Debt management firms face scrutiny

Debt management firms face scrutiny

Debt management firms' online adverts, cold calls and customer complaint procedures are to be scrutinised by the Office of Fair Trading in a bid to protect consumers from being misled.

About 150 companies now offer advice to set up paid-for debt management plans (DMPs) for heavily indebted borrowers that aim to lower monthly repayments but can end up eventually costing more, thanks to fees.

Alert to what it calls a "significant risk" that consumers struggling with debt could end up in a worse financial position after taking out a DMP, the OFT last week launched a review of the industry's practices.

"A recent increase in enforcement action, rising complaints and new problems emerging in the market suggest that some businesses are still not meeting minimum standards," says Ray Watson, director of consumer credit at the OFT. "The review will help us identify those practices that are harming consumers, as well as the reasons for non-compliance, and help us target our enforcement action."

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Since April 2008, the OFT has undertaken 24 formal actions to revoke or refuse credit licences held by debt management businesses, or impose new requirements. A government consultation launched in September will decide if the industry should be regulated.

Debt management firms charge fees and are separate from free debt-advice charities such as the Consumer Credit Counselling Service, Money Advice Trust or Citizens Advice Bureaux.

"We worry when those struggling with debts spend money on fees rather than the cash all going on paying down the debt," says Beccy Boden-Wilks at the Money Advice Trust. For information about free advice on debt management services, visit direct.gov.uk.

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