Dodgy debt clampdown is great news

Banking and Borrowing

Updated on 29 September 2010 | 12 Comments

The Office of Fair Trading is clamping down on dodgy debt companies. We now know that many commercial debt companies provide a poor service.

I’m delighted that the Office of Fair Trading (OFT) is clamping down on dodgy debt companies. The OFT has told 129 debt management firms that they face losing their consumer credit licences unless they change their ways immediately. It looks like the majority of commercial debt management companies provide a poor service. They should be avoided.

The OFT is concerned that firms are breaking the rules in the following areas:

-          Misleading advertising which suggests that a debt management service is free when it isn’t

-          Employing incompetent advisers who give bad advice

-          Low awareness of the Financial Ombudsman Service where complaints can be resolved

This clampdown is great news. But frankly, I almost wish the OFT had gone further. I really don’t see the point of commercial debt management companies at all. Even the ones that obey the rules.

If you’ve got serious debt problems and you need advice, the best option is to approach one of the debt charities that offer genuinely free advice. At lovemoney.com, we’ve always recommended National Debtline, Citizens Advice and the Consumer Credit Counselling Service (CCCS). The advice will be free and you’ll know that the advisers won’t be tempted to push you towards the solution that will pay the highest commission to the adviser.

Unlike some of our rivals, lovemoney.com has never sold marketing leads to commercial debt management companies. I believe our stance has been vindicated today.

I said at the top of this post that the majority of commercial debt companies offer a poor service. Here's why I think this. The OFT has told lovemoney.com that it reviewed the websites of 100 companies and local Trading Standards visited 68 companies. However, the results of 20 of those visits weren't included in the OFT's review as they came too late, so really it's 48 visits. There was apparently some overlap between the firms that were visited and those which had website reviews. So  out of a universe of  less than 148 companies, 129 have been reprimanded. I think that's very revealing and proves that many commercial debt management companies provide a poor service.

More: Dealing with Debt blog | Check out our new Dealing with Debt group where you can talk about debt-related issues | lovemoney.com press release

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