Clampdown on debt management companies

The news that the Office of Fair Trading has decided to take action against debt management companies that have been flouting the law is very welcome and its findings were nothing short of shocking. Out of the 150 or so debt management companies it checked up on over 90% were flouting the law.

It wasn't just the case that they fell down on some minor administrative matter, they were giving people 'advice' when they hadn't found out the most basic information about their financial position, the firms weren't telling them how they were paid and - in some cases - were making out that the free alternative of debt advice charities weren't worth bothering with.

The debt management industry mushroomed a few years ago when companies realised they could push IVAs (individual voluntary arrangements), which would earn them a healthy fee of, sometimes, several thousand pounds a time. IVAs offer people who owe money the chance to have the majority of their debts written off, but they're not without risks and they're certainly not suitable for everyone.

I've always recommended that people who have debt problems go and see one of the debt advice charities such as CCCS, National Debtline or Citizens Advice. The debt management companies say there's a demand for their services because the debt advice charities can't cope with demand. That may well be the case as the number of people seeking debt advice over the last couple of years has risen sharply.

However, it's been obvious for several years that there's a massive problem in the industry with some companies aggressively pushing their services and - it now emerges - a distinct lack of openness about how they operate and widespread flouting of the law.

The action by the OFT is long overdue but - on the positive side - it pulled no punches. It's said that if 128 of the debt management companies it's looked at don't improve their practices in three months, they could be shut down. What the OFT must do now is to make sure it regulates this sector much more closely in the future. Allowing over 100 companies to have so little regard for the law when they are dealing with people who are often at their wits' end and desperate for help is something that must not be allowed to happen in the future.