The Office of Fair Trading (OFT) has warned 129 debt management firms that their licences will be revoked if they do not adhere to its debt management guidelines.
These formal warnings have emerged following an investigation by the OFT into the practices of these companies, which offer Individual Voluntary Arrangements (IVAs), debt consolidation or debt management plans to consumers to help sort out their finances.
The OFT review of the debt management sector, which was published today (September 28th), found that some companies are misleading consumers through their advertising.
The main concern with advertising is that these firms fail to disclose that the service is not free and consumers will be charged to use it.
Another problem identified was that the debt management advisors, working for these businesses, lacked the knowledge to provide adequate information to their customers.
Some of these companies also failed to identify the Financial Ombudsman Service's rules about resolving customer complaints.
Ray Watson, director of the OFT's consumer credit group, said: "People who are heavily indebted, desperate and vulnerable need advice which makes their problem better not worse and should not be exploited.
"Debt management firms must be clear about their charges and the options available to customers."
The 129 firms will have to provide independently audited evidence to the OFT that they are adhering to its debt management guidance in three months or risk losing their licence.
For consumers facing financial difficulty there are many options available and they can be compared for free on some price comparison sites.
1. One option is a debt consolidation loan, which lumps together all existing debt accrued through credit cards or bank loans, into one affordable monthly repayment.
2. IVAs are a government-backed scheme that enables a debtor to petition their creditors with a formal repayment plan.
They usually last five years and the consumer pays what they can afford. If they still have outstanding debt at the end of this period, it is written off.
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