The Office of Fair Trading (OFT) has at last bared its teeth at 129 debt management companies and told them to start playing fair or lose their licences to operate. People with debt problems don't usually like discussing it with those they know so they end up going to a debt management company who should then negotiate on their behalf with their creditors.


This then leads to a debt management plan (DMP) or an Individual Voluntary Arrangement (IVA) that should be adhered to.

But according to a BBC News report the OFT' 11 month review has found serial failings in the industry amongst many of these firms and ordered 129 of them to clean up their act or lose their licences.

The OFT found that three quarters of debt management companies make their charges up front to ensure they take on none of the risk then give the client advice which ensures the best result for the firm, not the customer.

The whole process with some companies is designed to extract as much money out of the client as possible during the process and sometimes 'recycle' clients through debt plans to keep the fees coming in.

The client is then in severe danger of being left in a far worse position than beforehand having paid out a stack of money that could have gone directly to the creditor.

These companies were found to have used misleading ads, their advisers offering poor advice, using names that could mislead people into thinking they were charities and also that many clients seemed to be unaware of their complaints rights.

Their are reputable and free services available, such as the Citizens Advice Bureau, that can help. But some of these debt management companies rubbish them in front of their clients so as to put them off using the free services.

It is reported that 100,000 DMPs are agreed each year but that may increase if the country's economic position deteriorates.

People who get into severe debt problems are vulnerable and become easy prey to hard-nosed debt collectors and debt management companies, some of whom take full advantage of their position. The vast majority of people in really bad debt did not get out of bed one day and say "D'you know what, I'm gonna trash my credit rating today". No, it happens when they suddenly fall ill or maybe lose their job. This is when thoughts of "I wish I'd sorted that income protection / redundancy policy out" happen. But then it's too late

When you take a look at it you suddenly realise how medievil some debt law is and how 'forceful' collectors can be, and you wonder how much of it really complies with the Human Rights Act. Just take a look at the Consumer Action Group debt forums to give you an idea.

Debts can also be sold on for say 10% of their value to a collector who then charges the full amount and adds interest too. The original lender then presumably makes up the difference from the other borrowers.

This is an area that most people thankfully do not experience but those that do bear the scars for life it seems. Some have even committed suicide over debt (and worse still taken their loved ones with them). The public need a lot more information on the consequences of getting into serious debt (and the nasty procedure that will follow debt default) before they take out a credit card, loan or mortgage.

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