The OFT also confirmed that it has revoked the consumer credit licences of 11 debt management businesses, after discovering several “unacceptable failings” in their business practices.
Fresh details about the extent of malpractice emerged as the OFT published for consultation revised guidance for the debt management industry, following prolonged compliance issues and severe public criticism.
The guidance update comes after a review of the industry by the OFT that uncovered widespread problems with misleading advertising and the quality of debt advice provided in the fee-charging sector.
In response the OFT’s guidance clarifies that debt management firms must be fully transparent about their services and the fees they charge.
They must also explain the risks and benefits of proposed debt solutions, not use misleading advertising and ensure that any advice given is in the consumers’ best interests.
The OFT said the updated guidance was geared towards increasing transparency and ensuring consumers were given enough information to make the right decision. It warned that enforcement action would be taken against firms which did not comply.
David Fisher, director of consumer credit at the OFT, said: “This guidance is designed to leave firms in no doubt about the standards the OFT expects and what they must do to comply with the law.
“The failings identified by our recent review are unacceptable and show that debt management businesses must raise their standards or face enforcement action.”
The updated guidance, which also covers credit repair services, has been anticipated since the OFT published the findings of its compliance review in September 2010. At that time it issued a warning to 129 debt management businesses to take immediate action to become compliant.
The consultation will end on September 5 2011. To view the full consultation, visit: http://www.oft.gov.uk/OFTwork/consultations/current/debt-management-guidance/