Watchdogs target debt advisers

The Office of Fair Trading (OFT) has launched a crackdown on debt management companies.

"It is essential that these services are marketed and carried out with clarity and fairness

John Vickers, director general of fair trading

The companies - which offer to organise debt for a fee - must now conform to tighter rules, or risk losing their consumer credit licence.

The move follows a consultation with the credit industry, consumer groups, and the debt management industry over concerns about the practices of some companies.

Expensive advice

John Vickers, director general of Fair Trading, said:

"Debt management companies provide services for a particularly vulnerable group of consumers who may be in serious financial difficulties.

"It is essential that these services are marketed and carried out with clarity and fairness."

The new rules:

Consumers must be given adequate information before entering into an agreement.

Contracts should specify the nature of the services provided, total cost to the consumer, amount to be repaid and duration of the contract.

Contract terms should be fair, legible and in plain language.

A realistic assessment of the customer's financial circumstances must be made before advice is given, including verification of income and regular outgoings and any advice must be in the best interests of consumers.

Debt management companies must inform clients of the outcome of negotiations with creditors, as well as any developments with creditors such as the issue of default notices or the threat of legal action.

Advertisements and marketing must be accurate, clear and not misleading. Any reference to 'savings' on repayments must make clear that debt rescheduling will usually lead to an increase in the size of the sum to be repaid and potentially affect the consumer's credit record.

No cold calling by personal visit.

Payments from consumers should normally be passed on to creditors within 5 working days of receipt of cleared funds.

The OFT plans to issue similar guidance in other sectors, such as debt collecting, credit broking, used car and home improvement services.