Debt management firms have been ordered to stop offering staff incentives to mis-sell and to stop bombarding consumers with spam calls and texts.
New guidance published today by the OFT sets out tougher standards of what it expects from businesses offering debt management advice or credit repair services to consumers.
The aim is to ensure consumers have the necessary information to stop them from being ripped off by unscrupulous firms.
The guidance states firms must not:
- Send unsolicited marketing text messages, email or voicemails.
- Provide inappropriate financial incentives to staff giving debt advice, which may encourage them to promote unsuitable debt management products for personal gain.
- Make false or misleading claims regarding the status of the business, for example operating websites which look like the website of a charity or a government body.
Businesses are also expected to refer consumers to not-for-profit advice organisations for further help where they have priority or emergency debt problems, or where they do not have enough disposable income to cover the fees.
Firms should also have effective measures in place to identify and deal with particularly vulnerable clients, such as those with mental capacity issues.
Protecting the vulnerable
The Debt Management Guidance, which was first published in 2001, was last updated in 2008. A draft version with further revisions was published last June and following a consultation, the final version is what has been published today.
It builds on enforcement action taken following a compliance review of the sector in 2010, which identified widespread concerns, including problems with advertising and marketing practices and the quality of advice given.
Following the review, the OFT issued 129 warnings to debt management businesses. Since then, 87 businesses have exited the market, either voluntarily or as a result of enforcement action, and a further 67 warning letters have been issued.
If a firm doesn't comply with the guidance the OFT could decide not to renew its licence, without which it cannot practice.
David Fisher, director of the OFT's consumer credit group, says: "This new guidance clearly sets out the standards we expect from debt management businesses.
"All too often it may be particularly vulnerable consumers who fall victim to poor quality debt advice and we will continue to take action against businesses that fail to follow our guidance."