Office of Fair Trading v rogue Debt Management firms

The Office of Fair Trading this week announced a series of measures relating to the marketing and charging practices employed by credit brokers and debt management companies in response to ongoing concerns over the impact of such practices on vulnerable consumers.

The OFT is also asking the Government to consider whether new legislation is required to address problems in the unsecured credit brokerage market for sub-prime consumers, including a possible blanket ban on upfront fees.

The measures are outlined in an OFT report in response to a super-complaint from Citizens Advice.

It is widely publicised that in recent times debt management companies have come under increasing levels of scrutiny and the OFT report revealed that many charges attached to debt management plans were considered to be to the consumers’ detriment. The debt management industry says that initial arrangement fees charged by debt management companies are implemented to ensure the plan is successfully completed but this has been met with scepticism from the OFT and as such, consumers are urged to think carefully if a debt management plan is right for them.

OFT and CCCS Figures

The OFT estimates that more than 250,000 UK consumers paid an upfront fee to an unsecured credit broker in the last 12 months alone, on the expectation of being offered an unsecured loan.

And in respect of Debt Management plans, according to research for debt charity  Consumer Credit Counselling Service, more than 3 million UK households are currently in financial difficulty and a further 3 million are classed as ‘financially vulnerable’.

A CCCS report on Debt and Household Income doesn’t make for easy reading and the true picture of UK consumer debt is staggering. Currently financial difficulties are being experienced by about one tenth of the UK population, with more than 1 million people struggling to pay their mortgage.

The report also found that 3.2 million households are either three months behind with a debt repayment plan or are subject to some form of debt action such as insolvency. Another 3 million who are not yet subject to debt action are finding it hard to make ends meet and as such, this additional group are vulnerable to increases in household bills and cost of living increases.

At a time when consumer debts are at worrying levels debt advice charities such as CCCS are calling for more action from the OFT amid worries that the increases in debt levels is directly raising the incidence of predatory debt management firms. Many such ‘predatory’ firms have been found not only to be just taking an upfront fee, but have been caught in not paying the creditors the sums agreed within the debt management plan, thereby forcing the vulnerable into more financial woe.

As such, complaints to Consumer Direct about upfront fees more than doubled between 2008 and 2010 and the OFT super complaint response suggests a number of businesses in the sub-prime, unsecured credit brokerage market, have business models based on taking upfront fees for a service they are unlikely to provide.

John Fingleton, OFT Chief Executive, said:

‘Our evidence suggests some businesses are deliberately taking people’s money upfront with no realistic expectation of finding them the type of loan they need…..We will continue to take robust enforcement action against businesses using unfair or improper business practices.’

CCDR does not operate in the debt markets highlighted in this debt industry news item. Corporate Credit Debt Recovery Ltd is a commercial debt recovery business offering small businesses to large corporate enterprises, debt recovery, debt mediation and outsourced credit control solutions from its offices in Spain and UK based, Liverpool head office.

If you are an individual in financial difficulty there are charities such as CCCS that can offer you impartial and free advice.