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Debt management companies could be prevented from contacting consumers through social media after a regulator review revealed "widespread problems with misleading advertising".

In a draft update to its debt management guidance, now out for consultation, the Office of Fair Trading (OFT) warned that using social media such as Twitter and Facebook may not be an "appropriate medium". It added that the use of sponsored links on search engines may go against its guidance on providing consumers with "sufficiently balanced and adequate" information.

The updated guidance follows a review of compliance in the debt management sector (107-page/519KB PDF) which raised concerns about misleading advertising and the quality of advice provided to consumers. The OFT claims its revised guidance will increase transparency and ensure that "consumers have all the information they need to make an informed decision about the solution most appropriate to them".

The guidance is intended to address the issues identified by the review together with targeted enforcement action against businesses who fail to adhere to it, the OFT said.

Companies wishing to provide debt management, debt counselling or debt adjustment services to consumers must hold an appropriate consumer credit licence in order to do so, regardless of whether they wish to offer services on a fee-charging or not-for-profit basis.

The OFT has issued warnings to 129 debt management businesses and taken action to revoke 11 consumer credit licences since publishing the findings of its compliance review last year, according to its figures.

In the draft guidance, the regulator questions whether debt management companies can maintain adequate control over information transmitted via social networking sites. It also questions whether character limits in operation on sites such as Twitter can allow companies to provide a balanced picture to their customers.

"Before using internet-based and social media marketing, [companies] should consider whether they can exercise adequate control over its content, whether it is an appropriate medium and whether the required information, warnings and caveats can be included sufficiently prominently," the guidance says.

"The OFT considers that search engine sponsored links and online messaging forums which limit the number of characters are unlikely to be an appropriate means of providing consumers with sufficiently balanced and adequate information," it says.

David Fisher, Director of the OFT's Consumer Credit Group, described the failings identified in the review as "unacceptable".

"This guidance is designed to leave firms in no doubt about the standards the OFT expects ad what they must do to comply with the law... debt management businesses must raise their standards or face enforcement action," he said.

The consultation on the draft guidance ends on 5 September 2011.

Copyright © 2011, OUT-LAW.com

OUT-LAW.COM is part of international law firm Pinsent Masons.

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