New warnings over misleading profit-making debt advice firms

It looks like a debt charity. It feels like a debt charity. It even sounds like a debt charity whose advisers are there with one job – to assist the nation’s worried debtors get out of a financial hole.

But it’s actually a profit-making business charging a fee – at exactly the time you can least afford it – to offer, at best, the same kind of advice and take the same actions that a real debt charity could provide impartially and for free.

This week, as the Advertising Standards Authority (ASA) ruled that yet another company was found to have used “misleading and irresponsible” debt advice adverts, consumers are being warned to be very careful when searching for information and financial advice from what they think are free debt charities.

The Money Advice Trust, the charity that runs the free debt advice charity National Debtline, welcomed the decision to uphold official complaints made against Financial Support Systems, trading as the similar-sounding National Debt Service, whose online adverts were found to have misled consumers by suggesting that they were affiliated with the real National Debtline and endorsed by the government.

The ASA also concluded that the use of phrases related to bankruptcy were irresponsible, as National Debt Service was not qualified to make an assessment of whether bankruptcy was a suitable option for consumers.

But the charity warns more action needs to be taken by government, regulators and search engines to tighten up the rules to stop misleading adverts appearing in the first place.

Jane Tully, director of external affairs and relationships at the Money Advice Trust, said: “There is a serious issue with misleading debt advice adverts online. These adverts are far too common and pose a risk for people in debt as they can lead people down routes not suitable for their situation.

“This can result in people being in a worse position than when they started their search for debt advice, impacting both their financial and mental health.

“Anyone searching for debt advice online should be wary of websites with claims like ‘government approved’, as we and other debt advice charities would never say this. Beware of websites pretending to be us, and always check the web address before clicking through.”

Meanwhile, in a bid to curb related poor practice in the same industry, the Financial Conduct Authority (FCA) last month set out plans to ban debt “packagers” from accepting referral fees for passing on the details of individuals to other (also profit-making) providers of debt solutions.

Debt packagers are regulated providers of debt advice who rely on income from referral fees paid by these other firms.

These fees can be many times higher when consumers are referred to an insolvency practitioner for an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD), which means debt packagers have a conflict of interest between giving advice in the customer’s best interest, and making a recommendation that makes them more money.

The FCA has seen evidence of debt packagers appearing to have manipulated customers’ details so that they meet the criteria for IVAs/PTDs, and used persuasive language to promote products without explaining the risks involved.

But if the customer enters into an IVA or PTD that isn’t right for them can face serious consequences, the regulator warned.

For example, if a consumer is accepted onto an IVA following poor advice from a debt packager when a Debt Relief Order would have been more suitable, this could cost them an additional £4,710, and could mean that it takes them five years longer to become debt free.

Speaking at the time, Peter Tutton, head of policy, research and public affairs at StepChange Debt Charity, said: “We have been campaigning for more than two years now for action to stop the bad practices we have been seeing.

“We have spoken to clients and to people who thought they were StepChange clients who realised they had been duped into handing over money to unscrupulous firms trying to sell them the wrong debt solutions for their needs.

“So we wholeheartedly welcome the FCA’s robust proposals to ban referral fees for debt packager firms, and urge the Insolvency Service to move forward with the regulation of volume IVA providers to end the harm caused by unregulated lead generators in the debt advice market.”

There are several ways to manage and alleviate the pressure of problem debt, including those mentioned above, but personal circumstances will determine which solution is most appropriate and cheaper for the debtor.

MoneyHelper, the government-backed financial information service, offers a searchable list of free, qualified debt advisers here.

National Debtline also provides information about what to look out for when searching for debt advice online