Companies in the United Kingdom who offer help with debt problems must hold a Consumer Credit Licence, which is issued by the Office of Fair Trading (OFT). This includes firms who offer debt management plans, or Individual Voluntary Arrangements, or who negotiate with creditors on behalf of borrowers. If the OFT finds that a firm has acted improperly, its enforcement powers can include removal of the Licence.
The OFT first issued guidance to the debt management industry in December 2001 and updated this guidance in September 2008. The OFT guidance places obligations on firms such as:
- Treating customers fairly
- Being transparent about fees and charges
- Fully and fairly investigating customer complaints and offering appropriate redress where due
- Compliance with the Data Protection Act in the handling of personal data
- Not engaging in high pressure selling
- Giving equal prominence in advertising to both the advantages and disadvantages of a debt management option
In September 2010, the OFT carried out a compliance review of the debt management industry and found several issues of concern in many companies who help customers to manage debt repayments. Identified problems included:
- Lack of competence among staff
- Misleading advertising, especially regarding transparency in disclosing the fees due
- Lack of awareness of the Financial Ombudsman Service complaints procedure
Largely based on the findings of the compliance review, the OFT updated its guidance in March 2012. The revised guidance explicitly stated that certain practices were unfair, such as:
- Sending unsolicited text messages or emails
- Remuneration structures that may give inappropriate financial incentives to sales staff
- Using misleading trading names, such as ones that incorrectly suggested the company was a charity or government helpline
The OFT is particularly concerned about standards in this industry as many customers seeking help with debt relief may be classed as 'vulnerable' customers as a result of the fact they are experiencing financial hardship.
As a result of the 2010 review, 129 companies who offered help with debt payments were instructed to take immediate action to improve their practices, or risk losing their Licences. This led to 87 companies exiting the debt management market, either voluntarily or forced out by the OFT.
Debt management companies who are members of the Debt Managers Standards Association (DEMSA) must also comply with that body’s Code of Conduct. This Code places additional requirements on member firms concerning areas such as staff training and advertising. DEMSA can also investigate customer complaints and carry out its own disciplinary investigations, with its range of sanctions extending to expulsion of a member firm from DEMSA.
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Nik Jones is a professional Debt Advisor at Debt Local. For any type of debt advice or debt management help, call for free on 0800 044 5659.
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