The threat of closure comes after the trading watchdog uncovered poor practice in firms offering advice to people struggling with debt, with debt management companies often more focused on boosting their profits than helping their customers.
The OFT warned that the debt firms have three months to resolve their business conduct and comply with its guidance on debt management or face their consumer credit licences being revoked.
In its review, the OFT revealed that misleading advertising was one of the main problems in the sector, with many firms claiming their service was free when it was not.
Ray Watson, director of the OFT’s Consumer Credit Group, said: “People who are heavily indebted, desperate and vulnerable need advice which makes their problem better not worse and should not be exploited.
“Debt management firms must be clear about their charges and the options available to customers.”
He added: “The level of non-compliance we found across the industry is unacceptable. If any of the 129 firms identified do not improve their standards substantially they will be the subject of licensing action by the OFT.”
The OFT report has set out a detailed plan to improve standards across the industry, which focuses on robust enforcement action against licensees that fail, or refuse, to change advertising and or behaviour.
The OFT also intends to update its guidance to take into account new and emerging unfair business practices, and will work with trade bodies the Debt Managers Standards Association (DEMSA) and the Debt Resolution Forum (DRF) to introduce higher standards into the industry.
John Fairhurst, managing director of consumer debt solutions provider Payplan, said: “The debt management sector has become a significant growth segment of the financial services market because of the demise of so much of the lending business.
“We have seen the rise of providers who have put fee earnings well ahead of the welfare of their clients and we do not believe that self-regulation is sufficient. It is only through the introduction of statutory regulation that we can be sure that vulnerable consumers will be adequately protected from the worst excesses visited on them by some of these fee-charging debt management companies.”
