OFT to clamp down on misleading insolvency ads

by Alex Donohue, Brand Republic 17-Jan-07, 15:55

LONDON - The Office of Fair Trading has given 17 unnamed insolvency firms one month to respond to claims that their current advertising practices mislead the public on clearing debt, and has promised firm action will be taken against businesses that do not comply.

The OFT today said that Individual Voluntary Arrangements were continually being sold to people heavily in debt as an alternative to declaring bankcruptcy, citing 124 ads in national newspapers and 57 websites that promoted the products in November 2006 alone.

It has highlighted a number of claims made by insolvency firms which it considers to be in breach of its guidance for debt management businesses.

It has criticised the 17 firms for claiming that IVAs can write off 90% of a customer's debt, failing to display required warnings with the same prominence as savings promised, and failing to state that an IVA can adversely affect a person's credit rating for six years.

Alan Williams, senior director of markets and projects and services at the OFT, said: "IVAs are still a solution to many, but those supplying them must be clear and honest about what they can and cannot achieve for customers in debt and the possible negative implications of entering into such arrangements.

"We will take firm action against businesses which engage in unfair and misleading practices when promoting IVAs."

Ads for IVAs typically feature during daytime TV slots, but critics of IVAs have said that unsuitable candidates are chosen for debt relief schemes.

Beccy Boden-Wilks, spokeswoman at National Debtline, told Brand Republic that the charity would welcome any tightening of regulations imposed on insolvency firms by the government.

She said: "The marketing methods of IVA providers can be very misleading in the way that customers think they will be able to become debt free within five years.

"The charity sector is clearly disadvantaged in offering debt advice because it cannot match the massive marketing budgets of IVA firms.

"The problem with seeking advice from some insolvency firms is that they are ultimately selling a financial product, so they won't fully advise you on the options open to people in debt -- including bankruptcy. An IVA is a financial product which makes money [for firms] and bankruptcy isn't."

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