Misleading mailings about 'mis-sold' debt solutions have spurred the Office of Fair Trading (OFT) into action. The consumer group has warned customers to think carefully before responding to unsolicited mailings advising them to cancel existing IVA (individual voluntary arrangements) in favour of an alternative debt solution.
These communications often suggest consumers have been mis-sold an IVA
, or that bankruptcy might be a better course of action – although this is often not the case. It appears that the public register containing the names of people with IVAs has been used by fraudsters to target vulnerable people in debt.
The mailings contravene the OFT's debt management guidance because they are deceptive, and also because they fail to explain the implications of terminating an IVA and becoming bankrupt.
The consequences can include losing out on money paid for setting up the IVA, as insolvency fees are often taken before any of the capital is paid off so the debt will not have decreased; bankruptcy
can have far-reaching implications, for example losing control of assets such as property, and restrictions on business activities and obtaining credit.
The OFT has sent warnings to 12 businesses involved in the practice, giving them a four-week period to respond. The companies have been instructed to amend misleading claims and to increase transparency about the consequences of walking away from an IVA. If these firms fail to act, the OFT may take steps to revoke their consumer credit licenses.
OFT director for consumer credit, Ray Watson, said: "Tackling companies who are engaging in unfair business practices by targeting vulnerable consumers with misleading advice and information, particularly if it leads to consumers becoming more over-indebted, is a key priority for the OFT. We expect any advice and/or information given to debtors to be in their best interests and it should include a full explanation of the implications of offers or advice."
The British Bankers' Association (BBA) has backed up the OFT campaign to stamp out this misleading marketing. Its policy director, Helen Banks, said: "The British Bankers' Association is pleased to see the Office of Fair Trading putting a high priority on the advertising of debt management
"We hope this initiative will extend to address some of our other concerns in relation to debt management, such as the increase in cold calling, lack of advice on appropriate solutions for those in debt and the lack of proper information on the long term effects of some of the solutions."
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