Time to weed out dodgy debt firms

The current debt crisis in the UK means fee-charging debt firms have seen a massive increase in demand for their services. This is often down to the fact that non fee-charging firms, of which there are only a few, are often swamped and can take longer to set up debt management plans.

As a result, the Office of Fair Trading (OFT) has announced a probe into firms that promise to help struggling borrowers pay off their debts.

The investigation comes amid concern about the quality and varying level of advice given to the consumer by debt management firms. The OFT has seen a rise in the level of complaints, questionable advertising especially through the internet, and an increase in cold calls to consumers.

There has also been the emergence of copycat websites that look as though they represent the government or debt charities.

I am appalled by the way some debt management firms advertise their services. Some are just lead generators, others do not have a consumer credit licence or a postal address, and many do not display their data protection registration number or consumer credit licence details.

I hear of companies and individuals out there giving the wrong advice - playing on people’s desperation and lack of awareness of their options. This advice can cost people their livelihoods, relationships and health as well as thousands and thousands of pounds in unnecessary fees. 

To put the scale of the debt issue into perspective, it is estimated that around 100,000 consumers enter into debt management agreements every year, with the Citizens Advice Bureau dealing with an average of 9,300 new debt cases every working day.

The government must know that there is a need for fee-charging firms - without them, free debt advice firms would collapse under the strain. Furthermore, there is only so much funding the government can put aside for debt advice, so if profit-making firms take a larger share of the market then this could reduce or maintain the current level of government funding needed.

However, it is vitally important that customers get professional and correct advice. As the last review on debt management was back in 2003, I welcome this move by the OFT whose report is expected early in 2010.

More about the pros and cons of using a debt management company and the procedure can be found on Moneywise’s dedicated Debtwizard pages.

You can also find the details of firms that offer free debt help here

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All too true.

So often is the case where people have been told they can sort their debts out and have taken this advice only for it to be incorrect and therefore costly to the client. The sooner the debt side of financial services is regulated the better, as this will reduce the number of unscrupulous companies who are only interested in making quick and easy money, not actually putting the client first.

Well said Mike.