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OFT warns wallet-raiding debt collectors over web ads

Regulator cooks up rules on false or misleading claims

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Debt management companies have been warned over their use of the internet and social networking when promoting themselves or their services to consumers.

The Office of Fair Trading (OFT) said the firms risk losing their consumer credit licences if they offer misleading information to consumers through the mediums. The regulator has issued new guidelines on what companies should do to avoid such action.

"Before using internet based and social media marketing, licensees should consider whether they can exercise adequate control over its content, whether it is an appropriate medium and whether the appropriate information, warnings and caveats, can be included sufficiently prominently, such that the information conveyed is sufficiently legible, accurate, truthful and not misleading," the OFT said in its guidance. (96-page/937KB PDF)

The regulator said it would be "unlikely" for it to be "appropriate" for debt management companies to use "search engine sponsored links, certain contextual adverts and online messaging forums which limit the number of characters" to offer services. This is because the platforms probably would not provide consumers with "sufficiently balanced and adequate information on how to deal with their debt problems".

"Licensees should therefore take appropriate care to ensure that when promoting themselves or their products or services in this manner, the information conveyed, in isolation, is accurate, truthful and not misleading," it said.

Companies wishing to provide debt management, 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. Under the Consumer Credit Act the OFT is required to ensure that those licenses are only given to firms that are fit to hold them. The Act requires that the firms do not engage in unfair or improper business practices.

The OFT said companies that send unsolicited marketing text messages, emails or voicemails will be considered to be engaging in an unfair practice.

Firms that use financial incentives that might encourage staff to offer unsuitable debt management products to consumers which would allow those staff to gain personally also risk losing their consumer credit licences, it said.

Licences could also be revoked from businesses that make false or misleading claims about their status, the OFT said. Examples of such unfair or improper activities include operating 'look-a-like' websites that are designed in such a way to "attract consumers seeking free, charitable or government help or advice".

The OFT also said it would consider businesses to be acting unfairly or improperly if they use keywords and "descriptive text" that is false or misleading. Using disingenuous meta data tags, embedded links or website or webpage addresses when promoting or advertising online could also land firms in trouble.

"This new guidance clearly sets out the standards we expect from debt management businesses," David Fisher, director of the OFT's consumer credit group, said in a statement. "All too often it may be particularly vulnerable consumers who fall victim to poor quality debt advice and we will continue to take action against businesses that fail to follow our guidance," he said.

The OFT has previously raised concerns about misleading advertising and the quality of advice provided to consumers in the debt management sector. It conducted a review of the industry in 2010 and since then has issued 129 warnings to debt management businesses over their behaviour.

"Since then, 87 businesses have exited the market, either voluntarily or as a result of enforcement action, and a further 67 warning letters have been issued," the regulator said.

Copyright © 2012, Out-Law.com

Out-Law.com is part of international law firm Pinsent Masons.

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