Ministry of Justice warns of misleading market statements made by claims management firms

Businesses that mislead the public by claiming they can arrange for unpaid loans, credit card debts or other consumer debts to be written off have been told to stop or face action Justice Minister Bridget Prentice said today, as new guidance was issued by the Ministry of Justice.
 

The guidance highlights misleading statements in adverts making dubious claims or leaving out important information which might breach consumer protection regulations.

Businesses making these statements could face enforcement action by the Ministry of Justice which might ultimately result in authorisations being removed.  

Justice Minister Bridget Prentice said:

'Vulnerable people facing debt problems need help and support. We have produced this guidance to protect innocent customers from being misled by businesses advertising easy and quick arrangements for outstanding loan, credit card and other similar debts to be written off and compensation to be obtained.

'We would urge anyone who is considering using a business offering such services to think carefully and seek independent advice before making any final decisions. 

'This guidance is also an important reminder to businesses about the need to comply with rules on advertising and marketing and provide an effective service to their customers.'

Welcoming the new guidance, Ray Watson, Office of Fair Trading (OFT) Director of Consumer Credit, said:

'The OFT will not hesitate to take enforcement action against licensed claims management businesses who engage in unfair business practices by deliberately misleading vulnerable consumers about the services they offer. Businesses should also be aware that if they offer debt counselling or debt adjusting services without holding an appropriate licence, they will be committing a criminal offence and risk prosecution, and that any agreements they enter into with consumers whilst unlicensed may be unenforceable.'

The guidance is aimed at businesses offering claims management services for unenforceable agreements. Claims management businesses authorised by the Ministry of Justice have also been warned that when advising about the payment of debts or on rescheduling debts, they will need to be appropriately licensed under the Consumer Credit Act 1974 by the Office of Fair Trading.  

This action follows on from the consumer alert the Ministry of Justice and the Office of Fair Trading issued in August 2008 urging consumers to seek independent advice before accepting the services of businesses claiming that they can arrange for outstanding balances under loan, credit card and other consumer credit agreements to be written off and secure compensation. 

Statements that are considered to be misleading include:

• 80% of credit agreements are unenforceable
• 50 million credit agreements are created every year, at least 25 million are unenforceable
• We are currently handling over 5,000 cases!
• We are currently managing £30m of claims!
• We'll get your credit cards written off within 6 weeks!
• Fast results guaranteed!
• We have a 100% success rate
• A positive outcome is guaranteed.

The Consumer Credit Act 1974 (the Act) requires companies who offer debt counselling/adjusting services to consumers to be licensed by the OFT. Businesses who are authorised by the Ministry of Justice to provide claims management services will also need to be licensed under the Act if they engage in any debt counselling/adjusting activities, including the following:

• advising on how to restructure debts, how to alter debt repayments or how to achieve early resettlement of debts
• contacting creditors and/or negotiating with creditors, on behalf of the debtor, in order to make any of the above arrangements (whether that contact amounts to 'negotiation' or not)
• providing a facility for the debtor to make a single repayment which is then distributed on his behalf to his creditors
• consumers can check whether a business holds an appropriate consumer credit licence by searching the OFT's online consumer credit register.