Thirty debt management companies to stop trading after review found exploitation and miscommunication rife in the sector
More than 30 debt management firms have agreed to stop trading and at least 15 are facing action from the Office of Fair Trading (OFT) following an investigation into the debt sector.
The OFT sent warnings to 129 firms in September 2010 after its review of debt management companies found widespread problems, with firms putting profits ahead of customer care. Since it issued that warning, 35 firms have surrendered their licences and the OFT is forcibly revoking licences from eight more.
A further seven companies who failed to respond by the OFT's deadline of 16 December 2010 are currently under investigation and 79 firms have submitted evidence, which the OFT is reviewing.
Among the problems the OFT review found were: advisers lacking competence, poor advice, misleading advertising and a lack of transparency for consumers, with some firms using similar names to debt charities.
Due to legal restrictions, the OFT is unable to name any of the debt management companies, which typically offer debt consolidation plans and will negotiate settlements with creditors ? services available for free through debt charities.
A spokeswoman for the OFT said consumers with debts should not immediately see any rise in their repayments. "If the debt management company they have used is shut down, they should contact their creditors and continue making repayments at the agreed level," the spokeswoman said.
"It is likely the creditor will already know that the debt management firm has ceased trading, but it is important that consumers keep up agreed repayments until a new plan is agreed after they have spoken to creditors."
Ray Watson, director of the OFT's Consumer Credit Group, added: "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."
In the financial year to April 2010, the Financial Services Authority received 394 new complaints relating to debt management companies. But so far this financial year (April?December 2010) it has already received 335 formal cases about debt management companies ? an increase of 25% on the same period last year.
Last year the FSA upheld over 60% of the complaints it received in the debt management area, with common causes of complaint including consumers finding they still had debt remaining after they believed it had been paid off and consumers not understanding that money they paid would be taken in charges by the debt management company, before it was used to pay off the underlying debt.
Tim Moss, head of loans and debt at moneysupermarket.com, said: "This is fantastic news for the thousands of vulnerable consumers who find themselves in financial difficulties, and who have been exploited by these companies. But the OFT needs to go a step further and ensure the debt management industry is fully regulated so consumers who need to utilise the services of a debt management company can do so with absolute confidence.
"For many consumers, paid-for debt management is a useful tool and there are some good companies out there who are not exploiting their customers. However, paid-for debt management is just one option available to anyone in financial difficulty.
"There are a number of debt advice charities such as the Consumer Credit Counselling Service (CCCS) or Citizens Advice who are able to offer help free of charge. You should also talk directly to your creditors to try and come up with a suitable repayment plan. Whatever you do, burying your head in the sand is not an option, especially when help is available."
Source: http://www.guardian.co.uk/money/2011/jan/28/debt-management-firms-close-oft-investigation
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