Why the OFT should name and shame bad debt advice firms

This week, 129 debt advice firms out of an estimated 450 in the UK were identified as falling short of the Office of Fair Trading's Debt Management Guidelines – in other words, they are in need of dramatically improving their performance. So why then, is the OFT gracing them with a whole three months to get their act together?

In my opinion, they should be given three days to turn themselves around and, if they don't comply, have their licences to trade cancelled with immediate effect and be named and shamed at the same time.

After all, if the OFT has clear evidence that an individual or firm has misled an already desperate, over-indebted consumer then surely immediate action is the only kind to take?

The only possible reason for the lengthy grace period must be to protect those customers for whom it's too late and are already embroiled with these firms.

What's the story?

Debt management companies are fee-charging firms that provide advice and solutions to consumers with debt problems. They operate alongside government-funded and charitable services, which are free.

The rot in this unregulated industry was discovered by Trading Standards Officers that the OFT instructed to visit firms and conduct mystery shopping exercises. It also carried out a thorough 'sweep' of all websites relating to debt management firms.

Three key areas of concern were identified as a result:

1. Misleading advertising implying services were free when they were not

2. Frontline advisers offering poor advice

3. No clear complaints procedure

Tricks of the trade

Some tricks of the trade were unearthed too. For example, the OFT found evidence of some firms 'recycling' their customers through different debt options to generate more fees.

Take an Individual Voluntary Arrangement (IVA), where a customer pays back a manageable chunk of debt over five years and the remaining debt is written off.

This arrangement will generate fees itself but a worrying trend has developed whereby some firms will put the customer onto a debt management plan while they prepare the IVA, thus generating double the fees for their coffers.

Some would say this makes good sense as it looks after the consumer on a number of levels but others argue (and I am one of them) that the biggest incentive lies with the firm – not its customer.

Another disturbing practice that was exposed by the OFT was the deliberate imitation of free debt charity websites.

For example, by use of similar content or misleading web addresses such as using the words; 'Government, debt and help' in the web address when, actually, the firm in question is purely a commercial.

Commission led practices

I have been concerned for a number of years about the type of debt advice that consumers are receiving because, like the banks, the paid-for part of the industry tends operate on a commission basis.

The OFT estimates that fees for commercial debt advice firms will reach a staggering £250m by end of 2010.

This commission-led culture can lead to some vulnerable and desperate people being steered towards a fee-generator option instead of a less profitable solution for the firms, such as bankruptcy.

So what can you do about it?

When scouring the Internet for a debt advice company, look at individual websites for the following:

1. Is there a contact telephone number available as well as an address?

2. Can you see a reference to its consumer credit licence details?

3. Is the firm registered with the Information Commissioner for data protection? Remember, it's your data you are putting in the enquiry form on the website.

4. Does it have a complaints procedure and clear terms and conditions?

5. Does it mention that most debt options will affect your credit rating and could affect future borrowing? 

These firms will often claim they are not giving debt advice; they are only a lead generator and therefore do not need to provide these details.

The OFT is divided on this issue but, in that is still an unregulated industry, it's very much a case of consumer beware.

Can the debt charities cope?

While it is always possible to obtain debt services for free from debt advice charities, whether or not you choose to rests on the same argument as choosing to pay for private education and health care. People do – simply because they want an improved level of service. 

The free Citizen's Advice Bureau for example, records around 9,000 NEW debt cases every working day and has a current appointment waiting list of up to 10 weeks – far too long for people already on the edge and about to lose their homes.

That said however, debt ADVICE (the part before you arrive at the actual service) should always be free, whether it's obtained from a charity or commercial firm.

Bad advice

Companies and individuals that have been exposed as giving the wrong advice are playing on debtors' desperation and lack of awareness surrounding their real options.

And some individuals, after taking so-called 'professional' advice still have no hope of ever repaying the debts in their lifetime! This bad advice can cost people their livelihoods, relationships and thousands of pounds in unnecessary fees.

I hear today that there are calls to regulate the car washing industry, unbelievable when we can't even regulate the debt management industry!

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Your Comments

There would not be such a need for these people if DCA were not sending forged invoices for money. I refer you to the Case of Beryl Brazier (ex.M.PMark Todd) was fighting her case. She rec'd a fraudlant request for money which she did not owe,then it went on and on, the outcome - she took her own life.
I also received a forgery, but that chose the wrong person to send it to. I eventually forced Philip Malcolm Lunn Aktiv Kapital/Thames Credit to resign.He is now trying to raise two and half million to start up in Turkey.He has the figures to show just how much money can be made!
A retired accountant I uncovered a multi billion £ fraud including HMRC also.
David Kirk our Attorney General stated DCA was costing the tax payers over £380 each a year. I have huge files on them and other crooks. One with criminal records in USA now fleezing the deceaseds relatives with forged invoices here.
If you would care to see my files -shocking reading. Most of these agencies would go out of business if these other crooks were stopped in the first place.

Phillips & Cohen are doing here exactly what they were doing in West Virginia USA. That is until State District Attorney Daryll McGraw took them to court, but the crooks fled before the hearing and arrived here. So instead of getting lists of the deceased in USA they are now doing it here, sending false claims for money owed to their relatives. "DEAD PEOPLE CANNOT TALK" so it is passed to solicitor/executor/relative for payment. Hardly anyone will dispute it, especially at such a sad time,it makes them look and feel mean. I have had some of these letters form them recently passed on to me, the highest one was for £3,000. I suggest anyone receiving one of their letters, that they pass it on to Trading Standards or Office of Fair Trading