Regulator cracks down on debt management firms
Debt management companies have been given a warning to clean up their act by the Office of Fair Trading (OFT).
These firms charge a fee to clients in return for advice on how to get out of debt. But the number of complaints about them has been steadily rising, leading the OFT to take action.
One of the most concerning types of complaint was from consumers saying that a debt management company had taken money from them but not passed it onto the people they owed.
The Financial Ombudsman Service (FOS) saw an 18% rise in complaints about these companies in 2011, compared 2010. There were 546 complaints last year and the FOS found in favour of the consumer in more than half of those cases.
The OFT has now stated that debt management firms must not send unsolicited text messages or emails and they must make sure the products they offer are suitable for their clients' specific needs. They have also been warned not to offer inappropriate financial incentives to staff.
"It's good to see the OFT tackle unacceptable marketing practices carried out by many debt management companies," says Gillian Guy, chief executive at the Citizens Advice (CAB). "It's not necessary to pay for debt advice. CAB offers free impartial advice."
The regulator has backed up its advice by warning that it will take action against any companies it feels are acting inappropriately. That includes operating websites that make the firm appear to be the same as an advice charity or government body.
If you’ve have a complaint about a financial service product you have bought but the company you bought it from refuses to resolve your problem after eight weeks, the Ombudsman can help. The Ombudsman will investigate and resolve the matter. The Ombudsman is independent and its service is free to consumers. The Ombudsman may find in the company’s favour but consumers don’t have accept its decision and are always free to go to court instead. But if they do accept an Ombudsman’s decision, it is binding both on them and on the business.