforcement action, rising complaints and new problems emerging in the market suggest that some businesses are still not meeting minimum standards."
Now, forgive me for being blunt, but if there are some dodgy debt management companies out there, which we know there are, they should be shut down at once, not given the benefit of many months more to rip people off. To be fair, in the last 18 months the OFT has acted against 24 firms, even going so far as to revoke some businesses' licenses. It has also warned the industry over misleading IVA mailings, "look-alike websites" and cold-calling.
But I believe many debt management firms have already pushed their luck too far and should be given no more chances. Let's remind ourselves how some of these sharks operate. The dodgy firms portray themselves as the consumers' friend by giving them debt advice and aid. But in reality they're just out to screw struggling people out of even more money. Some of these firms prey on people's fears that they may lose their home by forcing them to pay fees for advice that they could easily get for free from one of the UK's excellent debt charities.
Worse, some firms actually persuade people that they can wipe out their debts by taking out an individual voluntary arrangement. In practice, for many folk, an IVA is simply the first step to bankruptcy and eventually losing their home. Insolvency figures issued on Friday showed an increase in the number of people facing financial ruin and, frighteningly, experts at PricewaterhouseCoopers predict that there will be around 100,000 debt management plans this year. The accountancy firm says that on average right now more than 1,000 people per day are seeking some form of formal debt restructuring.
Now it's true that plenty of folk do move to some form of debt management which helps them get back on to a firm financial footing. Indeed, I've met people who've been through an IVA and come out the other side in a much better financial condition. But that doesn't mean it's right for everybody. Firms which simply encourage people to make that move without helping them consider other options are failing to do the best for consumers or, as the OFT puts it, "not meeting minimum standards".
According to a Money Advice Trust report there are approximately 150 debt management businesses, of which only 34 are members of the trade body Debt Resolution Forum and just seven members of the Debt Managers Standards Association, which has an approved code of practice. That leaves 109 rogue firms which are members of neither. I'd start the clean up of the industry with them. Enforced membership of a trade association could go some way towards forcing these companies to do business in a fair way or shut up shop and stop preying on the hard-up.