OFT warns debt management firms

Stack of pound coinsDebt management firms risk being stripped of their licences if they are found to be targeting consumers with unsolicited texts, emails or voicemails, the trading watchdog has warned.

The Office of Fair Trading (OFT) has published fresh guidance on standards that such companies should follow in a bid to increase transparency and help "vulnerable" consumers make more informed decisions, following a rise in complaints to the Financial Ombudsman Service.
The watchdog emphasised that failure to comply with existing laws relating to the sending of texts, emails and voicemails without consumers' prior informed consent would be considered "unfair or improper", and would cause it to review a firm's fitness to hold a consumer credit licence, which it needs in order to trade.

The OFT's most recent action taken against debt management companies was last October, which included stopping London-based Money Advice Direct Limited (MADL) using the trading name the UK Insolvency Helpline, and proposed domain names including the word "helpline", because the names failed to make clear the commercial nature of the business.

David Fisher, director of the OFT's consumer credit group, said: "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."

Citizens Advice lodged a super-complaint about credit brokers and debt management firms with the OFT last spring, saying that people's contact details were often passed on to other companies, which bombarded them with texts and calls offering them loans, debt management or claims management services, with some people receiving up to 12 calls a day.

The OFT's new guidance says that "lead generators" must make it clear to consumers during a call that it is a sales call, with the purpose of gathering personal data in order to sell that data on to another business, if the consumer consents.

It also said that companies must not provide inappropriate financial incentives to staff giving debt advice, which could encourage them to promote unsuitable products for their personal gain.

Businesses should also refer consumers to not-for-profit advice organisations for further help in some circumstances, and have "effective measures" in place to identify and deal with particularly vulnerable clients, such as those with mental capacity issues, the OFT said.

Gillian Guy, chief executive at Citizens Advice, said: "It's good to see the OFT tackle unacceptable marketing practices carried out by many debt management companies. It's right that firms should end activities such as sending unsolicited text messages, emails and voicemails, and offering inappropriate financial incentives to staff."
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