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OFT taking action against 15 debt management firms

The Office of Fair Trading has confirmed 15 debt management firms are facing licensing action and a further 35 have surrendered their consumer credit licences.

The announcement comes as part of a compliance review and follows a warning to 128 firms in September that they face action if they fail to adhere to the OFT’s compliance guidance. The warning was made after the review found the debt management sector had widespread problems with compliance.

Since the warning, 35 firms have surrendered their licences, eight firms have been informed that the OFT intends to revoke their licences and a further seven companies who did not respond to calls from the OFT to submit evidence of compliance measures are currently being investigated.

The OFT is currently reviewing evidence submitted by 79 firms.

As well as taking enforcement action, the OFT is updating its debt management guidance to take account of new and emerging unfair business practices identified in the course of its review.

OFT consumer credit group director Ray Watson says: “We are determined to improve standards in this sector, as the failings identified by our review are unacceptable. Companies providing debt management services should be in no doubt that we will act against bad practice and ensure consumers are protected.”

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  1. There is another side to all this (speaking as a director of a fee-charging debt management firm and as spokesperson for one of the industry’s two trade associations (Debt Resolution Forum).

    The first thing is that, I agree, it is frustrating that the OFT can’t always take action quickly against an industry’s blackest hats (and yes, i’ll be the first to admit that there are debt management companies with stetsons). But, there is a catch-22 here: If the OFT were to say which companies it was taking action against, they would be put out of business in an instant. You’d write about them and they’d be dead. And they might be innocent.

    Due process acts against natural justice here. Except, of course where due process makes natural justice possible. I suspect the problem is exacerbated by the tendency that the worst offenders will milk the process of revocation, taking every last possible client payment before the directors retire to Marbella.

    On a much more positive note, what the OFT is doing, with the assistance of most of the fee-charging debt resolution industry, is creating a sector which consumers and creditors can trust – and doing it pretty darn fast too. And – it’s going to be needed.

    The OFT’s action has driven out a number of dilettantes and those who can’t be bothered to accept a burden of regulation.

    The industry itself is shaping up – fast. First, the OFT’s requirement for an audit of compliance was historic – in most case it related to trading standards reviews made between autumn 2009 and spring 2010 and, for many firms, their response to the OFT was confirmatory – the changes required had already been made.

    Secondly, there is real commitment, from a large section of the industry, to all the regulation that’s necessary to remove consumer detriment. Debt Resolution Forum (DRF) offers an advanced BTEC (the Certificate in Debt Resolution – CertDR) requiring more than 120 hours study and with three examinations: Members have to commit to their client facing staff either taking this or being trained to an equivalent standard.

    DRF requires members to go through an annual independent audit from the Insolvency Practitioner’s Association (a regulator trusted by government) and DRF has an independent complaints panel chaired by David Hawkes, NAtional Money Advice Co-ordinator of Advice UK.

    It’s early days for both these initiatives but the commitment is there.

    And the OFT will continue to challenge us: We’ll shortly see a consultation on new debt management guidance that will raise the bar further.

    Why bother though, with all the free advice that’s available. Well first, free advice is not always best advice (but i recognise that I would say that – wouldn’t I). More to the point, the free sector has a capacity issue, they themselves say they could only deal with half the enquiries they received. Now, after Citizen’s Advice’s announcement of up to 900 redundancies, their capacity is slashed.

    Then, the government’s attitude is changing. “Free” debt advice is often taxpayer funded – so not free at all. And many debtors can actually afford the fees they pay – as can (and perhaps should) their creditors. Most creditors factor the cost of defaulters into each product when they design it. So any debt recovery the banks and credit card companies make is actually bunts. Why not squeeze their margins a little and get them to share, with the debtors, the cost of debt advice and resolution? This does seem signposted by the Department of Business Innovation and Skills/Treasury call for evidence on credit and debt regulation.

    So – what we are seeing is the rapid evolution of an industry sector from unregulated and seen as unhelpful to consumers to well-regulated and a required part of the UK economic scene. After all, we have an economy partly fuelled by consumer spending and you need credit to spend (nobody saves anymore). More credit means more debt.

    Seems, in people’s financial lives, there is nothing certain except debt and taxes.

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