Debt management guidance

compliance review

September 2010

OFT1274
© Crown copyright 2010

This publication (excluding the OFT logo) may be reproduced free of charge
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CONTENTS

Chapter/Annexe Page

1 Executive Summary 4

2 Background and methodology 14

3 Advertising sweep 18

4 Questionnaire survey 24

5 Compliance visits 34

6 Mystery shopping 39

7 The OFT's experience of compliance 46

8 Conclusions 55

Annexes

A Online advertising sweep compliance against core criteria 62

B Analysis of questionnaires 63

C Table of findings from compliance visits 106

1 EXECUTIVE SUMMARY

Debt management

1.1 The market for debt management services is large and growing, with
the total cost to consumers in fees paid for debt management
services expected to hit the £250 million mark by the end of 2010.1
It has the potential to play an important role in helping consumers,
many of whom are very vulnerable, deal with complex and harmful
financial problems.

1.2 Consumers in difficulty often seek immediate debt advice in

desperation. As well as commercial debt management firms, a
number of government and charitable organisations provide free debt
advice and solutions. Regardless of what type of advisor a consumer
turns to it is important that they receive the advice and solution most
suitable to their particular circumstances. However the potential for
large amounts of profit to be generated by the commercial sector
creates a risk of abuse.

1.3 The choices that consumers make to tackle their debt problems can
have serious consequences both in terms of immediate financial cost,
and long-term knock-on consequences on availability and cost of
future credit. Furthermore, when problems do arise, for example
where consumers are mis-sold an IVA or a debt management plan,
there can be a significant long term financial and stressful impact
which is difficult to resolve.

The compliance review

1.4 The Consumer Credit Act 1974 (the Act) requires most businesses
that offer goods or services on credit or for hire, or that lend money
to consumers, to be licensed by the Office of Fair Trading (OFT),
which can refuse or revoke a licence if it decides a trader is not fit to

1
Payplan research paper into the debt management industry, April 2010

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 hold one. Debt management firms are required to hold such a licence,
and as part of this to observe the OFT's Debt Management Guidance
which sets out the minimum standards expected.

1.5 We employ a risk-based approach to monitoring businesses'

behaviour, such that those carrying on high risk licensable activities
are placed under greater levels of scrutiny than those considered low
risk. Debt management is prioritised as a high-risk activity by the OFT
because of the risk of real, significant and long-term harm to
vulnerable consumers when poor advice is given and inappropriate
solutions are adopted.

1.6 New powers came into force in April 20082 enabling the OFT to take
a proactive and intrusive regulatory approach, and this has allowed
us to undertake a programme of enforcement action to tackle the
worst abuses identified in the sector. This action took place against a
background of rising complaints and a rapid growth in new entrants
into the fee charging debt management sector, operating mainly from
internet-based websites.

1.7 We have already taken licensing enforcement action and shut down
websites, addressing issues such as companies masquerading as
charities, systemic cold-calling, and the mis-selling of IVAs. In total,
between April 2008 and June 2010, the OFT undertook 37 formal
actions to accept undertakings, impose requirements or refuse or
revoke licences held or applied for. We have also worked alongside
local authority Trading Standards Services (LATSS) to take injunctive
action under the Consumer Protection from Unfair Trading
Regulations 2008 to tackle debt sale scams.

1.8 Despite taking this action we were concerned that the industry was
not responding as we had hoped, with overall standards appearing to
remain low. We therefore launched this review to take an in-depth
look into the sector as a whole, and specifically to:

2
Powers received under the Consumer Credit Act 2006

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 • inform our strategy for achieving compliance in the sector and
identify future enforcement action

• gain a deeper insight into the evolving practices of debt

management firms

• investigate levels of industry adherence to the standards set out

in the OFT's Debt Management Guidance (the Guidance), and

• assess whether updates were needed to the Guidance.

1.9 The review identified widespread problems in the sector, which are a
significant cause for concern to the OFT. It has led to the urgent
implementation of an action plan and to 129 firms being warned to
take immediate action to change their practices or face losing their
credit licence.

1.10 The detailed findings of the review are set out in this document,
along with the action which we are already taking and which we
intend to take as part of our compliance strategy. The industry
should be fully aware that we will be taking robust enforcement
action necessary to ensure that standards improve dramatically.

The OFT's findings

1.11 The OFT expects debt management businesses to have the right
levels of integrity and competence to ensure that they operate with
high standards of transparency and fairness, giving consumers the
right individual advice and the right solutions, and that they offer
fully effective redress if things do go wrong.

1.12 It is important that businesses and their owners and managers see
consumer protection not as an arbitrary set of rules or conditions
imposed by others, but rather as necessary standards set from within
to ensure a culture of responsibility in an industry which deals with
very vulnerable consumers.

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1.13 Instead the findings from this review shine a spotlight on a market
where poor practices appear to be widespread. While degrees of non-
compliance range from very serious matters to matters of less direct
concern, it is clear that standards across this market are not as high
as should be the case.

1.14 The key findings to emerge from the review are that:

• there is widespread non-compliance with the Guidance by debt

advice and debt management licensees, with most debt
management firms audited failing to some extent in at least three
areas

• misleading advertising is the most significant area of non-

compliance, in particular misrepresenting debt management
services as being free when they are not

• frontline advisers working for debt management companies

generally lack sufficient competence and are providing consumers
with poor advice based on inadequate information

• industry awareness of the Financial Ombudsman Service scheme

for resolving consumer complaints is low and there is widespread
non-compliance with the Financial Ombudsman Service's rules3

• the two main trade associations, the Debt Managers Standards

Association ('DEMSA') and the Debt Resolution Forum ('DRF'),
could do more to lead the way by introducing more robust
compliance monitoring and auditing systems for their members

• the Guidance was generally found to be clear and understandable

but it needs to be updated to cover new emerging practices, and
to give greater clarity on expected competence levels, advertising

3
Under the Consumer Credit Act 2006, the Financial Ombudsman Service set detailed rules
for complaints handling

OFT1274 | 7
 standards, transparency of fees, and the 'best advice' principle,
and

• there is a strong expectation and desire for the OFT to continue

with its programme of pro-active compliance monitoring and
strong action to remove unfit traders from the market.

Major consumer protection concerns identified

1.15 Given the sizeable impact of debt problems, the restricted options
vulnerable consumers have, and the potential conflict of incentives
debt management companies have, it is vital that high levels of
consumer protection exist to ensure that firms act with transparency
and fairness in their dealings with individuals and that suitable and
effective redress mechanisms exist when things go wrong. However
these were three areas in which we identified particularly significant
problems within the industry.

Transparency

1.16 The review found a significant lack of transparency for consumers

seeking debt advice and debt solutions. Websites often do not make
clear the commercial nature of the businesses and the fees they
charge, making it difficult for consumers to distinguish between fee
charging debt management businesses and charitable or free-to-client
advice providers. In the worst cases there are firms using misleading
or look-alike trading names explicitly purporting to be charitable or
government organisations.

1.17 The OFT has also identified evidence of some businesses actively
seeking to discredit or misrepresent the services provided by the free
advice sector in both advertising and marketing materials used and in
the initial advice provided to our mystery shoppers.

1.18 Where information about fees and charges or the commercial nature
of the business is provided this is generally found to be accorded a
much lower prominence than statements such as 'free advice'.

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1.19 Nearly all debt advisers surveyed during the mystery shopping
exercise failed to give information on the full range of debt remedy
solutions available. None of the businesses involved in the mystery
shopping exercise tried to help by sign-posting consumers to the
Insolvency Service's booklet 'In Debt? - dealing with your creditors'4
or any other comparable impartial alternatives that lay out the full
range of options. In addition the majority of traders subject to a
compliance visit also failed to do so.

Fairness

1.20 The review found significant and widespread examples of unfair and
improper business practices. Firms are not giving the advice or
offering the solution that is in the best interests of the consumer but
instead that which is most profitable to them. In most cases, initial
advice to pursue a particular solution was provided without a full and
proper assessment of the consumer's individual financial
circumstances. In general the quality of the information and initial
advice provided to consumers is often very poor, raising concerns
about the competence and training of frontline staff.

1.21 In some cases, it appears that business models may be set up to take
the maximum amount of money from a consumer regardless of their
circumstances.

1.22 The practice of front loading fees for setting up debt remedy
solutions is widespread amongst the fee-charging sector (nearly 75
per cent of businesses inspected operate this model for debt
management plans). This practice involves a debt management
company recouping all or most of its costs using the initial consumer

4
The Insolvency Service's publication for consumers in England and Wales 'In Debt? Dealing
with your Creditors' 09/1078 June 2009. Whilst the Guidance does not specifically
reference this booklet, it is the OFT's view that licensees should provide consumers with
impartial information on all debt remedy solutions available and this publication is a
recognised way of doing this.

OFT1274 | 9
 payments, thereby minimising its own risks whilst not immediately
dealing fully with the consumer difficulties.

1.23 Further fees and charges are sometimes later added when a
consumer is later 'flipped' onto an alternative debt solution – for
example moving from a debt management plan to an IVA – there are
cases when this may be appropriate due to a change in
circumstances but it is also clear that some businesses may be
deliberately seeking to recycle customers and extract maximum
profit.

Redress

1.24 None of the websites assessed had upfront information about the
Financial Ombudsman Service's role in handling complaints and
requiring redress. This is compounded by the finding that the
complaints handling procedures of one third of businesses audited
failed to comply with the Financial Ombudsman Service's rules. In
fact we found that among providers awareness of the alternative
dispute resolution process operated by the Financial Ombudsman
Service and the requirement to comply with it is patchy.

Self regulation

1.25 DEMSA and the DRF were set up in order to raise standards across
the industry and have a vital role to play in ensuring that their
members develop a culture of compliance within their businesses.
DEMSA is a current code sponsor under the OFT's Consumer Codes
Approval Scheme (CCAS). Between them the two trade associations
cover the large majority of the debt management market.

1.26 DEMSA members have co-operated fully throughout this process and
its members have already taken corrective action to address
identified issues of non-compliance. We have reminded DEMSA that
non-compliance by its members is inconsistent with DEMSA's status
as a CCAS code sponsor and the standards the OFT expects from a
sponsor's members, and that future evidence of non-compliance will

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 have serious implications for the continued OFT approval of DEMSA's
code.

1.27 The DRF has also made some progress in remedying the highlighted
non-compliances by its members, including issuing best practice
guidelines and introducing an independent complaints system.

1.28 It is our view that both DEMSA and the DRF must take a stronger
role in driving up industry standards and we will expect them to
deliver quickly on the commitments they have each made to the OFT
and to take action to expel members who do not comply.

Positive changes already secured

1.29 The review has raised awareness of the importance of complying
with the OFT's Guidance and we have also used it as an opportunity
to tackle the non-compliance identified. During the course of the
review we have secured changes in industry behaviour including:

• action from the main trade associations to improve

professionalism and standards across the industry, as above, and
commitments to introduce robust compliance monitoring systems
for members, to develop accredited training programmes and to
operate independent consumer complaints panels, as well as
taking more active steps to address members' non-compliance

• over a third of traders (50) that were found to have non-

compliance issues during the onsite compliance visits have since
positively agreed to make changes to their business practices to
address the identified non-compliances, and

• half of the traders we warned about unlicensed trading have

responded positively either by taking down unlicensed websites
or by applying for a licence or to vary existing licences. In the
remaining cases we are in discussions with internet service
providers to remove unlicensed websites.

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Next steps

1.30 We have used the findings of this review to inform the OFT's longer-
term compliance strategy which encourages voluntary compliance
while taking robust action against those who do not comply. The
details of this strategy are set out in the conclusion of this report.

1.31 However, given the gravity of some of the issues identified, we have
produced a plan for immediate action as set out at paragraph 1.33.

1.32 Finally, we welcome the recent announcement by BIS and HM

Treasury of a joint review of consumer credit and debt. We will play
an active role in influencing and informing policy in this area to
achieve a more effective debt management market for consumers,
especially the most vulnerable.

OFT's Action Plan for improving compliance

1.33 Our immediate priorities are to:

• take targeted enforcement action against individual licensees to

tackle priority areas of consumer harm: we will target in
particular those businesses who have failed to amend their
business practices following breaches being notified to them
following the advertising sweep, mystery shopping or a
compliance visit

• revise the Guidance: we will tighten the rules for this sector by
extending the scope of the Guidance to include the new unfair
practices identified by the review. We will launch a formal
consultation on a revised version later in the year

• continue pro-active monitoring of compliance: we will continue to

carry out our programme of on-site compliance visits and
advertising-monitoring

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• continue to target misleading advertising and look-alike websites:
we will work with print media, internet service providers, search
engines and domain name registrars to tackle the use of websites
designed to mislead vulnerable and distressed consumers

• promote business compliance: alongside enforcement, we will

promote business compliance by working closely with the two
main industry bodies to ensure messages are communicated
clearly and quickly to businesses

• empower consumers: by improving awareness of the Guidance so

they are clear about their rights.

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2 BACKGROUND AND METHODOLOGY

2.1 The Consumer Credit Act 1974 (the Act) established a licensing
system to protect the interests of consumers. All traders who provide
debt management services are required under the Act to hold a
consumer credit licence covering debt counselling, debt adjusting and
credit-repair as appropriate.

2.2 Between 6 April 2008 and 9 July 2010 the OFT has issued or
renewed 3,697 licences which included the debt adjusting and debt
counselling categories (11.04 per cent of the 33,497 licences issued
in this period). The OFT does not directly regulate debt management
plans (DMPs), only the businesses who provide them.

2.3 The OFT has a duty under Section 1 of the Act to monitor, as it sees
fit, the activities being carried on by licensees and to generally
superintend the working and enforcement of the Act. In cases of
dissatisfaction with a licensee's activities the OFT has a range of
investigatory tools and enforcement options available to it. Action
could take the form of a notice that the OFT is minded to refuse or
revoke the credit licence of those concerned, the imposition of
requirements on licensees to secure compliance, a financial penalty
for breach of such a requirement or a warning letter. In addition to
this, the OFT also has enforcement powers under other consumer
protection legislation including the Enterprise Act 2002 and the
Consumer Protection from Unfair Trading Regulations 2008 which it
may use against licensees where appropriate.

2.4 Sections 4, 25A and 26 of the Act gives the OFT authority to issue
guidance to debt management providers. In December 2001 (updated
September 2008) the OFT issued the Debt Management Guidance
(the Guidance) setting out the minimum standards we expect of
licence holders who provide debt counselling services (including free-
to-client) and/or seek to re-schedule consumers' repayment of debt
and charge for doing. Licensees were warned by the OFT that they
were not only expected to comply, but to adhere to the spirit as well
as the letter of the Guidance.

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High risk nature of the debt management industry

2.5 Well before the current economic downturn the OFT had identified
debt management activities, including debt advice, as a high-risk area
where vulnerable consumers can suffer detriment as a result of
receiving poor quality debt advice or being subject to aggressive and
misleading marketing and advertising.

2.6 Debt management services are a classic 'distress' purchase;

consumers contacting debt management companies tend to be over-
indebted, vulnerable and desperate for help with managing their
financial difficulties. Consequently, consumers tend to make quick
decisions about debt solutions and research from the Money Advice
Trust has shown that consumers do not shop around for debt
management services.5

2.7 Consumers making the decision to engage the services of a debt

management company are potentially committing themselves to a
debt solution which can affect their lives for years. The risks involved
if things go wrong can be disastrous for consumers who can be left
in a worse, rather than a better financial position, and in the worst
cases can include the loss of the consumer's home.

2.8 It is therefore imperative that businesses offering debt management

services exercise due diligence when dealing with over-indebted and
vulnerable consumers.

Aims

2.9 As part of the OFT's wider compliance strategy and against a

background of rising complaints, increased enforcement action and a
rapid growth in new entrants into the fee charging debt management
sector operating mainly from internet-based websites, the OFT
formally launched this compliance review on 3 November 2009.

5
An independent review of the fee-charging debt management industry, June 2009

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2.10 The main aims of the review are:

• to assess compliance levels across the industry and identify any

areas where standards had slipped below the minimum level set
out in the Guidance

• to gain a deeper insight into the evolving practices of the industry

• to use the findings to inform the OFT's future enforcement and

compliance strategy, and

• to inform a future revision of the Guidance which we will issue

for consultation later in 2010.

Methodology

2.11 In undertaking the review evidence was obtained from:

• conducting an internet advertising compliance sweep: reviewing a

sample of 100 debt advice and debt management websites to
assess compliance with the Guidance

• tailored questionnaires sent to 1545 stakeholders including trade

associations, licensees, consumer representative organisations,
LATSS and free independent advice agencies. We received 437
responses to these questionnaires representing a 28 per cent
response rate

• follow up meetings with consumer representative bodies, trade

associations and government departments to clarify points made
and seek further information and feedback - presentations on
initial findings were also given at two industry conferences and to
a Money Advice Liaison Group6 meeting

6
The Money Advice Liaison Group (known as MALG) is a discussion forum which works to
achieve greater communication, understanding and professionalism amongst creditors and
money advice sectors

OFT1274 | 16
 • commissioning LATSS to carry out onsite compliance visits to
debt management businesses to assess compliance with the
Guidance and to report findings to the OFT and deadlines agreed
with licensees for addressing these. As at end of June 2010 168
visits have been conducted with 148 having been completed fully
and a further 20 where discussions with licensees are ongoing or
outcomes have not been confirmed

• commissioning a mystery shopping study of 172 commercial and

free-to-client providers of debt management services.7 This was
designed to obtain a picture of the average consumer's
experience by testing the level of information provided about debt
solutions and quality of debt advice given over the telephone by
advisers. The mystery shopping exercise consisted of 202
telephone calls and 14 call backs following completion of an
online form, and

• using the OFT's own experience of enforcing compliance with the

Guidance to underpin the findings. This includes an analysis of
complaint data and enforcement action taken against debt
management businesses since April 2008. A complaint form was
also made available on the OFT website for consumers who
wished to complain about debt management practices. However,
few consumers actually completed and returned this form.

2.12 We would like to thank all of those who have contributed to this
review.

7
Findings for commercial and free-to-client providers have been presented together given
that only a small sample of shops (4 shops) were undertaken to free-to-client providers

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3 ADVERTISING SWEEP

3.1 Prior to the launch of the compliance review, we assessed a sample

of 100 debt advice and debt management websites. This sample
included members of DEMSA and the DRF, new entrants to the
industry and licensees against whom we have previously taken
enforcement action. We also included websites identified using
search-engine terms such as 'debt advice', 'debt help' and 'debt free'
as well as the names of free-to-client national advice organisations to
check whether commercial businesses were misleadingly trading
under 'lookalike' names.

3.2 Based on our own experience of enforcing compliance with the

advertising provisions of the Guidance we developed a set of core
criteria against which we assessed the content of each site for
compliance.8 The key finding from this sweep was that no websites
complied fully with the Guidance. All failed on a number of the core
criteria9 against which we assessed each site, though the levels and
severity of non-compliance varied significantly.

3.3 Common breaches included:

• stating or implying all services provided were free or impartial

• a lack of balanced information about all debt remedy solutions

• no clear information about fees payable or, where this was

provided, the information was not prominently displayed

• failure to provide warnings about the likely effect of debt

solutions on credit ratings, and

8
See Annex A for the core criteria against which we assessed each website

9
See Annex A for the compliance levels of core criteria

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 • making claims to be able to guarantee a favourable outcome to
the consumer including 'interest frozen', 'write off debts',
'creditor action stopped'.

3.4 Other misleading or unfair business practices identified included:

• widespread use of sponsored links by commercial entities to

promote themselves as free-to-client, charitable or government
organisations on search engines, and

• use of unsubstantiated negative statements about free-to-client

organisations.

3.5 We found that a majority of firms stated or implied that the advice
given was provided on an independent or impartial basis with
widespread misleading use of terms such as 'free' and 'impartial'. Of
the websites surveyed, 73 described their services as free with the
majority emphasising this over the fact that they charge for their debt
management services. Several also made unsubstantiated claims to
be the leading providers of debt advice in the UK.

3.6 The internet search-engine searches confirmed the extensive practice

by businesses of using keywords to promote themselves on results
pages as free advice, charitable or government organisations, despite
the publicised action we have taken in this area.10 87 per cent of the
sponsored links returned during our searches for Citizens Advice,
National Debtline, the Consumer Credit Counselling Service and
Money Advice Scotland were for fee charging debt management
companies.

3.7 We also found that some businesses had used misleading domain
names and/or adverts that implied they were affiliated to these

10
The OFT issued a press notice on 7 March 2009 about its action to close a number of
'look alike' websites, advising consumers to take care when searching on the internet to
ensure they are dealing with genuine organisations. www.oft.gov.uk/news/press/2009/26-
09

OFT1274 | 19
 organisations or were acting under some official sanction from the
Government. Of the 14 websites identified 50 per cent were
operating without a consumer credit licence, with most presumed to
be engaged in lead generation as the content was misleading, biased
and contained no business or contact information, instead gathering
consumer data through online forms.

3.8 There was a widespread lack of balanced information about the full
range of debt remedy solutions available to consumers, with no clear
signposting to publicly available impartial information such as the
Insolvency Service's guide 'In Debt? Dealing with your Creditors'.11
Advertising was generally focused on the more profitable services,
with evidence of clear bias in some cases.

3.9 A common theme was to advertise to consumers across the UK but

not to include information about debt solutions applicable to
consumers living in different jurisdictions. Most businesses failed to
include details about County Court Administration Orders (England
and Wales), Debt Relief Orders (England and Wales) or Debt
Arrangement Schemes (in Scotland), all of which can be important
lower cost options.

3.10 Seven per cent of websites marketed claims management services

for unenforceable agreements with the majority doing so as a debt
management solution when it is clearly not.

3.11 Only seven per cent of businesses provided sufficient upfront details
of the fees charged to consumers, and none of this minority had
done so on the homepage. All failed to give clear upfront warnings to
consumers that where the first payment(s) into a DMP are retained
as upfront fees and not paid to creditors, this would cause
consumers to go into arrears or further into arrears, extending the
repayment period or resulting in an increase in the amount to be

11
The Insolvency Service's publication for consumers in England and Wales 'In Debt?
Dealing with your Creditors' 09/1078 June 2009.

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 repaid. Common practices observed were to either include no details
of the fees or to conceal them in subsidiary pages such as those
setting out terms and conditions or frequently asked questions
(FAQs).

3.12 The transparency of the front ended fee-based business model of

IVAs and PTDs was particularly poor. None of the websites assessed
contained details or estimates of the costs involved. Common tactics
used to obscure this included implying creditors are liable for the
costs or will readily agree to the fees. Other poor practices included
stating or implying that IVAs and PTDs are generically endorsed by
the Government. Only one licensee clearly warned that debtors
would be liable for IVA costs.

3.13 No websites provided a sufficiently prominent upfront warning to

consumers of the risks of debt management plans. In particular, the
potential negative effects of entering into any form of debt
management arrangement was not explained. Whilst some sites did
contain abbreviated warnings, there was a general lack of accurate
information about the potential effects of each debt remedy solution
on consumers' credit ratings, their ability to obtain credit or about the
details that credit reference agencies hold.

3.14 We identified that there was a clear emphasis placed on the

advantages of debt management services without equally explaining
the relative disadvantages, with widespread omissions of the
warnings and caveats the Guidance requires. In the vast majority of
cases where these were given they were not accorded equal
prominence or had been relegated to places a consumer is less likely
to look such as the foot of the page, or buried in the sections
covering terms and conditions and frequently asked questions
(FAQs). Common breaches included bold upfront claims such as
'write off debt', 'freeze interest', 'stop creditor action' and 'reduce
your payments'.

3.15 All but three websites contained misleading incentives or

inducements, with some sites relying heavily on false or misleading

OFT1274 | 21
 statements to attract debtors. A particularly misleading practice was
to use generic headlines that can confuse consumers as to what
service they apply to, but act as a hook to draw consumers in, such
as 'We stop interest' and 'Debt free in 5 years guaranteed'. There
was a common use of phrases that state or imply the service is an
immediate solution or will free the consumer of the need to meet
their debts such as 'escape debt', 'wipe out debt' and 'solve your
debt problems today'.

3.16 Less widespread but potentially very detrimental to consumers was

the unfair business practice of using unsubstantiated negative
statements about free-to-client providers, with some websites
implying or even stating directly that they work in the interests of
creditors rather than the debtors.

3.17 A large amount of misleading content was found to be identical

across different websites indicating there is a significant proportion
of businesses who are not actively aware of the Guidance and of
expected standards, and would instead copy-and-paste content from
other companies rather than integrate standards into their own
business models.

3.18 There was no clear upfront information on a consumer's right to a

cooling off period or on the Financial Ombudsman's Alternative
Dispute Resolution scheme, though some sites did include this
information elsewhere on the website. This is particularly concerning
as the findings from the sweep suggest consumers may be receiving
inappropriate advice and may not be aware that they are entering
into a contract for a paid for service with a commercial entity, and
are therefore less likely to appreciate the cancellation periods or their
ability and right to seek redress if something goes wrong.

3.19 Non-compliant websites of members of the two main trade bodies

have been brought to the attention of DEMSA and the DRF. Both
bodies have committed to raise standards by instructing their
membership to change their advertising content. DEMSA members
have already taken action to do so.

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Consumer Protection from Unfair Trading Regulations 2008 – the
CPRs

3.20 Making misleading claims or failing to include appropriate warnings

and caveats in debt advice and debt management advertising is not
only non-compliant with the Guidance but may also be a misleading
action or omission for the purposes of the CPRs. Debt management
firms that use misleading advertising may therefore not only face
licensing action but could also be subject to action under the CPRs
forcing them to immediately stop using such advertising.

Breaches of wider provisions of the Act – unlicensed trading

3.21 A total of 14 websites were found to be operating without an

appropriate consumer credit licence, 15 licensees were trading using
an unlicensed trading/domain name and seven were engaged in debt
management without the required debt counselling and debt
adjusting licence categories. Unlicensed trading and using unlicensed
trading names is an offence under the Act. Where we have identified
unlicensed trading we have sent appropriate warnings to traders and
will follow this up.

OFT1274 | 23
4 QUESTIONNAIRE SURVEY

4.1 The consensus view was that all stakeholder groups (industry,
consumer advice and LATSS) found the Guidance to be clear and
understandable. Most respondents said that the Guidance has already
helped a lot to raise standards across the industry. Majority also said
that the Guidance had clarified well the different types of practices
which the OFT considers to be unfair. No respondents found the
Guidance to be onerous or difficult to understand. Very few
respondents claimed to be unaware of the Guidance.

4.2 Some respondents suggested that the scope of the Guidance could
be extended to make it clear that it also applied to some activities of
certain claims management companies. Other respondents believed
that there are areas where the rules need to be tightened and the
Guidance updated to include emerging unfair practices such as
excessive fees and 'flipping' clients between debt solutions. This is
discussed in more detail below. Finally, there was a call for the OFT
to continue with its programme of pro-active compliance monitoring
and to step up action to remove incompetent and unfit traders from
the market.

4.3 A detailed summary of the views expressed by respondents to the

questionnaires is at Annex B.

Industry views

4.4 The majority of licensee respondents said the Guidance is embedded

within their business practices and procedures, with 75 per cent
stating that they conducted regular compliance audits to identify
breaches of the Guidance. Some licensees said the Guidance was
integral to all their business procedures. One respondent indicated
that following the introduction of the Guidance they had looked
afresh at their business processes and had made extensive changes
to achieve compliance. Another suggested that the Guidance had
changed the whole ethos of their company. Others suggested the
Guidance had helped facilitate greater co-operation between fee-

OFT1274 | 24
 charging debt management companies and creditors because of the
clarity it provided on standards.

4.5 One of the main debt management trade bodies, DEMSA, who state
its membership has a combined market share of over 50 per cent,
said its Code of Practice was an extension of the Guidance. Other
credit and debt trade associations such as R3 and the British Bankers
Association (BBA) said that the principles of the Guidance are
referred to in their codes of practice.

4.6 Just over half of licensee respondents said that they had received
training on the Guidance, with slightly more (55 per cent) stating that
they provided staff training on the Guidance. Several respondents
praised the BTEC Advanced Certificate in Debt Resolution, an
accredited qualification that has recently been launched by the DRF.
The OFT welcomes and supports all initiatives that are designed to
increase professionalism within the industry.

4.7 Three quarters of licensees told the OFT that all areas of the
Guidance were being complied with. The minimum standards
governing debt management advertising and the requirement on
licensees to provide consumers with appropriate advice were said to
have had the most impact on the way the respondents operate their
businesses. One respondent told us that 'advising clients of the
duration and cost of a DMP took a while to get used to. Clients are
sometimes shocked and frightened at how long it will take them to
be debt free.'

4.8 Very few licensees indicated that the Guidance had posed difficulties
in compliance terms. The OFT has received anecdotal evidence that
some licensees are finding it difficult to adhere to the principle that
client monies must be disbursed to creditors within five working days
of cleared funds, particularly where consumers get paid on a weekly
basis as the debt management business would be required to send
multiple payments in a month to ensure compliance. However this
difficulty was not raised by our survey.

OFT1274 | 25
4.9 Of those respondents who identified areas of non-compliance, some
indicated that licensees were most likely to be non-compliant in areas
covering the handling of client monies.12 But no other common
themes emerged.

4.10 All but two licensee respondents were aware of the best advice
principle with the Guidance.13 Several licensees suggested that they
have developed mechanisms such as decision trees to capture key
information from consumers in order to arrive at the most appropriate
solution.

4.11 The majority of licensees stated that they signpost consumers to

publicly available impartial information about debt solutions including
referring consumers to free advice organisations such as Citizens
Advice, Consumer Credit Counselling Service, National Debtline,
Payplan as well as Government websites.

4.12 In contrast R3 told us that 84 per cent of insolvency practitioners

(IPs) it surveyed and who work on personal insolvency said that they
have seen debtors who have agreed to a DMP without having
received impartial advice about the alternative options available to
them.14

4.13 Consumer complaints volumes were said to be low, with the majority
of licensees advising that they have received on average less than
ten complaints alleging breaches of the Guidance in the last year.
Reported action taken as a result of these complaints ranged from
retraining staff to revising their internal processes accordingly.

12
Clauses 2.23 – 2.24 of the Guidance

13
Clause 2.27 of the Guidance

14
Research published by R3 in March 2010

OFT1274 | 26
Adviser views

4.14 One of the key messages to emerge from consumer advice

organisations and individual advice agencies was that the Guidance
needed to be revised to clarify which provisions applied specifically
to the not-for-profit advice sector. One individual advice agency said
that there are some advisers 'who think the guidance only applies to
fee chargers'. Another respondent claimed that advisers within the
not-for-profit sector were unaware of the Guidance though no
evidence was provided in support.

4.15 Three quarters of respondents said that advisers use the Guidance,
with just under half stating that their agencies had provided them
with training on the Guidance. Several respondents cited the 'Wiser-
adviser' training provided by the Money Advice Trust for money
advisers across the UK which includes modules on the Guidance. The
majority of respondents also confirmed that advisers have access to
paper and electronic copies of the Guidance via agency offices and
information systems and intranet sites.

4.16 Just under half of adviser respondents stated that they have dealt
with consumers who had already previously sought advice from, or
actually entered into a debt management arrangement with, a fee
charging debt management business. Aside from the fact that this
advice is free of charge to the consumer and recommended by
Government, some of the reasons for these referrals are outlined
below:

• the consumer was not made aware of the fact that the debt
management business retains a proportion of the payment as part
of their fees

• changes in the consumer's circumstances, such as

unemployment, meant they were no longer able to meet their
monthly payments

• the payment plan developed by the debt management business

was unaffordable and/or unrealistic

OFT1274 | 27
 • the debt management business was not disbursing payments to
creditors or the payments were delayed

• the debt management business had failed to deal with priority

debts

• the consumer was still receiving contact from creditors in spite of

guarantees from the debt management business that creditor
contact would cease

• there was a general lack of support from the debt management

business.

4.17 Over half of adviser respondents said there were areas of the
Guidance not being complied with by licensees, with advertising
being identified as the most common non-compliant area. Several
respondents made reference to misleading promises being made in
advertising such as implying liabilities can be made to go away and
the use of the term 'free advice' without explaining that there are
charges.

4.18 Whilst some respondents welcomed the enforcement action taken by

the OFT against look-alike websites in March 2009,15 it was
suggested that more needed to be done to address this issue and
that of non-compliant internet advertising by debt management
businesses in general. Money Advice Trust urged the OFT to meet
with internet search engine companies to ensure that the paid-for
advertising on their sites does not breach the Guidance.

4.19 Whilst most advisor respondents stated that the Guidance had raised
standards, real evidence of improvements made by the industry was
said to be limited to the well established businesses who were also
trade association members, rather than new entrants or the smaller

15
The OFT issued a press notice on 7 March 2009 about its action to close a number of
'look alike' websites, advising consumers to take care when searching on the internet to
ensure they are dealing with genuine organisations.www.oft.gov.uk/news/press/2009/26-09

OFT1274 | 28
 players. In its response Citizens Advice stated: 'Prior to the
introduction of the guidance in 2001, we were receiving great
numbers of complaints about the large debt management firms which
made up a significant share of the market. Since then, the proportion
of reports we receive about these larger, well-known companies has
declined relative to those about smaller, more recently established
firms that are frequently web-based. Our evidence indicates that
although the guidance has had some positive impact upon the
practices of the well-established debt management firms, there has
been a proliferation of smaller firms which fail to adhere to the
guidance.'

4.20 AdviceUK also said that they 'would like to see it become
compulsory [for fee-charging debt management businesses] to be a
member of an approved trade association and to abide by their code
of practice. We would also like to see sufficient resources allocated
to the OFT to allow comprehensive and robust monitoring to take
place.'

The LATSS view

4.21 LATSS respondents said that they use the Guidance mainly to
undertake compliance inspections to debt management businesses on
behalf of the OFT and that it was an extremely useful tool when
advising businesses. Just over a third of departments which
responded said that where they had used the Guidance in discussions
with licensees they had received positive responses, with compliance
said to have been achieved in the majority of cases. Advertising and
the quality of initial advice were the two most common areas of non-
compliance, with several citing the misleading nature of advertising
claims and an absence of caveats as key issues.

4.22 The majority of respondents praised the Guidance saying that it had
made it easier for them to submit complaints to the OFT or to take
enforcement action.

4.23 Just under half of those departments we surveyed confirmed that

they had dealt with complaints from consumers due to inadequate

OFT1274 | 29
 information provided about fee levels by the debt management
business and poor standards of service generally.

4.24 Overall, complaint volumes were said to be low, with one respondent
stating 'A major issue of concern is the fact that agencies likely to
deal with clients of DMCs do not necessarily make complaints to
either TSS or OFT.'

Revising the Guidance

4.25 Respondents to the questionnaire highlighted a number of areas

where amendment to the Guidance was needed, including:

• requiring debt management businesses to be explicitly clear in

their advertising about the fact that they charge fees, the level of
fees charged and the methodology for calculating fees,16 with
one respondent saying that they 'believe that promotional
materials should follow a standardised format, in which certain
key elements of the plan must be presented in a specified
manner.'

• introducing clear criteria on what constitutes 'best advice'. For

example, requiring debt advisers and debt management
businesses to provide full information to the consumer on all debt
remedy solutions, with an explanation of their key features such
as their advantages, disadvantages and duration. Another
respondent suggested that the OFT introduce a requirement for
advisers to complete and retain a questionnaire for each client
demonstrating what solutions have been considered and why
they recommended a particular option

16
The Advertising Standards Authority has published its revised CAP Code which bans such
omissions

OFT1274 | 30
 • making an explicit requirement around the use of the Common
Financial Statement as a recognised industry standard for
assessing a consumer's financial circumstances

• requiring debt management businesses to have active compliance

monitoring and auditing procedures in place

• extending the scope of the Guidance to include claims

management companies that are engaged in debt counselling or
debt adjusting activities, and

• clarifying how the Guidance relates and applies to IPs and free-to-
client debt advisers.

Emerging unfair business practices not covered by the Guidance

4.26 The review also revealed new or emerging unfair business practices
in the debt management sector that are not currently covered by the
current Guidance such as:

• charging excessive fees disproportionate to the work undertaken.

Some businesses were said to charge the equivalent of multiple
monthly payments as initial set-up fees. Such practices can be
severely detrimental to a consumer who may end up even more
over-indebted if creditors continue to apply interest and charges
or if the plan fails because they cannot keep up with the
payments. Some respondents called for an explicit cap on fees.
One industry respondent said '[the Guidance] is weak in relation
to the regulation of the amount of fees and whether high up-front
fees are consistent with the principle of delivering advice in the
best interest of the client'. As a competition authority the OFT is
not proposing to introduce a fees cap but we will require
licensees to be more transparent on this issue in any revised
version of the Guidance

• encouraging consumers to pay up front fees using credit cards or

other means of credit leading to further over-indebtedness

OFT1274 | 31
 • 'flipping' consumers between different debt repayment options
and charging consumers multiple fees for doing so. It is apparent
that this is often linked to inappropriate advice. Some creditors
were also said to favour and encourage DMPs even in cases
where they may not be the most appropriate solution. This is
supported by research conducted by R3 which found that 52 per
cent of IPs had seen debtors pushed into DMPs by their creditors
with just over half of IPs claiming that they had come across
creditors refusing an IVA even though it may be a viable and
appropriate option17

• engaging in unsolicited and misleading cold calling. Despite the

action taken by the OFT against debt management companies
engaging in misleading and unlawful cold calling practices in
2009,18 a number of respondents called for the Guidance to be
strengthened to tackle this issue. Others suggested that the OFT
should consider banning cold calling by both telephone and text
message, as consumers are confused by the misleading
information contained in such communications, and

• holding onto client funds in the hope of agreeing a full and final
settlement with creditors. The OFT has been told that some fee
charging debt management businesses are operating hybrid
business models whereby consumers make monthly payments to
the company who will then pay creditors as little as £1 per
month whilst saving the balance to make full and final settlement
offers in future. Sometimes this 'service' is combined with claims
and/or debt management activities. The OFT considers this
business model to be completely unacceptable and is
investigating further.

17
Research published by R3 in March 2010

18
The OFT issued a press release in May 2009 about its action to warn debt management
businesses about misleading and unlawful cold calling practices www.oft.gov.uk/news-and-
updates/press/2009/60-09

OFT1274 | 32
4.27 The OFT will consider the feedback provided by respondents and all
the suggestions for amending the Guidance. Revised draft guidance
will be issued for formal consultation and the OFT will also consult
further with key stakeholders prior to issuing the consultation draft.

OFT1274 | 33
5 COMPLIANCE VISITS

5.1 To underpin the largely anecdotal evidence obtained via the

questionnaire survey the OFT arranged for nearly 200 debt
management businesses to be inspected by LATSS. The results of
the visits provided the OFT with a unique insight into the operating
procedures of those businesses which were tested and assessed for
compliance.

5.2 This inspection process is part of a wider monitoring exercise which

is still ongoing but by the end of June 2010, 148 onsite compliance
visits to licensed traders operating in the debt management industry
had been completed fully by LATSS on behalf of the OFT.19 Eighty-
four per cent of the traders were identified as being non-compliant
with some aspects of the Guidance and 64 per cent were found to
be non-compliant to some degree with provisions of the Act or other
consumer protection legislation. In total, 136 licensed traders were
found to have non-compliances and 12 traders were identified as
being compliant.

Advertising, marketing and promotion

5.3 Backing up the results of the advertising sweep, the highest recorded
area of non-compliance related to online advertising content.
Websites operated by just over half of all traders visited were found
to be non-compliant. Specific issues mirrored those findings from the
OFT's earlier advertising sweep.

5.4 Nearly half of all traders visited were also found to be relying on the
same misleading content in other media advertising such as
newspaper adverts, leaflets, directories, and radio and television
adverts.

19
168 visits have been conducted in total to the end of June but in 20 cases negotiations
with licensees are ongoing/ outcome of the visit has not yet been confirmed

OFT1274 | 34
Fees

5.5 Nearly half of all traders visited failed to disclose fee structures – the
same proportion also failed to provide information upfront and/or in
writing at the pre-contractual stage that fees are payable.

5.6 Further analysis found that the practice of front loading fees is
prevalent throughout the industry. For example, three quarters of the
traders visited typically charged the consumer an upfront fee
followed by monthly management fees. These fees were often found
to be disproportionate to the level of work carried out.

Contract terms

5.7 Contract terms used by 48 per cent of traders visited were found to
be incorrect or to give insufficient information on the nature of the
services being supplied, the total cost to the consumer, the amount
to be repaid or the duration of the contract. Some visiting officers
commenting that contracts did not in fact refer to the debt solution
the consumer had signed up for.

Advice

5.8 Thirty-nine per cent of traders visited were found to be publishing or

providing consumers with inadequate levels of information about
available debt solutions or were providing advice that was not in the
best interest of the consumer.

Debtor's Guide

5.9 Awareness of the IS guide 'In Debt – Dealing with your Creditors'20
or alternative sources of impartial advice was poor, with more than
half of traders (59 per cent) failing to provide copies to consumers or

20
The Insolvency Service's publication for consumers in England and Wales 'In Debt?
Dealing with your Creditors' 09/1078 June 2009.

OFT1274 | 35
 to make consumers aware of the existence of impartial information.
Whilst the IS booklet is not directly referenced within the Guidance it
is the OFT's view that signposting consumers to it is indicative of
best advice.

Evidence of mis-selling

5.10 The OFT has received anecdotal evidence that inappropriate

incentivisation of advisers/ sale targets is commonplace in the fee-
charging sector. However this issue was not sufficiently probed
during the visits for the OFT to reach a definitive view. In at least
two instances, visiting officers identified that front end staff received
commission or bonuses directly relative to the number of consumers
they signed up to a specific debt solution, thereby indicating potential
evidence of mis-selling.

5.11 One visiting officer has commented 'There is concern that the
interaction with the client does not make it clear that the companies
are commercial providers who are obtaining payment from the client.
While advice is provided, it is not comprehensive and is by the
commercial nature of the business involved not totally impartial.'

Handling of client monies

5.12 Any failure to comply with the rules surrounding the handling of
clients' monies is of serious concern to the OFT and will always merit
follow-up enforcement action. Of the 148 traders visited: five traders
were found not to be passing payments to creditors within five
working days of receipt of cleared funds; four traders were not
keeping monies held on behalf of consumers in a separate client
account; and two traders were failing to accrue interest earned on
clients' accounts to the benefit of the consumer. Follow up action
will be taken in all of these areas.

Transparency

5.13 Almost a quarter of traders failed to clearly explain their business

model to consumers. There was a lack of transparency in the traders'

OFT1274 | 36
 relationships with associated businesses, particularly with those to
whom client referrals were made. A key area of non-compliance was
not clearly explaining to the consumer who they are being transferred
to and why. Approximately 70 per cent of traders visited received or
made referrals to other businesses.

Staff competence

5.14 Approximately 20 per cent of traders visited had employees with

insufficient knowledge of all debt solutions or whose training
materials were inadequate. This lack of competence of key personnel
was attributed to infrequent and poor staff training. Evidence was
also found of a lack of compliance monitoring of staff beyond the
initial training received.

Other unfair practices

5.15 Other unfair business practices identified during the compliance

visits, but not specified in our existing Guidance, included:

• evidence of licensees accepting payment for debt management

services by way of credit card and/or credit agreements but this
was not as widespread as previously suggested by our
complaints, and

• the fact that some licensed traders were not robust in checking
the identity of debtor clients which could raise issues around
identity fraud.

5.16 Wider compliance issues relating to the Act as well as other

consumer protection legislation were also identified, as follows:

• not keeping the OFT informed of changes relevant to their

consumer credit licences (47 per cent of traders) for example,
changes of directors or addresses and/or failing to apply to add
additional trading names (including domain names) to the licence

OFT1274 | 37
 • failing to have in place complaint handling procedures that are
compliant with the Financial Ombudsman's rules (36 per cent of
traders) as required by the Act, and

• examples of potential breaches of other legislation (apart from the

Act) such as the Consumer Protection (Distance Selling)
Regulations 2000, The Cancellation of Contracts made in a
consumers home or place of work, etc Regulations 2008, The
Data Protection Act 1998 and The Privacy and Electronic
Communications Regulations 2003 which were identified in 33
per cent of cases.

Next steps

5.17 Given the levels of non-compliance identified we have taken action to

ensure that 12921 companies improve their business practices and
provide clear, compelling and comprehensive evidence that they have
done so within three months.

5.18 Any evidence indicating that a trader has failed to co-operate with
the regulator by not addressing the issues brought to his/her
attention is highly relevant to their continuing fitness to hold a
licence and will lead the OFT to act immediately and instigate
licensing action.

21
In total 136 traders were identified as having non-compliance as part of the visits, two
traders have subsequently surrendered their consumer credit licences and we are considering
other action in the remaining cases

OFT1274 | 38
6 MYSTERY SHOPPING

6.1 The OFT has also published the results of a mystery shopping survey
available at: www.oft.gov.uk/about-the-oft/legal-
powers/legal/cca/debt-management which we commissioned as part
of the review.

6.2 The survey was carried out by FDS International (FDS) who were
tasked with undertaking a mystery shopping study of commercial and
free-to-client providers of debt management services. The objectives
were twofold. Firstly, to test the typical consumer's experience of
dealing with a debt management provider by assessing the accuracy
and completeness of the information provided at the initial telephone
contact stage, secondly to assess the overall quality of debt advice
provided.

Methodology

6.3 The OFT and FDS developed a typical scenario for mystery shoppers
to use and the brief given was to make telephone calls to a sample of
debt management providers, or to initiate call backs from
introductory websites, seeking advice and information about the
company's debt management services on behalf of a family member.
The mystery shoppers were not required to enter into a debt
management arrangement. All shoppers used the same basic scenario
with a few variables such as a post code differentiator and different
levels of disposable income.

6.4 FDS carried out a total of 216 telephone mystery shops (202
telephone calls and 14 call backs following completion of an online
form) between 4 and 17 March 2010. Mystery shops were made to
172 individual entities with multiple mystery shops being made to
some businesses. Trade association member businesses made up a
quarter of all entities shopped and 38 per cent of the total number of
shops conducted. Four mystery shops were conducted to free-to-
client organisations and, given this small sample shopped, FDS have

OFT1274 | 39
 not distinguished between commercial and free-to-client entities in its
report.

Main Findings

6.5 The key findings to emerge from our mystery shopping survey are:

• the majority of debt advisers failed to provide information about

the full range of available debt repayment options, with most
focusing on just two options

• most debt advisers tended to focus on the advantages of

individual debt solutions and did not explain the disadvantages

• nearly half of all debt advisers misleadingly claimed or implied

that they could guarantee outcomes favourable to the consumer
when discussing DMPs. Claims included 'interest frozen' and
'creditor contact stopped'

• no debt adviser provided a full explanation of the main features of

each individual debt repayment option they discussed

• few debt advisers voluntarily provided details of the costs of debt

repayment options discussed, and where this was provided
information was not complete

• nearly half of all debt advisers failed to mention consumers'

cancellation rights, even after being asked

• most debt advisers were willing to give advice without making a

full assessment of the debtor's circumstances – over half gave
advice without asking for details of disposable income levels first

• no debt adviser sign-posted consumers to the IS booklet 'In

Debt? Dealing with your creditors', and

• the majority of debt advisers failed to volunteer that debt advice

was freely available from charitable organisations, and when

OFT1274 | 40
 asked a significant proportion sought to discredit or misrepresent
the services provided by such organisations.

Level of information provided

6.6 Of those surveyed, the majority or 94 per cent of all debt advisers
failed to provide the shopper with details of the full range of available
debt repayment options. To meet the requirements of the Guidance
debt management businesses must ensure that all information and
advice given is transparent and in the best interests of the consumer.
Given the seriousness of the issues, and the potential for consumer
detriment, the OFT would expect businesses to provide balanced
information on the full range of debt solutions available, even if they
do not offer that particular solution, to enable the consumer to make
an informed decision.

6.7 Most advisers mentioned two options only. Typically DMPs and IVAs
were the most frequently mentioned options. Even where a Scottish
postcode was employed 61 per cent mentioned IVAs even though
Scottish consumers are not eligible for IVAs, suggesting that advisers
lacked knowledge of debt solutions applicable to consumers living in
different jurisdictions.

6.8 Advisers were identified as having a tendency to focus more on the

advantages of individual debt repayment options than the
disadvantages, with 78 per cent volunteering advantages compared
to 47 per cent that volunteered disadvantages. Many of the proposed
advantages discussed with shoppers were found to be misleading,
with some advisers claiming or implying to be able to guarantee an
outcome favourable to the consumer. For example, when discussing
DMPs, 49 per cent of advisers suggested that interest is guaranteed
to be frozen, 42 per cent implied all contact from creditors will stop,
and 32 per cent implied that creditors are guaranteed to accept the
DMP proposal.

6.9 More than half of all advisers failed to volunteer information about
the disadvantages of the individual debt repayment options
discussed. Of these, a significant proportion continued to fail to

OFT1274 | 41
 provide information about the disadvantages of the various options
when prompted by the shopper, however information was generally
more forthcoming following further questioning.

Quality of advice

6.10 The quality of advice provided inevitably suffered as a result of the

lack of clarity and completeness of the information given to the debt
management businesses by the shoppers, however there were some
actual issues of concern.

6.11 Prior to giving advice on the most appropriate debt remedy solution it
is vital that the adviser establishes the consumer's income and
expenditure levels. This important information was not sought in the
majority of cases with most advisers found to be willing to provide
advice without first making a full assessment of the debtor's financial
standing.

6.12 64 per cent of advisers gave advice without asking about the
debtor's disposable income. Only three advisers declined to give full
advice without more detailed information about the debtor's
circumstances. Most advisers however did request information from
the shopper about the level of debt (89 per cent) and types of debt
(69 per cent).

6.13 At the end of the exercise, shoppers asked advisers which debt
repayment solution might be the 'best' one if this information had not
already been forthcoming. Just under half of advisers declined to
make a recommendation on the grounds that they had insufficient
information to do so.

6.14 Of most concern is the high number of advisers that were prepared
to make a recommendation. Definitive recommendations to opt for
DMPs or IVAs were made by 42 and 17 per cent of advisers
respectively.

OFT1274 | 42
Other issues

Signposting of consumers

6.15 The mystery shopping exercise found that signposting consumers to

sources of impartial information about debt repayment option was
poor with none of the debt advisors mentioning the IS booklet 'In
Debt? Dealing with your creditors'.

6.16 Furthermore debt advisers were not upfront about the availability of
free advice from organisations such as the Citizens Advice Bureau –
only eight per cent volunteered this information. Following prompting
from the shopper this increased but a significant proportion (19 per
cent) of those advisers sought to discredit or misrepresent services
provided by free-to-client organisations suggesting for example that
they could not cope with demand, lacked expertise or were not on
the side of the debtor.

6.17 Research from the Money Advice Trust22 has shown that consumers
do not shop around for debt management services and vulnerable
consumers could therefore be unduly influenced by such misleading
statements when advice from a charitable organisation, which may
include holistic advice not provided by the commercial entity such as
income maximisation and benefit entitlements, may be more
appropriate.

6.18 The OFT considers such misrepresentation to be an unfair or deceitful

practice. Such misleading statements would also amount to unfair
business practices under Regulations 5 and 6 of the Consumer
Protection from Unfair Trading Regulations 2008 (CPRs).

22
An independent review of the fee-charging debt management industry, June 2009

OFT1274 | 43
Transparency of fees

6.19 Very few advisers – four per cent in the case of DMPs and one per
cent in the case of IVAs - voluntarily provided details of the fees that
they charge. These figures increased dramatically following further
prompting by the shopper (70 per cent for DMPs and 34 per cent for
IVAs) but there were also a significant number of advisers who failed
to provide these details at all. On a positive note, only a very small
proportion of advisers actually implied that the arrangement of DMPs
are free (one per cent), though this was higher for IVAs (11 per
cent).

6.20 Very few advisers explained to the shopper how the fees are
calculated. After prompting this figure rose to 55 per cent for DMPs,
with a sizeable proportion still failing to give a breakdown. The result
was much worse for IVAs which saw 79 per cent of advisers failing
to provide this information.

Duration of debt repayment options

6.21 Information given to the shoppers about the duration of the various
debt repayment options was limited, particularly when discussing
DMPs. However, it should be noted that a third of all advisers said
they were unable to clarify this point without further information, and
information about the duration of IVAs and PTDs was much better.

Cancellation rights

6.22 Only three per cent of advisers mentioned consumers' cancellation

rights without being asked. When prompted, this figure rose to 50
per cent. This leaves a significant proportion who, even after being
asked, did not explain that the consumer had a right to cancel his/her
contract within a specified period.

Pressurised selling techniques

6.23 No significant evidence of pressurised selling emerged from the

review. In only six per cent of the calls did the shopper assess that

OFT1274 | 44
 they were put under any pressure. None of the advisers tried to force
the shopper into making a decision, however this may be due to the
scenario that was used with the shopper stating that they were
calling on behalf of the debtor.

Overall

6.24 The findings from the mystery shopping exercise generally indicate
that front line debt advisers are providing inadequate information and
advice to consumers. Knowledge of debt repayment options was
found to be incomplete, reinforcing the findings from the compliance
visits that some advisers are not being adequately trained.

6.25 Full details of the findings and a copy of the Mystery Shopping
Report, has been published on the OFT's website at
www.oft.gov.uk/about-the-oft/legal-powers/legal/cca/debt-
management.

OFT1274 | 45
7 THE OFT'S ACTION TO DATE

7.1 Tackling problems in this sector is a key priority for the OFT. Since
the introduction of the new licensing regime in April 2008, the OFT
has been pro-actively using its new regulatory powers to focus on
the worst practices and abuses.

7.2 Debt management businesses account for over half of the licensed
businesses against whom the OFT has used its 'requirements'
powers23 since their introduction in April 2008.24 Requirements that
the OFT has imposed on debt management businesses to change
their behaviour and secure future compliance have typically
addressed:

• misleading advertising

• failure to provide consumers with adequate information about

fees and/ or the nature of the service in a clear or transparent
manner before entering into an agreement

• lack of training and/or skills, knowledge and experience to engage

in debt management activities

• lack of auditing procedures for ensuring compliance with the

Guidance, and

• failure to have complaints handling processes that comply with

the Financial Ombudsman Service's rules.

23
Powers under section 36(E) of the Act to impose conditional requirements on a licence

24
53 per cent of total requirements action

OFT1274 | 46
Enforcement action against individual traders

7.3 Between 1 April 2008 and 30 June 2010 the OFT has taken
licensing action against a total of 3725 debt management businesses,
including:

• action against six established businesses to revoke their

licences26

• action against seven new applicants seeking to enter the market

to refuse their application

• the imposition of conduct requirements on 21 licensees to secure

compliance with the Guidance and relevant consumer legislation,
and

• accepted undertakings from three established businesses

7.4 We have also taken the following non-licensing actions against debt
management businesses:

• the issue of 154 warning letters. Of this total, 52 related to

various breaches of the Guidance with 37 of these warning
traders about the use of misleading statements in their
advertising. Over half of all traders (92 or 59 per cent) we wrote
to were warned about unlicensed trading (either not having a
licence or not having the appropriate categories on their licence
or trading under a name not on a licence), and

• the issue of 823 advisory letters to new entrants providing

detailed advice and assistance on the minimum standards
outlined in the Guidance.

25
In total, since April 2008 the OFT has been 'minded to' take licensing action against 49
licensees engaged in debt management activities

26
In four instances the determination to revoke is subject an appeal

OFT1274 | 47
Market facing enforcement action

7.5 A key information source for assessing compliance is the intelligence

received from individual consumer complaints and third party
organisations (including advice organisations, creditor, competitor
firms, other regulators and FOS) about emerging unfair practices.

7.6 We always aim to optimise our use of intelligence by working

cooperatively and in coordination with other regulatory partners such
as LATSS, IS, the Information Commissioner's Office, and the
Ministry of Justice to ensure effective interventions in problem areas.

7.7 Consequently, we have undertaken a number of successful high

impact interventions aimed at dealing with market-wide issues
quickly, preventing further consumer detriment and reinforcing
compliance with the Guidance. These include tackling businesses
responsible for:

• misleading IVA mailings: misleading promotional materials sent

directly to over-indebted consumers encouraging them to
terminate their IVAs and go bankrupt without explaining the
adverse implications

• look-alike websites: commercial businesses operating from

websites which are designed to mislead consumers into believing
that they are dealing with a free to client, charitable or
government sanctioned organisation

• cold calling: misleading or unlawful telephone cold calling by debt

management businesses promoting their products and services,
and

• debt sale scams: misleading claims to be able to buy or sell on

consumer's debts without creditor permission

7.8 Outcomes from these market facing actions are outlined at table 1.1
overleaf.

OFT1274 | 48
1.1 Outcomes from market facing enforcement actions

Enforcement Misleading IVA Look-alike Cold Calling Debt sale scams

actions Mailings websites

Initial action OFT Press release OFT Press OFT Press release OFT Press release
dated 5 June release dated 7 dated 25 May 2009 dated 23 June
2008 March 2009 2009
Warning letters
Warning letters Warning letters issued to 10 Alert to
issued to 12 issued to 11 licensees consumers not to
licensees licensees respond to
misleading claims
27 associated from companies
websites closed offering to 'buy'
down their debts

Follow-up 6 minded to 6 minded to 3 traders have had Interim injunction

formal refuse/revoke refuse/revoke conduct under the CPRs
enforcement notices issued notices issued – requirements obtained by OFT
action resulted in 3 imposed on their enforcement
6 determinations determinations licences partners,
(as at 30 to refuse/ revoke – favourable to the Birmingham Illegal
June 2010) 2 now subject to trader, 1 2 minded to revoke Money Lending
appeal withdrawal, 1 notices issued, Team to stop
licence resulted in 1 practices. 1
4 traders ceased surrendered, 1 determination to trader ceased
trading following determination to revoke – subject to trading following
initial action revoke now appeal and 1 exercise of OFT
subject to appeal withdrawal 36C powers of
inspection
1 trader ceased 3 traders ceased
trading following trading following
initial action initial action

Approximately
40 websites
closed down
subsequently

OFT1274 | 49
Complaint trends

7.9 Our compliance review has taken place during a period of economic
recession which has seen unprecedented demand for debt advice. As
part of the review, we encouraged consumers to complain to the
OFT directly and posted a complaint form on our website for this
purpose. Few consumers downloaded and returned completed forms.

7.10 Of the 206 complaint forms forwarded to consumers who had

complained directly to the OFT's enquiries unit between November
2009 and June 2010, only 15 of these were returned completed.

7.11 We have analysed these and the other complaints received during
this period to identify the following most complained about unfair
practices, which were:

• provision of poor advice - including failure to offer/advise on the

full range of debt solutions available

• advertising - giving the misleading impression that the services

offered were free and/or impartial

• failure to provide details of fees/charges for services offered

• failure to provide consumers with terms and conditions in writing

• lack of transparency as to which entity the consumer was dealing

with

• failure to provide caveats/disadvantages regarding the debt

solutions offered (for example the effect on a consumer's credit
rating)

• use of unsolicited cold calling

• failure to pass on fees to creditors

• failure to communicate with debtor once they have paid the

required upfront fee

OFT1274 | 50
 • no cooling off period given, and

• taking money from the debtor's bank account without

authorisation.

Complaints received between January 2003 and June 2010

7.12 Prior to the compliance review the OFT had seen a steep increase in
the number of complaints/ enquiries made to it during 2009/10. This
should be viewed against the backdrop of statistics published by the
Consumer Credit Counselling Service in its 2009 Statistical Yearbook
which show that the level of UK consumer credit outstanding has
risen from £54.4 billion in 1991 to £226.8 billion in 2009.

7.13 Income shocks caused by reduced hours or unemployment can have

a serious knock-on effect on a consumer's ability to pay their debts
increasing demand for help in managing their debts. In 2004 UK
unemployment levels stood at approximately 1.5 million27 compared
to approximately 2.5 million28 in April 2010.This has coincided with
an increased demand for debt management services caused by the
current economic downturn.

7.14 Of the 446 complaints or enquiries received during the period 1

January 2009 to 30 June 2010, 143 were formally investigated.29
Complaints are vital to the OFT in its role of monitoring a trader's
fitness to hold a credit licence, and assist in providing the evidence
base we require to take enforcement action. Investigations are
initiated by the OFT when we have significant evidence that brings
into question a licensee's fitness to hold a licence. In some
circumstances one or two complaints about a trader may be

27
Source: Department for Work and Pensions

28
Source: Office for National Statistics

29
98 complaints of the 446 complaints received did not name a specific trader and therefore
no further action could be considered

OFT1274 | 51
 sufficient evidence to demonstrate a lack of fitness, particularly if
they involve issues alleging misappropriation of client funds. The
action we take is dependant upon the evidence we obtain.

Sources of complaints

7.15 It is important that we encourage all stakeholders, and consumers in

particular, to inform us when they believe a trader is not complying
with the Guidance. Of the 533 complaints received during the period
1 April 2008 to 30 June 2010, 386 (72 per cent) were received from
consumers and 52 (9 per cent) were submitted by competitor
businesses. Complaints from the advice sector accounted for 7.5 per
cent or a total of 40 of all complaints.

7.16 These trends are reflected in data provided by Consumer Direct,

which is administered by the OFT. This shows significant year on
year increases in complaints/enquiries received from consumers from
a start point of 15 in 2004-5, to 1,783 in 2009-10. The data
provided in table 1.2 below indicates that the 2010-11 figures are
likely to exceed those for 2009-10.

OFT1274 | 52
1.2 Consumer Direct complaints/ enquiries relating to Debt Adjusting (2004-5 to June 2010)

Total number of
Year Range complaints

2004-2005 15

2005-2006 67

2006-2007 323

2007-2008 453

2008-2009 863

2009- 2010 1783

Jan 2010 - June 2010 1438

Total Number 4942

Financial Ombudsman Service complaint data

7.17 During the financial year to March 2010 the Financial Ombudsman
Service saw a three-fold increase in the number of complaints
received about fee charging debt management companies. Typical
complaints included failure to pass on monies to creditors and poor
administration of debt management plans, delayed payments or
payments for incorrect amounts to creditors with serious
consequences for the consumer.30 These complaints mirror some of
the issues brought to the OFT's attention.

7.18 A memorandum of understanding exists between the OFT and the

Financial Ombudsman Service to facilitate the exchange of
information on complaint data. Where debt management businesses
fail to co-operate with the Financial Ombudsman's rulings, it will refer

30
Financial Ombudsman Service: Annual Review 2009/10

OFT1274 | 53
this matter to the OFT to consider whether it would be appropriate to
take licensing enforcement action. We are currently investigating a
number of referrals from the Financial Ombudsman regarding non co-
operation by debt management businesses, an issue which the OFT
considers to be highly relevant to a licensee's continuing fitness to
hold a licence.

OFT1274 | 54
8 CONCLUSIONS

8.1 The impact of the economic downturn and the rise of UK household
debt has resulted in significant increase in demand from over-
indebted consumers for debt advice and debt management services.
The National Audit Office identified that demand for free face to face
debt advice is out stripping capacity and that a quarter of all advice
agencies are either refusing new clients or have a waiting list of over
one month.31

8.2 Against this background it is likely that more over-indebted

consumers will turn to fee-charging debt management businesses for
advice and help in managing their debts. In addition, any Government
cut backs in support for free debt advice will also drive greater
numbers of vulnerable consumers into the fee charging sector.
Regardless of what type of adviser a consumer turns to, the
availability of good debt advice and suitable solutions is vital for
consumers who cannot cope with their existing debt levels.

8.3 The new powers conferred upon the OFT in April 2008 has allowed
us to pro-actively look at behaviours across the debt management
sector in detail and in depth, and has given the OFT a critical insight
into compliance levels across the debt management industry. This
compliance review is unprecedented in that we were able for the first
time to use our new powers to inspect a large number of business
premises and use the evidence to underpin our findings.

8.4 Prior to the launch of the review we had serious concerns based on
rising complaint levels and our own enforcement experience that bad
practice may be endemic in the debt management sector. The results
of the review lead us to believe that there is widespread
incompetence in the debt management sector, and that in significant

31
NAO report for BIS – 'Helping over-indebted consumers' published 4 February 2010

OFT1274 | 55
 areas of the market there is a blatant disregard for the Guidance and
for the needs of vulnerable consumers.

8.5 The review has not shown that the non-compliance can be attributed
to the content of the Guidance. The consensus of opinion is that the
Guidance is clear and easy to use. Awareness levels amongst
licensees are also reported as being high. However, feedback from
the review suggests that there are areas where the Guidance is left
too open to interpretation and where more specific detail and clarity
is needed.

8.6 The emergence of new unfair business practices means that an

update of existing Guidance is essential. Plans to produce draft
Guidance for consultation later in the year are already well underway
and will be treated as a priority.

8.7 The severity of some of the examples of non-compliance identified

does vary widely across the market. However, whilst the review
does include some technical breaches of the legislation, the OFT is
very concerned about the evidence of systemic non-compliance. This
is particularly evident in the scale of identified non-compliances
relating to misleading advertising, poor quality advice and
information, lack of transparency about the chargeable nature of the
service being offered as well as a failure to disclose fee structures,
together with a failure to comply with the Financial Ombudsman's
rules on consumer redress.

8.8 Consequently, we have taken action to ensure that 129 audited non-
compliant companies improve their business practices and provide
clear, compelling and comprehensive evidence that they have done
so. The companies have been warned that failure properly to address
matters identified will lead the OFT to act immediately and instigate
licensing action. We will also consider naming those companies who
do not comply.

8.9 We have worked closely with both industry bodies, DEMSA and the
DRF, to support their efforts to raise standards across the industry.
Both organisations have assured us that they are fully committed to

OFT1274 | 56
 making the industry more professional and more responsible. These
commitments include plans to introduce robust compliance
monitoring systems for their members, to develop accredited training
programmes and to operate independent consumer complaint panels,
as well as taking more active steps to address members' non-
compliance.

8.10 Many of these commitments have very recently begun to be put into
effect. We will continue to support DEMSA and the DRF in their
initiatives to improve compliance, training and complaint handling and
believe these can provide a focus for improvement going forward.

Next steps

Future compliance strategy

8.11 The OFT's action plan (detailed in the Executive Summary of this
report) forms part of the OFT's wider and longer-term enforcement
and compliance strategy based on the following key elements:

• continuing to investigate fitness cases and to take enforcement

action to prevent and remove unfit traders from operating in the
debt management industry

• targeted enforcement action against those licensees who were

identified as non-compliant during the review:

i. targeted enforcement action against non-compliant traders

identified during the compliance visits, in particular where the
trader has failed to or has refused to address any non-
compliances within agreed timescales, and evaluating the
impact of such action

ii. robustly enforcing compliance with the misleading advertising

provisions of the Guidance by taking appropriate and
proportionate enforcement action against non-compliant
traders identified in the advertising compliance sweep, and

OFT1274 | 57
 evaluating the impact of such interventions in reducing
consumer detriment

• revising the Guidance:

i. preparing a revised draft version of the Guidance for

consultation. In particular the Guidance will be revised to give
greater clarity on the OFT's views on the developing unfair
business practices

ii. the scope of the Guidance will also be extended to make it

clearer that it applies to the free advice sector, certain claims
management companies and IVA providers – and also which
sections of the Guidance apply.

• pro-active monitoring of compliance with the Guidance:

i. putting in place a rolling programme of on-site compliance

visits with a particular focus on new entrants to the industry
as well as established businesses found to be seriously non-
compliant

ii. improving existing information sharing mechanisms to make it

easier for third parties to alert the OFT to emerging bad
practices. In particular we will explore the possibility of
establishing a dedicated whistleblower email address or
telephone line as well as making improvements to the OFT's
complaint form for advisers, third party organisations and
consumers

iii. warning consumers at an early stage about new or emerging

unfair business practices

iv. putting in place regular compliance sweeps of all medias of

advertising and marketing materials including evaluating the
impact of such sweeps to ensure that bad practice does not
creep back in

OFT1274 | 58
 v. undertaking mystery shopping exercises as appropriate and at
periodic times in order to assess compliance with the quality
of advice provision of the Guidance

vi. optimising the use made of our intelligence sources including

but not limited to complaints information, such as data from
the Financial Ombudsman Service, Consumer Direct, and
Citizens Advice, National Debtline and AdviceUK in order to
identify emerging trends and amend our enforcement strategy
accordingly. We will also explore the scope for improving the
way that such information is captured

vii. undertaking further reviews of industry compliance with the

Guidance at regular intervals

• working closely with the industry to support compliance with the

Guidance:

i. we will continue to support the industry's efforts to increase

the professionalism of its members by ensuring that
management commitment to compliance and raising
standards is clear and unambiguous. This could include
providing advice and support on required standards,
participating at industry conferences, regular meetings and
(as far as possible in line with our disclosure obligations)
exchanging intelligence about members' compliance to assist
their own monitoring

ii. seeking to develop mechanisms for reaching non trade

association members within the industry by identifying
organisations to work with such as small business enterprises
and LATSS

iii. promoting increased competence and professionalism within

the industry by raising awareness about the availability of
debt adviser training from recognised professional bodies
including but not limited to the DRF, Money Advice Scotland,

OFT1274 | 59
 Institute of Credit Management, Institute of Money Advice
and the Money Advice Trust.

• raising awareness of existing Guidance:

i. giving talks at appropriate conferences and workshops about

the Guidance and using such venues to distribute guidance
material

ii. encouraging traders and advisers to make colleagues and

associates aware of the Guidance and to spread the word on
our behalf

iii. using information sources for businesses and consumers to

disseminate information about the Guidance. This could
include further developing and refining information for OFT,
DirectGov and Business Link websites

• working in partnership with other stakeholders and regulators to

improve standards:

i. working closely with the Financial Ombudsman Service to

improve awareness of its alternative dispute resolution role
amongst businesses and consumers and making efficient use
of its data to inform our enforcement work

ii. partnership working with LATSS to improve awareness of the

Guidance, to carry out competence visits to and ongoing
compliance audits of debt management businesses on the
OFT's behalf in order to improve standards

iii. working closely with the Insolvency Service to improve

awareness of the guide 'In Debt – Dealing with Your
Creditors' amongst businesses and consumers in England and
Wales and with the Accountant in Bankruptcy in Scotland

OFT1274 | 60
 iv. working closely with the Advertising Standards Authority to
monitor debt advice/debt management advertising and to
share intelligence about traders breaching its code

v. working closely with the Ministry of Justice (MoJ) to improve

standards amongst claims management companies offering to
assess the unenforceability of consumer credit agreements,
and

vi. working with consumer bodies to increase consumer

knowledge and awareness of debt advice and debt solutions
and to encourage consumers to shop around when seeking
help with their debts

8.12 We would like to thank all of those who have contributed to this
review. This report and annexes, along with the results of the
mystery shopping exercise, are available on the OFT's website. The
address is: www.oft.gov.uk/about-the-oft/legal-
powers/legal/cca/debt-management.

OFT1274 | 61
A ONLINE ADVERTISING SWEEP COMPLIANCE AGAINST
CORE CRITERIA

Core assessment criteria and compliance levels based on 100 websites

identified between 21 September 2009 and 9 October 2010.

Assessment Criteria Percentage of

traders identified

Promoting services as free when this was not the case 73%

Clear information on Debt Management Plan fees 7%

provided upfront

Clear information on Individual Voluntary Arrangements 0%

fees provided upfront

Clear and upfront information on the potential effects 0%

of Debt Management Plans and Individual Voluntary
Arrangements on consumers' credit rating

Clear and upfront information on a statutory cooling off 0%

period

Balanced information about the full range of debt 0%

options available and signposting to the Insolvency
Services guide 'In Debt? Dealing with your Creditors'

Presence of misleading statements 97%

Operating without a Consumer Credit Licence 14%

Trading name not on Consumer Credit Licence 15%

Engaged in licensable activities without the correct 13%

licence categories

Engaged in unlicensed debt counselling/adjusting 7%

OFT1274 | 62
B ANALYSIS OF QUESTIONNAIRES

This annex provides a detailed analysis of responses to the questions

detailed in our questionnaires. We have assessed separately responses by
licence holders, free and independent advice agencies, LATSS, trade
associations and consumer advice organisations. The results of the
completed questionnaires are set out below.

A. CONSUMER CREDIT LICENCE HOLDERS

We sent out 829 questionnaires to licence holders and received 276

responses giving us a response rate of 33 per cent. The responses consisted
of 242 completed questionnaires and two licensees responded by email or
submitted a report. There were 32 nil returned questionnaires. A breakdown
of responses to the individual questions is set out below.

Valid
Range
responses

Annual turnover (if known) £ 74 £2 – £56 million

Number of staff employed (if

83 1 – 480
applicable)

Market share as % (if known) 10 1 - 18

1. Do you operate solely as a debt management business?

A large number of consumer credit licences cover all categories of business.
We asked this question because we wanted to clarify the number of
respondents who engaged solely in debt management activities. Responses
were as follows and full details of these are set out in Table A below.

OFT1274 | 63
 Table A

Percentage of
Actual
Response those completing
Number
the question

Yes 78 33%

No 158 67%

No answer given 4

2. What are the main activities of your business or associated business?

We asked this question because we wanted to clarify the main activities of

each licensee. Responses were as follows and full details of these are set out
in Table A2 below. Respondents were allowed to select more than one
option.

Table A2

Percentage of
Actual
Response those completing
Number
the question

Debt management plans 118 50%

IVAs (Protected Trust Deeds) 62 26%

Bankruptcy (Sequestration) 45 19%

Debt consolidation loans 28 12%

Credit information services (including

12 5%
credit repair)

Lead generation 12 5%

OFT1274 | 64
 Introducer 51 21%

Claims management services 21 9%

Creditor 7 3%

None 1 0%

Other, please state business activity 28 12%

3. If you are a debt management provider or creditor, have you used the Debt
Management Guidance?

We asked this question to determine the extent to which licensees use the
Guidance. Responses were as follows and full details of these are set out in
Table A3 below.

Table A3

Percentage of
Actual
Response those completing
Number
the question

Yes 155 76%

No 50 24%

No answer given 32

4. Have you received training on the Debt Management Guidance?

We asked this question to determine how many licensees have received

training on the Guidance. Responses were as follows and full details of these
are set out in Table A4 below.

OFT1274 | 65
 Table A4

Percentage of
Actual
Response those completing
Number
the question

Yes 117 53%

No 102 47%

No answer given 16

5. Do you provide staff training on the Debt Management Guidance?

We asked this question to determine how many licensees provide training to

key personnel on the Guidance. This will help to inform our knowledge on
how well trained advisers are on the Guidance. Responses were as follows
and full details of these are set out in Table A5 below.

Table A5

Percentage of
Actual
Response those completing
Number
the question

Yes 110 55%

No 90 45%

No answer given 35

OFT1274 | 66
6. Does each of your employees have access to copies of the Debt Management
Guidance?

We asked this question to determine the ease with which advisers can obtain
copies of the Guidance. Responses were as follows and full details of these
are set out in Table A6 below.

Table A6

Percentage of
Actual
Response those completing
Number
the question

Yes 129 69%

No 59 31%

No answer given 47

7. Is the Debt Management Guidance incorporated into your business practices

and procedures?

We asked this question to determine the extent to which the Guidance is

embedded within licensees practices and procedures. Responses were as
follows and full details of these are set out in Table A7 below.

Table A7

Percentage of
Actual
Response those completing
Number
the question

Yes 173 81%

No 40 19%

No answer given 20

OFT1274 | 67
8. Do you actively and regularly audit your business to ensure compliance with
the Debt Management Guidance?

We asked this question to determine the extent to which licensees actively

and regularly assess and test compliance with the Guidance. Responses
were as follows and full details of these are set out in Table A8 below.

Table A8

Percentage of
Actual
Response those completing
Number
the question

Yes 150 71%

No 61 29%

No answer given 22

9. Do you have procedures in place to alert you to actual or potential breaches

of the Debt Management Guidance?

We asked this question to determine the extent to which licensees have

procedures in place to alert them to actual or potential breaches of the
Guidance and how these are addressed. Responses were as follows and full
details of these are set out in Table A9 below.

OFT1274 | 68
 Table A9

Percentage of
Actual
Response those completing
Number
the question

Yes 159 75%

No 54 25%

No answer given 19

10. Do you find the Debt Management Guidance clear and understandable?

We asked this question to determine whether licensees find the Guidance

clear and understandable. This information will also help inform any
subsequent revision of the Guidance. Responses were as follows and full
details of these are set out in Table A10 below.

Table A10

Percentage of
Actual
Response those completing
Number
the question

Yes 188 91%

No 18 9%

No answer given 26

11. Has the Debt Management Guidance been useful in clarifying what we
would regard as unfair business practices?

We asked this question to determine whether licensees find the Guidance

easy to understand and whether it is clear on what the OFT's views are on

OFT1274 | 69
 what is considered to be an unfair business practice. This information will
also help inform any subsequent revision of the Guidance. Responses were
as follows and full details of these are set out in Table A11 below.

Table A11

Percentage of
Actual
Response those completing
Number
the question

Yes 183 91%

No 18 9%

No answer given 30

12. Are there any new or emerging unfair business practices that are not
currently covered by the Debt Management Guidance?

We asked this question to determine whether there are any new or emerging
unfair business practices that are not currently covered by the Guidance.
This information will also help inform any subsequent revision of the
Guidance. Responses were as follows and full details of these are set out in
Table A12 below.

Table A12

Percentage of
Actual
Response those completing
Number
the question

Yes 60 31%

No 134 69%

No answer given 36

OFT1274 | 70
13. In your experience has the Debt Management Guidance raised standards
across the industry?

We asked this question to determine the extent to which licensees believe

that the Guidance has changed behaviour. Responses were as follows and
full details of these are set out in Table A13 below.

Table A13

Percentage of
Actual
Response those completing
Number
the question

Yes 162 84%

No 30 16%

No answer given 38

14. If you answered yes to Q13, which areas would these be?

We asked this question to determine which specific areas of the Guidance

have led to positive changes in behaviour. Responses were as follows and
full details of these are set out in Table A14 below. Respondents were
allowed to select more than one option.

Table A14

Percentage of
Actual
Response those answering
Number
yes

Advertising, marketing and promotion 107 66%

Pre and post-contract information 80 49%

Contract terms 63 39%

OFT1274 | 71
 Handling money 56 35%

Fee structures 39 24%

Quality of initial advice 83 51%

Debt management services (for

example ongoing contact with 54 33%
consumers)

Other 2 1%

Don't know 6 4%

No Answer 28

15. In your experience are there any areas of the Debt Management Guidance
not being complied with by licensees?

We asked this question to identify areas of non-compliance with the

Guidance. Responses were as follows and full details of these are set out in
Table A15 below.

Table A15

Percentage of
Actual
Response those completing
Number
the question

Yes 47 25%

No 143 75%

No answer given 39

OFT1274 | 72
16. Which parts of the Debt Management Guidance have had the most impact
upon your business and the way it operates?

We asked this question to determine what parts of the Guidance have

changed the way licensees' operate their business. Responses were as
follows and full details of these are set out in Table A16 below. Respondents
were allowed to select more than one option.

Table A16

Percentage of
Actual
Response those completing
Number
the question

Advertising, marketing and promotion 73 32%

Pre and post-contract information 66 29%

Contract terms 51 22%

Handling money 54 24%

Fee structures 31 14%

Quality of initial advice 86 38%

Debt management services (for

example ongoing contact with 45 20%
consumers)

Other 8 3%

Don't know 24 10%

No Answer 55

OFT1274 | 73
17. Please indicate if any parts of the Debt Management Guidance have posed
particular difficulties in compliance terms:

We asked this question to determine if any areas of the Guidance have

posed any particular difficulties in terms of compliance. This information will
also help inform any subsequent revision of the Guidance. Responses were
as follows and full details of these are set out in Table A17 below.
Respondents were allowed to select more than one option.

Table A17

Percentage of
Actual
Response those completing
Number
the question

Advertising, marketing and promotion 9 4%

Pre and post-contract information 3 1%

Contract terms 5 2%

Handling money 6 3%

Fee structures 1 0%

Quality of initial advice 2 1%

Debt management services (for

example ongoing contact with 4 2%
consumers)

Other 17 7%

Don't know 50 22%

No Answer 137

OFT1274 | 74
18. Are you aware of the principle in the Debt Management Guidance that all
advice given should be in the best interests of the client?

We asked this question to test licensees' awareness of the best advice

principle of the Guidance. Responses were as follows and full details of
these are set out in Table A18 below.

Table A18

Percentage of
Actual
Response those completing
Number
the question

Yes 197 99%

No 2 1%

No answer given 28

19. Do you signpost consumers to publicly available impartial information about

debt solutions?

We asked this question to determine the extent to which licensees signpost

consumers to the Insolvency Service's booklet – 'In Debt? Dealing with your
creditors'. Responses were as follows and full details of these are set out in
Table A19 below.

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 Table A19

Percentage of
Actual
Response those completing
Number
the question

Yes 175 87%

No 27 13%

No answer given 25

20. How many complaints have you received in the last year alleging breaches
of the Debt Management Guidance by your business?

We asked this question to determine how many complaints licensees have

received complaints in the last year alleging breaches of the Guidance.
Responses were as follows and full details of these are set out in Table A20
below.

Table A20

Percentage of
Actual
Response those completing
Number
the question

0–9 181 96%

10 – 49 2 1%

50 – 99 2 1%

100 – 199 0 0%

200 + 3 2%

No Answer 39

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21. Please clarify the nature and type of these complaints

We asked this question to determine what were the most complained about
practices. Responses were as follows and full details of these are set out in
Table A21 below. Respondents were allowed to select more than one option.

Table A21

Percentage of
Actual
Response those completing
Number
the question

Advertising, marketing and promotion 5 2%

Pre and post-contract information 6 3%

Contract terms 4 2%

Handling money 6 3%

Fee structures 9 4%

Quality of initial advice 10 4%

Debt management services (for

example ongoing contact with 10 4%
consumers)

Other 20 9%

Don't know 8 4%

No Answer 178

22. Do you signpost complainants to the Financial Ombudsman Service?

We asked this question to determine the extent to which licensees signpost

complainants to the Financial Ombudsman Service. Responses were as
follows and full details of these are set out in Table A22 below.

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 Table A22

Percentage of
Actual
Response those completing
Number
the question

Yes 129 84%

No 24 16%

No answer given 73

23. If your business administers debt management plans what is their average
duration?

We asked this question to gain a better understanding of the length of debt

management plans. Responses were as follows and full details of these are
set out in Table A23 below.

Table A23

Percentage of
Actual
Response those completing
Number
the question

0 – 11 months 18 20%

12 – 23 months 15 17%

24 – 35 months 27 30%

36 months + 29 33%

No Answer 137

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24. What is the average client fee charged by your business?

We asked this question to determine the average fee levels charged by debt
management providers. Responses were as follows and full details of these
are set out in Table A24 below.

Table A24

Range
Valid
Fees
responses
£

Upfront: Debt management plan 68 2 – 1014

Administration: Debt management plan 55 10 – 1500

Nominee : IVA 41 20 – 4000

Supervisory : IVA 19 30 – 3902

Upfront/Nominee : Protected Trust Deeds 7 185 – 4511

Administration/Supervisory : Protected
2 2400 – 4200
Trust Deeds

25. What are the average annual failure rates of debt management plans
administered by your business?

We asked this question to find out how many plans fail on an average annual
basis. Responses were as follows and full details of these are set out in
Table A25 below.

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 Table A25

Percentage of
Actual
Failure rates those completing
Number
the question

0 - 19% 90 86%

20% - 39% 15 14%

40% - 59% 0 0%

60% - 79% 0 0%

80% + 0 0%

No Answer 121

26. If you are a creditor or act on behalf of a creditor do you deal with debt
management providers?

We asked this question to gauge creditors experience of dealing with debt

management providers. Responses were as follows and full details of these
are set out in Table A26 below.

Table A26

Percentage of
Actual
Response those completing
Number
the question

Yes 10 21%

No 38 79%

No answer given 178

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27. If you are a creditor do you arrange informal debt repayment agreements
with consumers?

We asked this question to determine the extent to which creditors arrange

informal debt repayment agreements with consumers. Responses were as
follows and full details of these are set out in Table A27 below.

Table A27

Percentage of
Actual
Response those completing
Number
the question

Yes 6 14%

No 37 86%

No answer given 182

28. If you are a creditor is it your policy to apply interest and charges after a
debt management plan has been agreed?

We asked this question to determine the extent to which creditors continue

applying interest and charges after a debt management plan has been
agreed. Responses were as follows and full details of these are set out in
Table A28 below.

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 Table A28

Percentage of
Actual
Response those completing
Number
the question

Yes 1 3%

No 36 97%

No answer given 188

29. If you provide credit information services (including credit repair) do you
signpost consumers to publicly available impartial information?

We asked this question to determine the extent to which credit information

service providers (including those that offer credit repair) signpost consumers
to the Information Commissioners Office booklet 'Credit explained'.
Responses were as follows and full details of these are set out in Table A29
below.

Table A29

Percentage of
Actual
Response those completing
Number
the question

Yes 22 48%

No 24 52%

No answer given 179

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 B. FREE AND INDEPENDENT ADVICE AGENCIES

We sent out 428 questionnaires to free and independent advice agencies and
received 70 responses giving us a response rate of 16 per cent. The
responses consisted of 67 completed questionnaires and 2 respondents
responded by email or submitted a report. There was 1 nil returned
questionnaire. A breakdown of responses to the individual questions is set
out below.

1. Do your advisers use the Debt Management Guidance?

We asked this question to determine the extent to which individual advisers

use the Guidance. Responses were as follows and full details of these are set
out in Table B below.

Table B

Percentage of
Actual
Response those completing
Number
the question

Yes 51 76%

No 16 24%

No answer given 0

2. Does your agency provide training for advisers on the Debt Management
Guidance?

We asked this question to determine how many advice agencies train

advisers on the Guidance. Responses were as follows and full details of
these are set out in Table B2 below.

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 Table B2

Percentage of
Actual
Response those completing
Number
the question

Yes 30 46%

No 35 54%

No answer given 1

3. Do your advisers have access to a copy of the Debt Management Guidance?

See A6 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B3 below.

Table B3

Percentage of
Actual
Response those completing
Number
the question

Yes 55 83%

No 11 17%

No answer given 0

4. Do your advisers find the Debt Management Guidance clear and

understandable?

See A10 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B4 below.

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 Table B4

Percentage of
Actual
Response those completing
Number
the question

Yes 53 91%

No 5 9%

No answer given 5

5. Has the Debt Management Guidance been useful in clarifying what we would
regard as unfair business practices?

See A11 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B5 below.

Table B5

Percentage of
Actual
Response those completing
Number
the question

Yes 49 88%

No 7 12%

No answer given 5

6. Are there any new or emerging unfair business practices that are not
currently covered by the Debt Management Guidance?
See A12 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B6 below.

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 Table B6

Percentage of
Actual
Response those completing
Number
the question

Yes 14 27%

No 37 73%

No answer given 8

7. In your agency's experience has the Debt Management Guidance raised

standards across the industry?

See A13 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B7 below.

Table B7

Percentage of
Actual
Response those completing
Number
the question

Yes 26 59%

No 18 41%

No answer given 14

8. If you answered yes to question 7, which areas would these be?

Responses were as follows and full details of these are set out in Table B8
below. Respondents were allowed to select more than one option.

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 Table B8

Percentage of
Actual
Response those answering
Number
yes

Advertising, marketing and promotion 5 19%

Pre and post-contract information 9 35%

Contract terms 13 50%

Handling money 5 19%

Fee structures 1 4%

Quality of initial advice 11 42%

Debt management services (for

example ongoing contact with 14 54%
consumers)

Other 1 4%

Don't know 0 0%

No Answer 17

9. Has your agency worked with clients who had previously sought advice from
or entered into debt management arrangements with a fee charging debt
management business?

We asked this question to understand why consumers would contact free

independent advice agencies after they have already sought advice from, or
entered into a debt management arrangement with a fee charging debt
management business. Responses were as follows and full details of these
are set out in Table B9 below.

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 Table B9

Percentage of
Actual
Response those completing
Number
the question

Yes 46 87%

No 7 13%

No answer given 3

10. Where your agency has used the Debt Management Guidance in discussions
with licensees what was the overall response?

We asked this question to determine whether advisers are able to change

behaviour as a result of using the Guidance in discussions with licensees.
Responses were as follows and full details of these are set out in Table B10
below.

Table B10

Percentage of
Actual
Response those completing
Number
the question

No response 7 25%

Positive response 9 32%

Negative response 0 0%

Other 3 11%

Don't know 9 32%

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11. If positive, in what percentage of cases was compliance achieved?

We asked this question to determine whether advisers are able to change

behaviour as a result of using the Guidance in discussions with licensees.
Responses were as follows and full details of these are set out in Table B11
below.

Table B11

Percentage of
Actual
Response those completing
Number
the question

0 - 24% 2 22%

25% - 49% 1 11%

50% - 74% 3 33%

75% + 3 33%

12. In your agency's experience are there any areas of the Debt Management
Guidance not being complied with by licensees?

See A15 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table B12 below.

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 Table B12

Percentage of
Actual
Response those completing
Number
the question

Yes 24 59%

No 17 41%

No answer given 15

13. If you answered yes to Question 12, what are the most common areas of
non-compliance?

Responses were as follows and full details of these are set out in Table B13
below. Respondents were given the option of more than one response.

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 Table B13

Percentage of
Actual
Response those answering
Number
yes

Advertising, marketing and promotion 12 50%

Pre and post-contract information 8 33%

Contract terms 4 17%

Handling money 6 25%

Fee structures 8 33%

Quality of initial advice 9 38%

Debt management services (for

example ongoing contact with 11 46%
consumers)

Other 1 4%

Don't know 0 0%

No Answer 15

14. Has the Debt Management Guidance made it easier for your agency to
submit complaints to the OFT on behalf of clients?

We asked this question to determine if the Guidance has made it easier for
free independent advice agencies to submit complaints to the OFT.
Responses were as follows and full details of these are set out in Table B14
below.

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 Table B14

Percentage of
Actual
Response those completing
Number
the question

Yes 28 65%

No 15 35%

No answer given 12

15. How many complaints about the debt management providers has your
agency dealt with in the last year and how many of these have been
satisfactorily resolved?

We asked these questions to determine how many complaints free

independent advice agencies have received in the last year that relate to debt
management providers and how many of these complaints have been
satisfactorily resolved. Responses were as follows and full details of these
are set out in Table B15 below.

Table B15

Valid
Range
responses

How many complaints about debt

management providers have you dealt 16 0 – 50
with in the last year?

How many of these have been

16 0–5
satisfactorily resolved?

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16. Has your agency referred any client complaints to the Financial Ombudsman
Service?

We asked this question to determine the extent to which free independent

advice agencies refer client complaints to the Financial Ombudsman Service.
Responses were as follows and full details of these are set out in Table B16
below.

Table B16

Percentage of
Actual
Response those completing
Number
the question

Yes 18 38%

No 30 62%

No answer given 5

C. TRADING STANDARDS SERVICES

We sent out 227 questionnaires to Local Authority Trading Standards

Services (LATSS) and received 65 responses giving us a response rate of 29
per cent. The responses consisted of 64 completed questionnaires and 1 nil
returned questionnaire. A breakdown of responses to the individual questions
is set out below.

1. Do you and your officers use the Debt Management Guidance?

We asked this question to determine the extent to which Trading Standards

Officers (TSOs) use the Guidance. Responses were as follows and full details
of these are set out in Table C1 below.

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 Table C1

Percentage of
Actual
Response those completing
Number
the question

Yes 30 47%

No 34 53%

No answer given 0

2. Do you offer debt or financial advice to consumers?

We asked this question to determine the extent to which LATSS offer

specialist debt or financial advice to consumers. Responses were as follows
and full details of these are set out in Table C2 below.

Table C2

Percentage of
Actual
Response those completing
Number
the question

Yes 12 19%

No 50 81%

No answer given 1

3. Have you received training on the Debt Management Guidance?

Responses were as follows and full details of these are set out in Table C3
below.

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 Table C3

Percentage of
Actual
Response those completing
Number
the question

Yes 6 10%

No 56 90%

No answer given 1

4. Do you provide staff training on the Debt Management Guidance?

Responses were as follows and full details of these are set out in Table C4
below.

Table C4

Percentage of
Actual
Response those completing
Number
the question

Yes 2 3%

No 60 97%

No answer given 1

5. Do you have access to a copy of the Debt Management Guidance?

See A6 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C5 below.

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 Table C5

Percentage of
Actual
Response those completing
Number
the question

Yes 54 87%

No 8 13%

No answer given 1

6. Do you find the Debt Management Guidance clear and understandable?

See A10 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C6 below.

Table C6

Percentage of
Actual
Response those completing
Number
the question

Yes 46 88%

No 6 12%

No answer given 11

7. Has the Debt Management Guidance been useful in clarifying what we would
regard as unfair business practices?

See A11 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C7 below.

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 Table C7

Percentage of
Actual
Response those completing
Number
the question

Yes 36 73%

No 13 27%

No answer given 14

8. Are there any new or emerging unfair business practices that are not
currently covered by the Debt Management Guidance?

See A12 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C8 below.

Table C8

Percentage of
Actual
Response those completing
Number
the question

Yes 4 10%

No 38 90%

No answer given 19

9. In your experience has the Debt Management Guidance raised standards

across the industry?

See A13 for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C9 below.

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 Table C9

Percentage of
Actual
Response those completing
Number
the question

Yes 20 57%

No 15 43%

No answer given 26

10. If you answered yes to question 9, which areas would these be?

Responses were as follows and full details of these are set out in Table C10
below. Respondents were allowed to select more than one option.

Table C10

Percentage of
Actual
Response those answering
Number
yes

Advertising, marketing and promotion 7 35%

Pre and post-contract information 12 60%

Contract terms 7 35%

Handling money 3 15%

Fee structures 4 20%

Quality of initial advice 4 20%

Debt management services (for

example ongoing contact with 4 20%
consumers)

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 Other 0 0%

Don't know 4 20%

No Answer 27

11. Have you dealt with consumers who previously sought advice from, or
entered into a debt management arrangement with a fee charging debt
management business?

See B9 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C11 below.

Table C11

Percentage of
Actual
Response those completing
Number
the question

Yes 26 46%

No 30 54%

No answer given 5

12. Where you have used the Debt Management Guidance in discussions with
licensees what was the overall response?

See B10 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C12 below.

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 Table C12

Percentage of
Actual
Response those completing
Number
the question

No response 3 11%

Positive response 10 36%

Negative response 0 0%

Other 6 21%

Don't know 9 32%

13. If positive, in what percentage of cases was compliance achieved?

Responses were as follows and full details of these are set out in Table C13
below.

Table C13

Percentage of
Actual
Response those completing
Number
the question

0 - 24% 1 13%

25% - 49% 1 13%

50% - 74% 0 0%

75% + 6 75%

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14. In your experience are there any areas of the Debt Management Guidance
not being complied with by licensees?

See A15 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C14 below.

Table C14

Percentage of
Actual
Response those completing
Number
the question

Yes 14 35%

No 26 65%

No answer given 21

15. If you answered yes to question 14, what are the most common areas of
non-compliance?

Responses were as follows and full details of these are set out in Table C15
below. Respondents were allowed to select more than one option.

Table C15

Percentage of
Actual
Response those answering
Number
yes

Advertising, marketing and promotion 6 43%

Pre and post-contract information 5 36%

Contract terms 3 21%

Handling money 5 36%

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 Fee structures 4 29%

Quality of initial advice 6 43%

Debt management services (for

example ongoing contact with 5 36%
consumers)

Other 1 7%

Don't know 0 0%

No Answer 21

16. Has the Debt Management Guidance made it easier for you to submit
complaints to the OFT or to take your own enforcement action?

We asked this question to determine if the Guidance has made it easier for
LATSS to submit complaints to the OFT or to take their own enforcement
action. Responses were as follows and full details of these are set out in
Table C16 below.

Table C16

Percentage of
Actual
Response those completing
Number
the question

Yes 28 76%

No 9 24%

No answer given 24

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17. How many complaints about debt management providers have you dealt
with in the last year and how many of these have been satisfactorily
resolved?

See B15 above for reasons why we asked this question. Responses were as
follows and full details of these are set out in Table C17 below.

Table C17

Valid
Range
responses

How many complaints about debt

management providers have you dealt 15 0 – 165
with in the last year?

How many of these have been

15 0 – 58
satisfactorily resolved?

D. TRADE ASSOCIATIONS

We sent out 27 questionnaires to trade associations and received eight

responses giving us a response rate of 30 per cent. Five completed
questionnaires were received and three organisations submitted a report or
an email instead of a questionnaire. Due to the low level of response we
have decided to provide an overview of the comments received rather than a
breakdown of responses to individual questions.

The trade bodies were asked if creditors continue to apply interest and
charges after a debt management plan has been agreed. Whilst some
respondents were not in a position to answer this question one respondent
said that 'some of our members do freeze interest and charges, this depends
on the circumstances of each case and that where possible, default interest
charges would be waived and/or concessions applied as appropriate'.

The majority of respondents stated that the Guidance is clear and

understandable. One respondent said that it has been particularly useful in

OFT1274 | 103
relation to advertising. However, one respondent said that 'the fact that
IVAs are essentially a bolt on to the guidance does not aid clarity' and that
'much of the guidance is irrelevant to IVAs'. Another respondent said that
'its confusing what applies to IVAs and that there are parts that are already
covered by regulations'. One respondent said that the Guidance still needs
more clarification on the use of introducers 'to help those providing debt
management and consumer credit services to be certain they are
representing the best interests of their clients'.

In respect of any new or emerging business practices, some respondents

highlighted an issue with excessive fees being charged by some debt
management companies. One respondent said that 'members are seeing that
clients are being approached by debt elimination companies, who promise
but rarely succeed, to write off debts'. Another respondent said that claims
management companies have a 'practice of presenting standardised claims,
on standard pro-forma letters, which include a wide range of generic
allegations that are not particularised to that specific case or always
supported to any evidence. The same approach is adopted in initial
complaints to lenders, making it time consuming and difficult to establish the
precise nature of the complaint or claim, whether it is justified and how to
address it'. A couple of respondents expressed concerns about practices
such as 'flipping between debt management plans and Individual Voluntary
Arrangements'. Another respondent said that 'companies are increasingly
cold calling consumers' and that 'this is preying on people when they are at
their most vulnerable'.

There was no consensus on whether the Guidance has raised standards

across the industry. One respondent said that the Guidance 'clearly sends a
strong message'. Another respondent said that the Guidance has raised
standards 'to a certain extent, though we believe that the Debt Management
Guidance should set minimum standards, which are backed up by proactive
monitoring and supervision of these requirements'. Another respondent said
that there are specific areas of the Guidance that need further improvements
these were the 'quality of initial advice, greater transparency and disclosure
of fee structures and ongoing debt management services, such as ongoing
reviews'.

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Most respondents felt that there are areas of the Guidance that are not being
complied with by licensees. Some respondents expressed concerns over the
transparency of fee structures and that consumers are not always aware that
a proportion of payments are retained by the debt management company as
fees. Some respondents also expressed concerns about the advertising of
debt management services where consumers are misled about the debt
repayment options and how these will affect them. One respondent also said
that quality of the advice and ongoing administration areas of the Guidance
are not complied with.

Respondents were asked if they undertake compliance sweeps of members'

websites and other advertising. One respondent said that they carry out
sweeps of members' websites and other advertising 'on a quarterly basis'.
Another respondent said that they do this as part of their monitoring
process.

Within the additional space provided for further comments one respondent
said that they 'welcome this review by the OFT of its Debt Management
Guidance and hope that it will be enhanced to take into consideration new
and emerging practices adopted by Debt Management Companies, as well as
Claims Management Companies'. Another respondent said that they 'hope
that the revised Debt Management Guidance will also bolster areas, which
may have found to be lacking, such as the transparency around fee
structures, quality of the advice provided and ongoing administration and
processing of DMPs'. Another respondent said that they think it should be
compulsory for debt management companies to provide copies of the
Insolvency Service's 'In debt? Dealing with your creditors' to consumers.

E. CONSUMER REPRESENTATIVE ORGANISATIONS

We sent out 11 questionnaires to consumer advice representative

organisations and received 1 response giving us a response rate of nine per
cent. Comments received from this respondent are reflected in the main
body of this report.

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C TABLE OF FINDINGS FROM COMPLIANCE VISITS

Table showing incidents of non-compliance with the Debt Management

Guidance and other legislation, identified as a result of compliance visits

Number %

Total number of visits completed (as of end June

2010) 148

Total number of non compliant traders identified 136 92%

Total number of traders not compliant with the

Guidance 124 84%

Total number of traders not compliant with the wider

provisions of the Consumer Credit Act (CCA) or other
legislation (incl. CPRs) 95 64%

Area of Non Compliance with the Guidance

Website issues (including advertising on a trader's

website). This includes: 76 51%

(a) Terms and Conditions insufficiently

emphasised or incorrect 71 48%

(b) Fees amount and transparency 61 41%

(c) Best advice given/provided to consumer 57 39%

(d) Transparency of business model 36 24%

Other advertising issues (including printed

materials) 62 42%

Failure to disburse client funds within 5 days 5 3%

Client monies not kept in a separate account 4 3%

2 1%
Interest in a separate interest bearing account not

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accrued to the benefit of consumer

Non Compliance in other areas

Incorrect Consumer Credit Licence (CCL)

information 69 47%

Complaints procedure inadequate 54 36%

Regulatory breaches not arising from Consumer

Credit Act breaches 49 33%

Employee knowledge/training 31 21%

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