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The OFT is warning consumers to be careful before responding to unsolicited mailings which advise them to cancel existing individual voluntary arrangements (IVAs) and which suggest they opt for an alternative debt management solution such as bankruptcy instead.
Some such mailings sent out to consumers misleadingly suggest to recipients they may have been mis-sold the IVA and/or that bankruptcy may be more suitable for their circumstances when this may not be the case. These mailings are being targeted at vulnerable consumers in IVAs by companies who appear to have accessed their personal contact details from the public register of people in IVAs which the Insolvency Service is required by law to maintain.
The OFT considers such claims to be in breach of its debt management guidance not only if they are misleading but also if they fail to explain the consequences of terminating an IVA agreement and going bankrupt which include:
The OFT has issued warnings to 12 businesses and has given them four weeks to respond. They have been told to amend any misleading claims made in their IVA advertising and promotional material and to be more transparent about the possible implications for consumers if they do terminate an IVA agreement. The OFT will consider taking action against any business that fails to address our concerns. Such action could include taking steps to revoke consumer credit licences held by the business.
Ray Watson, OFT Director for Consumer Credit, said:
'Tackling companies who are engaging in unfair business practices by targeting vulnerable consumers with misleading advice and information, particularly if it leads to consumers becoming more over-indebted, is a key priority for the OFT. We expect any advice and/or information given to debtors to be in their best interests and it should include a full explanation of the implications of offers or advice.'
NOTES
1. The OFT published guidance for debt management companies in December 2001. It applies to all those providing financial management services including IVAs, personal bankruptcy and commercial credit repair.
2. The OFT's Debt Management Guidance sets out minimum standards of behaviour expected of licence holders engaging in the provision of debt management services, which seek to re-schedule customers' repayment of debt and charge for doing so. Key principles of the Guidance are transparency, acting in the best interests of the consumer and keeping the consumer informed. The Guidance states that advertisements and other promotional material must be accurate and clear and must not mislead, either expressly or by implication or omission. The spirit as much as the letter of the Guidance would apply to businesses where their activities relate to advising and/or otherwise assisting consumers with their debts.
3. The Consumer Credit Act 1974 (the Act) requires debt management companies to be licensed by the OFT. Following implementation of the new licensing provisions by the Consumer Credit Act 2006 on 6 April 2008, licensed businesses can have specific requirements imposed on them if the OFT is dissatisfied with any matter in connection with the business. If such a requirement was not complied with, the business concerned could be subject to a financial penalty of up to £50,000. The OFT can also refuse or revoke a licence if it decides that a trader is not fit to hold one.
4. The OFT has not disclosed the names of the companies subject to these informal actions. Under legal restrictions relating to disclosure of information, a public authority such as the OFT may commit a criminal offence if it discloses certain specified information relating to a business or individual, which it obtains in connection with the exercise of its functions.
5. Consumers entering into debt management services:
6. The Insolvency Service is responsible for authorising and regulating the insolvency profession. An insolvency practitioner (IP) has to be appointed to supervise an IVA. The IP must be authorised by the Secretary of State for Trade and Industry (SoS) directly, or by one of seven professional bodies recognised by the SoS as being competent to do so. IPs must comply with several statutory requirements and follow best practice guidance and ethical guidance. Complaints about IPs considered to be acting unprofessionally, improperly or unethically can be made to the appropriate authorising body. Neither the SoS nor the professional bodies can intervene directly in individual insolvencies or give directions in relation to the conduct of individual cases. The SoS has no power to impose any disciplinary sanction or penalty against an IP but if complaints are found to be justified, the SoS will take them into account when an IP seeks re-authorisation, together with other relevant issues.
Some such mailings sent out to consumers misleadingly suggest to recipients they may have been mis-sold the IVA and/or that bankruptcy may be more suitable for their circumstances when this may not be the case. These mailings are being targeted at vulnerable consumers in IVAs by companies who appear to have accessed their personal contact details from the public register of people in IVAs which the Insolvency Service is required by law to maintain.
The OFT considers such claims to be in breach of its debt management guidance not only if they are misleading but also if they fail to explain the consequences of terminating an IVA agreement and going bankrupt which include:
- Much of the initial monies paid to a company on setting up an IVA going towards meeting the insolvency practitioner's fees and not paying off the debt itself. Therefore, if the IVA fails early on, creditors will not have received any payments, the consumer's debts will not have decreased and their financial position is likely to have worsened.
- The option of bankruptcy having far reaching consequences including consumers losing control of their assets, potentially having their home sold and facing restrictions in carrying on businesses and obtaining credit.
The OFT has issued warnings to 12 businesses and has given them four weeks to respond. They have been told to amend any misleading claims made in their IVA advertising and promotional material and to be more transparent about the possible implications for consumers if they do terminate an IVA agreement. The OFT will consider taking action against any business that fails to address our concerns. Such action could include taking steps to revoke consumer credit licences held by the business.
Ray Watson, OFT Director for Consumer Credit, said:
'Tackling companies who are engaging in unfair business practices by targeting vulnerable consumers with misleading advice and information, particularly if it leads to consumers becoming more over-indebted, is a key priority for the OFT. We expect any advice and/or information given to debtors to be in their best interests and it should include a full explanation of the implications of offers or advice.'
NOTES
1. The OFT published guidance for debt management companies in December 2001. It applies to all those providing financial management services including IVAs, personal bankruptcy and commercial credit repair.
2. The OFT's Debt Management Guidance sets out minimum standards of behaviour expected of licence holders engaging in the provision of debt management services, which seek to re-schedule customers' repayment of debt and charge for doing so. Key principles of the Guidance are transparency, acting in the best interests of the consumer and keeping the consumer informed. The Guidance states that advertisements and other promotional material must be accurate and clear and must not mislead, either expressly or by implication or omission. The spirit as much as the letter of the Guidance would apply to businesses where their activities relate to advising and/or otherwise assisting consumers with their debts.
3. The Consumer Credit Act 1974 (the Act) requires debt management companies to be licensed by the OFT. Following implementation of the new licensing provisions by the Consumer Credit Act 2006 on 6 April 2008, licensed businesses can have specific requirements imposed on them if the OFT is dissatisfied with any matter in connection with the business. If such a requirement was not complied with, the business concerned could be subject to a financial penalty of up to £50,000. The OFT can also refuse or revoke a licence if it decides that a trader is not fit to hold one.
4. The OFT has not disclosed the names of the companies subject to these informal actions. Under legal restrictions relating to disclosure of information, a public authority such as the OFT may commit a criminal offence if it discloses certain specified information relating to a business or individual, which it obtains in connection with the exercise of its functions.
5. Consumers entering into debt management services:
- can obtain free advice from Citizens Advice Bureaux, Advice UK, National Debtline, the Consumer Credit Counselling Service
- should consider all available options such as debt management plans, IVAs, or bankruptcy and select the one which is best suited to their own circumstances, arranged by a commercial company, and
- need to check pre-contractual information and ensure they understand it, understand what fees are payable, particularly if a sum will go towards paying setting up costs, and the longer term implications.
6. The Insolvency Service is responsible for authorising and regulating the insolvency profession. An insolvency practitioner (IP) has to be appointed to supervise an IVA. The IP must be authorised by the Secretary of State for Trade and Industry (SoS) directly, or by one of seven professional bodies recognised by the SoS as being competent to do so. IPs must comply with several statutory requirements and follow best practice guidance and ethical guidance. Complaints about IPs considered to be acting unprofessionally, improperly or unethically can be made to the appropriate authorising body. Neither the SoS nor the professional bodies can intervene directly in individual insolvencies or give directions in relation to the conduct of individual cases. The SoS has no power to impose any disciplinary sanction or penalty against an IP but if complaints are found to be justified, the SoS will take them into account when an IP seeks re-authorisation, together with other relevant issues.
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