Beware free debt advice

New advertising rules make it more difficult for fee-charging debt management companies to say their services are "free". Will this make the information clearer for consumers?

On September 1st the Committee of Advertising Practice (CAP) released updated marketing communications guidelines, including governance on how marketers can promote debt management products to you the consumer. We’re happy to see that these new rules have been brought in.

Among the revised guidelines* for marketing products as diverse as medicines, weight control and tobacco rolling papers, there were two sections of particular relevance to CCCS; Section 3: Misleading advertising on “Free” and Section 14: Financial Products.

Unfair

Fee-charging companies can claim that their services are “free” to the customer in that the advice they give is gratis, although in reality the cost of implementing any resulting debt management plan is unavoidable, with average fees of around £5,000.

At CCCS we argue that this practice is unfair – by using the term “free” people don’t realise that genuinely free charitable services are available. Given they’re being chased by banks, collection agencies and bailiffs, and the sheer proliferation of services out there, eye-catching promotions offering “free help” stand out, blurring the lines between charities and companies.

Add to this is the feeling that “any port in a storm” will do when desperate for a solution and it’s no wonder that they go for a service that promises “free help” without realising the difference.

As our chairman Malcolm Hurlston has said, “Our research shows that clients on debt management plans with fee chargers not only pay through the nose but also take a lot longer to pay off their debts.” Given the average CCCS client has £25000 worth of debt, an additional levy of around £5,000 would add 20% to the amount the client owes.

New rules

We’re hopeful that the new CAP guidelines are going to help in exposing these extra charges and opening clients’ eyes to the difference between free advice and genuinely free assistance.

Companies will now be unable to advertise a product or service as "free", "without charge" or similar, if the consumer has to pay anything other than unavoidable costs (the CAP guidelines give examples, such as response and delivery costs).

Additionally the guidelines require offers of financial products to be presented in a way that can be easily understood by the audience, rather than take advantage of consumers’ inexperience (a major issue we see on a daily basis).

Finally, the guidelines also make it plain that debt management companies must comply with the Guidance for Debt Management Companies published by the Office of Fair Trading.

The future

Will it help those in desperate need for financial clarity? We hope so, and CCCS is committed to ensuring this is the case and will report any breach of the new CAP and BCAP guidelines as we see them.

There will be some companies that continue to offer “free help” to those in serious debt but we hope that forcing companies to be more transparent will lead to clearer up-front guidance, so clients know a fuller picture before committing themselves to further debt. It’s a step in the right direction and we feel it’s long overdue.

*In the 12th edition of The UK Code of Non-Broadcast Advertising, Sales Promotion and Direct Marketing

Consumer Credit Counselling Service is a registered charity whose purpose is to assist people in financial difficulty by providing free, impartial and realistic advice. If you are considering bankruptcy or struggling with a debt problem we can help.

Visit our online debt advice facility Debt Remedy to assist you in completing a financial statement and provide with tailored advice on the best way to deal with your situation.

If you would like to talk through your options with one of our trained counsellors you can call our free helpline on 0800 138 1111. Lines are open Monday to Friday 8am – 8pm.