Ministry of Justice
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Debt: Bridget Prentice warns claims management businesses about misleading marketing claims
Businesses that mislead the public by claiming they can arrange for unpaid loans, credit card debts or other consumer debts to be written off have been told to stop or face action Justice Minister Bridget Prentice said today, as new guidance was issued by the Ministry of Justice.
The guidance highlights misleading statements in adverts making dubious claims or leaving out important information which might breach consumer protection regulations.
Businesses making these statements could face enforcement action by the Ministry of Justice which might ultimately result in authorisations being removed.
Justice Minister Bridget Prentice said:
"Vulnerable people facing debt problems need help and support. We have produced this guidance to protect innocent customers from being misled by businesses advertising easy and quick arrangements for outstanding loan, credit card and other similar debts to be written off and compensation to be obtained.
"We would urge anyone who is considering using a business offering such services to think carefully and seek independent advice before making any final decisions.
"This guidance is also an important reminder to businesses about the need to comply with rules on advertising and marketing and provide an effective service to their customers."
Welcoming the new guidance, Ray Watson, OFT Director of Consumer Credit, said:
"The OFT will not hesitate to take enforcement action against licensed claims management businesses who engage in unfair business practices by deliberately misleading vulnerable consumers about the services they offer. Businesses should also be aware that if they offer debt counselling or debt adjusting services without holding an appropriate licence, they will be committing a criminal offence and risk prosecution, and that any agreements they enter into with consumers whilst unlicensed may be unenforceable."
The guidance is aimed at businesses offering claims management services for unenforceable agreements. Claims management businesses authorised by the Ministry of Justice have also been warned that when advising about the payment of debts or on rescheduling debts, they will need to be appropriately licensed under the Consumer Credit Act 1974 by the Office of Fair Trading.
This action follows on from the Consumer Alert the Ministry of Justice and the Office of Fair Trading issued in August 2008 urging consumers to seek independent advice before accepting the services of businesses claiming that they can arrange for outstanding balances under loan, credit card and other consumer credit agreements to be written off and secure compensation.
Notes to Editors
1. Misleading Advertising Guidance: http://www.claimsregulation.gov.uk/userfiles/file/Unenforceable%20credit%20agreements%20marketing%20final%20guidance%2006%2001%2009%20(1).pdf
2. The Ministry for Justice (MoJ) is the Claims Management Regulator in England and Wales. Ministry of Justice checks a wide range of information about businesses before authorising them; monitors the services the business provides; will take action against businesses that breach the rules, which could include suspension or cancellation of authorisation.
3. Authorised businesses have to follow strict conduct rules. They must not 'cold call' in person, or engage in any form of high pressure selling; give written information on how to pursue a claim and the costs involved before a contract is agreed; allow a 'cooling off' period of at least 14 days after signing a contract in case the consumer changes their mind; operate a customer complaints scheme that meets relevant criteria. All the rules governing the conduct and behaviour of authorised businesses can be found on the Claims Management Regulation website. http://www.claimsregulation.gov.uk. Enquiries about the regulation of claims businesses should be made to
Claims Management Regulation Monitoring and Compliance
Unit
57 - 60 High
Street
Burton-upon-Trent
Staffordshire
DE14 1JS
Telephone: 0845 450 6858 / 01283 233309
Fax: 0845 450 6866 /
01283 233335
Email: info@claimsregulation.gov.uk
http://www.claimsregulation.gov.uk
4. Statements that are considered to be misleading include:
"80% of credit agreements are unenforceable",
"50 million credit agreements are created every year, at least 25 million are unenforceable",
"We are currently handling over 5,000 cases!",
"We are currently managing £30m of claims!",
"We'll get your credit cards written off within 6 weeks!"
"Fast results guaranteed!"
"We have a 100% success rate",
"A positive outcome is guaranteed".
5. The Consumer Credit Act 1974 (the Act) requires companies who offer debt counselling/adjusting services to consumers to be licensed by the OFT. Businesses who are authorised by the MoJ to provide Claims Management Services will also need to be licensed under the Act if they engage in any debt counselling/adjusting activities, including the following:
* advising on how to restructure debts, how to alter debt repayments or how to achieve early resettlement of debts
* contacting creditors and/or negotiating with creditors, on behalf of the debtor, in order to make any of the above arrangements (whether that contact amounts to 'negotiation' or not)
* providing a facility for the debtor to make a single repayment which is then distributed on his behalf to his creditors
* consumers can check whether a business holds an appropriate consumer credit licence by searching the OFT's online consumer credit register at: http://www.oft.gov.uk/consumercreditregister
6. Following implementation of the new licensing provisions by the Consumer Credit Act 2006 on 6 April 2008, a business applying for debt related licence categories will need to submit a Credit Competence Plan (CCP) as part of its application and should expect to be subjected to an on-site visit as part of the assessment of its competence to engage in this activity as the OFT considers such credit activity to be high risk.
7. Licensed businesses can have specific requirements imposed on them if the OFT is dissatisfied with any matter in connection with the business. If such a requirement was not complied with, the business concerned could be subject to a financial penalty of up to £50,000. The OFT can also refuse or revoke a licence if it decides that a trader is not fit to hold one.
8. The OFT published Debt Management Guidance for licensees in December 2001. It applies to all those providing financial management services including commercial debt advice where the debts arise under consumer credit or consumer hire agreements. The Guidance sets out minimum standards of behaviour expected of licence holders engaging in the provision of debt management services, which seek to provide advice and to re-schedule customers' repayment of debt and charge for doing so. Key principles of the Guidance are transparency, acting in the best interests of the consumer and keeping the consumer informed. The Guidance states that advertisements and other promotional material must be accurate and clear and must not mislead, either expressly or by implication or omission. The spirit as much as the letter of the Guidance would apply to Claims Management Businesses where their activities relate to advising and/or otherwise assisting consumers with their debts.
9. The Citizens Advice service is a network of independent charities that helps people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see http://www.citizensadvice.org.uk
10. For more information, please contact Ministry of Justice Press Office on 020 3334 3536.
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