Fifty debt firms to go as OFT launches crackdown
Britain's debt management industry was the subject of a crackdown yesterday, with 35 companies surrendering licences and a further 15 facing disciplinary action by the Office of Fair Trading.
The OFT took action after issuing warnings in September to 129 firms that offer advice to people struggling with debt. There has been mounting concern at the activities of the sector at a time when family finances are under pressure from economic turmoil, rising inflation and high levels of debt built up before the financial crisis.
The OFT said the 35 companies had voluntarily given up their creidt licences but that it intended to revoke those held by a further eight, with seven under investigation after failing to respond to its warning letters. A further 79 firms have submitted evidence, which the OFT will review.
The September warnings were issued following a string of problems identified by the OFT including what it said was the repeated use of misleading advertising, in particular failing to disclose fees and misrepresenting debt management services as being free. It also found that frontline debt advisers working for debt management companies lacked competence and gave poor advice.
By contrast, charities such as the Consumer Credit Counselling Service and Citizens Advice offer genuinely free help to people struggling with debt. The Financial Ombudsman Service (FOS) added fuel to the fire by saying that complaints about the sector had mushroomed by 25 per cent.
It said in the period from April to December 2010 it had received 335 formal cases about debt management companies, up by a quarter on the same period the previous year.
The FOS also upheld more than 60 per cent of consumer complaints relating to the sector that it received last year – highlighting an OFT criticism of poor complaints handling in the industry.
There has been mounting concern over the activities of the debt management industry in recent years, particularly over the alleged mis-selling of Individual Voluntary Arrangements – which can be an alternative to bankruptcy that allow consumers to emerge debt-free after five years.
Critics, however, say the terms of such arrangements can be very harsh. They say some people with severe debt problems would be better off with bankruptcy.
A recent Consumer Credit Confidence survey by PricewaterhouseCoopers found that while households were repaying debt, consumer borrowing, excluding home loans, still stood at £8,000 per household last year. It warned that interest rates could rise by 2 to 3 percentage points over the next few years while unemployment is widely expected to rise sharply as the Government's spending cuts hit home.
Ray Watson, the director of the OFT's Consumer Credit Group, said: "We are determined to improve standards in this sector, as the failings identified by our review are unacceptable. Companies providing debt management services should be in no doubt that we will act against bad practice and ensure consumers are protected."
The OFT crackdown came as the British Bankers Association called for the debt advice system to be "streamlined".
In a report in conjunction with Accenture, the consultant, it called for a single body to regulate debt advice, with a single debt management licence.
- 3 Alton Towers crash: Four seriously injured and 16 guests trapped as Smiler ride carriages collide
- 4 Ann Summers survey reveals the UK's favourite sex position
Thousands of teenage girls enduring debilitating illnesses after routine school cancer vaccination
Migrants in Kos: Photos show real tragedy after Brits abroad complain of 'awkward' holidays
British tourists complain that impoverished boat migrants are making holidays 'awkward' in Kos
Michael Gove determined to scrap the Human Rights Act – even if Scotland retains it
Threat to scrap Human Rights Act could see UK follow Nazi example, warns UN official
Church of England 'one generation away from extinction' after dramatic loss of followers
iJobs Money & Business
£30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...
£70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...
£23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...
£13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...