OFT issues new debt management guidance

[Legal Beagles]

The OFT has published revised guidance on the standards it expects from businesses offering debt management advice or credit repair services to consumers.

More...

[enaid]

Re: OFT issues new debt management guidance

OFT issues new debt management guidance


21/12 22 March 2012

The OFT has today published revised guidance on the standards it expects from businesses offering debt management advice or credit repair services to consumers.

The guidance expands on previous versions, providing examples of 'unfair or improper practices' which, if engaged in, could render a business unfit to hold a consumer credit licence and operate in the market.

Examples of unfair practices include:

Sending unsolicited marketing text messages, email or voicemails.
Providing inappropriate financial incentives to staff giving debt advice, which may encourage them to promote unsuitable debt management products for personal gain.
Making false or misleading claims regarding the status of the business, for example operating websites which look like the website of a charity or a government body.
Businesses are also expected to refer consumers to not-for-profit advice organisations for further help, in certain circumstances, and to have effective measures in place to identify and deal with particularly vulnerable clients, such as those with mental capacity issues.

An overall theme of the guidance is for businesses to be transparent so that consumers have all the information necessary to make informed decisions about the most appropriate debt solutions for them given their financial circumstances.

The guidance builds on enforcement action taken following a compliance review of the sector in 2010, which identified widespread concerns, including problems with advertising and marketing practices and the quality of advice given.

Following the compliance review, the OFT issued 129 warnings to debt management businesses. Since then, 87 businesses have exited the market, either voluntarily or as a result of enforcement action, and a further 67 warning letters have been issued.

David Fisher, Director of the OFT's Consumer Credit Group, said:

'This new guidance clearly sets out the standards we expect from debt management businesses. 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.'

[cards down]

Re: OFT issues new debt management guidance

"failed to load PDF document" error coming up when clicking on download the "new guidance" link, anyone else having the same problem?

[labman]

Re: OFT issues new debt management guidance

It doesn't seem 2 minutes till they published the previous ones. A good bit of reading for later on.

[enaid]

Re: OFT issues new debt management guidance

"failed to load PDF document" error coming up when clicking on download the "new guidance" link, anyone else having the same problem?

It worked for me.

[labman]

Re: OFT issues new debt management guidance

VERY BRIEF SUMMARY

This is an excellent document. Its focus is not on Debt Collection practices. If you are wanting to read about those, it is pointless you reading this. It is about Debt Management Companies and some of the horrendous abuses of their position that are going on.

Bear in mind that I cannot sum up 96 pages in a few paragraphs - it makes an easy read though. However, the concerns are generally more to do with misrepresentation. This is looking particularly at Debt Management Companies (remember in the eyes of the OFT a charity is a company for the sake of issuing a Consumer Credit Licence, though it does not necessarily have to be registered as such) who charge for their services.

Legal Beagles has always advocated going to a free source of debt advice. It simply is not necessary in this site's eyes to pay for a service which can be got free of charge from a wide variety of places. Common ones include CAB, Payplan, the Consumer Credit Counselling Service, DebtAdviceNI (these are the ones mentioned in the document) along with a huge number of other charitable institutions operating legitimately, and offering good services.

However, the guidance points out that some of these companies offer free guidance with a view to making a profit off the back of it, either through selling their own literature, referral commissions etc... It emphasises the need for total transaprency in the sector, particularly for fee charging companies, but also for the free companies.

The advice also emphasises the need for Debt Management Companies (DMC's) to be open and transparent about what they can and what they cannot do. Where they can do something, it is clear, from the guidance, that many companies, free or fee charging, are simply not telling the debtor the full implications of the actions on which they are embarking. For example,
the impact the action will have on their long term ability to get credit;

the fact that a DMP is not a contract and can be cancelled at any time - indeed there is no guarantee any offer will be accepted in the first place;

the need to inform the client that there is no guarantee interest and charges will be frozen;

the need to do a full income and expenditure, such as the mentioned common Financial Statement for which you need a licence, or also mentioined CASHflow for which you need a licence.

the need to inform a client that payments may increase the level of indebtedness if interest has not been frozen and their repayment does not meet these charges etc....

In terms of some of the fee charging companies it is clear some are in it just to profit from the misery of those in debt. They have their license and are making huge claims which they cannot possibly live up to. They claim all interest and charges will be stopped; early settlements (Full and Final settlements) will be guaranteed; large chunks of debt can be written off.

They sell customers' details to other companies offering similar services. I know from personal experience the depth of detail one holds about a client, and the potential value of this to any interested third party. It is vitally important therefore that clients check what will happen with their personal information. It is important clients check what complaints procedures are in place. It is important clients ask what will happen if that company is unable to solve their particular issue, or is not licensed to do so.

For fee charging companies it is important to know what is happening to any money paid to the company. It is important to know the rate of any commission charges. It is important to know where you stand if you want a refund.

Some of the practices described in the booklet are absolutely despicable. The guidance starts by talking about 'Common Sense.' It is critical that any company providing debt advice or debt solutions exercises common sense. The sad reality is many do not.

Critically important is the fact that many potential clients of these companies are themselves vulnerable. I do not mean only vulnerable by way of mental illness etc... but vulnerable simply because they are often very overstretched financially and are thus more likely to clutch at something which looks like a perfect resolution.

My personal opinion on this - if it looks too good to be true, it is! Any genuine debt advice provider will be happy to give its clients all relevant details so they can check the company, or ask a friend to check it.

If you are thinking of going with a Debt Management Company, or Debt Repair Company, PLEASE post up details on the site's forums first so that we can check the companies out for you.

It is clear there are many rogue traders out there, making a healthy living off the backs of vulnerable people in debt.

WE DO NOT WANT ANYONE ON LEGAL BEAGLES TO FALL INTO THE TRAP OF ONE OF THESE DISPICABLE PEOPLE.

PLEASE BE CAREFUL.

PLEASE ASK ON THE FORUMS IF YOU HAVE ANY DOUBTS.

REMBEMBER NO QUESTION IS SILLY.

I hope this has been helpful, and for those who.like me, have read the full booklet, I know I've missed much out, I've had to. It talks early on about the sprit of the guidance as well as the actual content. I have tried to capture that spirit.

[cards down]

Re: OFT issues new debt management guidance

"failed to load PDF document" error coming up when clicking on download the "new guidance" link, anyone else having the same problem?

Chrome issue but got there in the end