OFFICE OF FAIR
TRADING News Release (70/08) issued by The Government News Network
on 5 June 2008
The OFT is today
warning consumers to be careful before responding to unsolicited
mailings which advise them to cancel existing individual voluntary
arrangements (IVAs) and which suggest they opt for an alternative
debt management solution such as bankruptcy instead.
Some such mailings sent out to consumers misleadingly suggest to
recipients they may have been mis-sold the IVA and/or that
bankruptcy may be more suitable for their circumstances when this
may not be the case. These mailings are being targeted at
vulnerable consumers in IVAs by companies who appear to have
accessed their personal contact details from the public register
of people in IVAs which the Insolvency Service is required by law
to maintain. The OFT considers such claims to be in breach of its
debt management guidance not only if they are misleading but also
if they fail to explain the consequences of terminating an IVA
agreement and going bankrupt which include:
* much of the initial monies paid to a company on setting up an
IVA going towards meeting the insolvency practitioner's fees
and not paying off the debt itself. Therefore, if the IVA fails
early on, creditors will not have received any payments, the
consumer's debts will not have decreased and their financial
position is likely to have worsened.
* the option of bankruptcy having far reaching consequences
including consumers losing control of their assets, potentially
having their home sold and facing restrictions in carrying on
businesses and obtaining credit.
The OFT has issued warnings to 12 businesses and has given them
four weeks to respond. They have been told to amend any misleading
claims made in their IVA advertising and promotional material and
to be more transparent about the possible implications for
consumers if they do terminate an IVA agreement. The OFT will
consider taking action against any business that fails to address
our concerns. Such action could include taking steps to revoke
consumer credit licences held by the business.
Ray Watson, OFT Director for Consumer Credit, said:
'Tackling companies who are engaging in unfair business
practices by targeting vulnerable consumers with misleading advice
and information, particularly if it leads to consumers becoming
more over-indebted, is a key priority for the OFT. We expect any
advice and/or information given to debtors to be in their best
interests and it should include a full explanation of the
implications of offers or advice'.
NOTES
1. The OFT published guidance for debt management companies in
December 2001. It applies to all those providing financial
management services including IVAs, personal bankruptcy and
commercial credit repair.
2. The OFT's Debt Management Guidance sets out minimum
standards of behaviour expected of licence holders engaging in the
provision of debt management services, which seek 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 businesses where their activities
relate to advising and/or otherwise assisting consumers with their debts.
3. The Consumer Credit Act 1974 (the Act) requires debt
management companies to be licensed by the OFT. Following
implementation of the new licensing provisions by the Consumer
Credit Act 2006 on 6 April 2008, 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.
4. The OFT has not disclosed the names of the companies subject
to these informal actions. Under legal restrictions relating to
disclosure of information, a public authority such as the OFT may
commit a criminal offence if it discloses certain specified
information relating to a business or individual, which it obtains
in connection with the exercise of its functions.
5. Consumers entering into debt management services: can obtain
free advice from Citizens Advice Bureaux, Advice UK, National
Debtline, the Consumer Credit Counselling Service. should consider
all available options such as debt management plans, IVAs, or
bankruptcy and select the one which is best suited to their own
circumstances, arranged by a commercial company, need to check
pre-contractual information and ensure they understand it,
understand what fees are payable, particularly if a sum will go
towards paying setting up costs, and the longer term implications.
6. The Insolvency Service is responsible for authorising and
regulating the insolvency profession. An insolvency practitioner
(IP) has to be appointed to 'supervise' an IVA. The IP
must be authorised by the Secretary of State for Trade and
Industry (SoS) directly, or by one of seven professional bodies
recognised by the SoS as being competent to do so. IPs must comply
with several statutory requirements and follow best practice
guidance and ethical guidance. Complaints about IPs considered to
be acting unprofessionally, improperly or unethically can be made
to the appropriate authorising body. Neither the SoS nor the
professional bodies can intervene directly in individual
insolvencies or give directions in relation to the conduct of
individual cases. The SoS has no power to impose any disciplinary
sanction or penalty against an IP but if complaints are found to
be justified, the SoS will take them into account when an IP seeks
re-authorisation, together with other relevant issues.
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