Misleading debt advice firms under fire

Posted in 'Dealing with Debt' by Richard Catlin

19 February 2009

The Government is cracking down on bogus companies that target consumers with false promises of wiping out their debt.

The Ministry of Justice is threatening to impose heavy fines or even shut down companies making these claims – which have grown in number and prominence recently.

Adverts which typically appear in the classified listings of tabloids, as well as on the Internet and local radio, claim that many credit agreements such as loans and credit cards are ‘unenforceable’ and can be easily written off – for an upfront fee.

The misuse of phrases such as “100% success rate” and “positive outcome guaranteed” have been highlighted as misleading by the Citizens Advice Bureau (CAB), as are totally unfounded claims that “80% of credit agreements are legally unenforceable”.

The CAB has found that in the vast majority of cases, the credit agreements in question are fully enforceable, and says that consumers who believe they may have a claim should contact them instead, where expert guidance is available for free. In contrast, the upfront fees charged by the companies under the spotlight are often in excess of £500 – without any guarantee of success.

The Office of Fair Trading (OFT) has warned that any debt advisory firm found to be misleading consumers faces a fine of up to £50,000, or the prospect of being shut down altogether.

Any such firm offering advice to consumers about managing their debts that is found to be operating without a valid Consumer Credit Licence faces even stiffer consequences – with criminal prosecution an option for the OFT.

The emergence of overblown and often unsubstantiated claims about ridding you of your debts bears close resemblance to the sudden rise in firms offering to wipe out debts through ‘easy’ Individual Voluntary Arrangements (IVA’s) in recent years. A combination of OFT intervention, easier bankruptcy law, and tougher stances from lenders on how much of the debt they are prepared to write off on an IVA has led to a marked decrease in the marketing of IVAs in recent months.

If you are concerned about your own debts – big or small - you can get free, impartial advice using the free Debt Advice Centre on checkmyfile. You can also check your credit score and rating, completely for free.