Fair Trading clampdown on debt management companies
Much-criticised private debt management companies have been warned to raise their standards or face sanctions.
The companies advertise widely and often cold-call heavily indebted people, promising to help manage their borrowings and deal with lenders.
The Office of Fair Trading has unveiled new guidelines designed to eliminate suspect practices, including the tactic of retaining clients' money rather than passing it on to creditors.
Debt management firms will have to have ring-fenced accounts to safeguard clients' money and draw up clear contracts on how it will be passed on.
There are measures to prevent firms taking fees from client funds without warning.
And the rules prohibiting cold-calling have been reshaped. Unsolicited calls, texts and emails are banned unless people have given prior consent.
Since last autumn 43 debt management firms have surrendered their licences and the OFT has taken action to stop another 11 from operating.
This new OFT guidance is really going to tighten things up.
ReplyDeleteThese are very much first impressions, but it should prevent people losing money in cases similar to Global, or Apex DCM.
It's also going to make it much more difficult for companies that fish for leads to present themselves as if they are debt solutions providers and other rules relating to lead introducers mean i think we'll see real changes in this area - to consumers benefits.
Much of the new guidance, though, seems to me just to be taking what most reputable debt resolution companies already do and codifying it. Having said that, non-compliant companies are going to have a tough time catching up.
The rules abut handling client money are great and will increase client and i'm pleased to see they OFT have relaxed the rule about 5-day distributions in certain specific cases: finally, weekly paid debtors get a fair deal.
I am really disappointed that the rules aren't more specific about training: Lot's of consumer detriment is caused by poorly trained advisors (in the charitable sector too) and I think the OFT should have been more prescriptive here.
They must also tell customers three days before taking money from their accounts to repay debts, under new reforms agreed with the Government.
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