Consumer Credit Consolidation Services

Consolidation of liabilities arises when a consumer enters into a credit or other arrangement to repay two or more outstanding liabilities. The OFT in 2002 estimates that 32 billion pounds of uncovered loans and 8.8 billion pounds of collateralised face-to-face loans were used for consolidation of indebtedness. Compared to an estimate of 18.4 billion pounds of uncollateralised loans and 2.4 billion pounds of collateralised individual loans in 1999, this figure is very much lower.

OFT's survey was started in June 2003 and was conducted in view of the significant increase in the commercialisation and use of loans for the consolidation of debts. The OFT's survey consults consumer organizations, creditors, brokers as well as retail organizations. She also interviewed 250 users of such services and a cross-section of advertisers for the product and their suppliers.

The most important results of the poll were that borrower did not seek credit for consolidation of debts, that many borrower, especially those in need of finance who had no knowledge of the options available to them, and that borrower did not give due importance to essential elements such as the duration of the credit and the overall costs of repayment when determining whether consolidation of debts was financially viable for them.

The OFT identified a number of obvious violations of credit advertisement regulations in the area of merchandising and publicity and will conduct a credit advertisement conformity check during 2004. According to the evaluation, publicity does not always convey a clear idea of what it promotes and there is a chance that the consumer will be aware of what is on sale.

That is worrying because it is a crime to advertise consumer credit in a wrong or deceptive way under Section 46 of the Consumer Credit Act, and there are also extensive checks on that advert included in the Consumer Credit Regulations of 1989; some ads that had to provide a mailing addressed have not done so; alerts to households of creditors who are at stake if they do not maintain payment when the credit is secured due to ownership have not always been prominently displayed and not always in the right form;

The OFT followed up these manifest infringements independently, but in particular as part of the on-going DTI reviews of consumer credit promotion rules, the OFT also had to make a number of suggestions from this work. Among these were: support for the DTI suggestions that recommend that all finance information in adverts be displayed together, with no part of any credit offering being emphasised about others, e.g. a low per month fee may not appear in the text of the advert if the duration and duration of the credit appear in the small print alone; recommendation that adverts, if not placed by a creditor, should contain a brief objective explanation of the profession of the company in the connection of which the advert is placed.

Given the increasing popularity of consumer loans, consolidation of debts and managing debts, the OFT will continue to pay much close attention to those areas where the consumer is already potentially in a state of emergency, and there will be semi-ignorance, as well as clarification and visibility on who is providing the service and on what conditions.