The OFT has decided to revoke the credit licence of First Step Finance Limited (FSF), a large debt resolution company based in Stockport.
The OFT has reached this decision because, among other matters, the company:
- was not sufficiently transparent when describing its services, including in sales calls
- failed to comply with OFT Debt Management Guidance, the Consumer Credit Act and other consumer legislation
- demonstrated a lack of integrity.
FSF’s business model relies in part upon negotiating ‘full and final settlements’ for its clients. Under this model consumers make regular payments to FSF and build up a fund, which the company then uses to make offers to creditors in an attempt to settle and repay their debts.
The OFT found that FSF’s advertising, marketing and other information failed adequately to highlight the risks associated with this business model. For example, FSF did not adequately inform consumers that there could be a long period of time when their debt would not substantially be reduced, potentially creating further arrears.
FSF also failed adequately to inform consumers how its services operated, or the costs involved, so that customers might not appreciate the possible financial consequences should they exit a scheme early. Leaving a scheme early could mean that the customer’s debt was not effectively reduced, with the associated risk of further arrears and charges.
Elements of FSF’s advertising and pre-contract information also failed to comply with OFT Debt Management Guidance, including the principle that advice should be given in the best interests of the consumer.
An overall theme of the OFT’s Debt Management guidance is for businesses to be transparent so that consumers have all the information necessary to make informed decisions about the most appropriate debt solutions for them given their financial circumstances.
The OFT reviewed the debt management sector in 2010 and subsequent intervention has resulted in over 100 businesses exiting (or being refused entry to) the debt management market.
David Fisher, OFT Director of Consumer Credit, said:
‘People in debt are often vulnerable and are entitled to expect the highest levels of integrity and transparency from debt management businesses. First Step Finance did not meet the OFT’s exacting standards or its legal obligations so we are removing their licence.’
FSF can appeal the determination. Until such time as the appeal process is at an end, FSF remain licensed to engage in credit activities by the OFT.
- The Consumer Credit Act 1974 places a duty on the OFT to ensure that licences are only given to and retained by those who are fit to hold them.
- FSF may appeal the OFT’s decision to revoke its licence to the First-tier Tribunal (Consumer Credit). Until such time as the appeal process is at an end, FSF remain licensed to engage in credit activities by the OFT.
- The debt solution offered by FSF uses a hybrid of claims management, debt counselling and debt adjusting to reduce the debt whilst funds build up in the client account. Once a significant enough sum has built up in the client account, the business then uses this sum to negotiate full and final settlements with those creditors whose debts it believes are enforceable. This type of debt solution is referred to in the industry as a ‘full and final settlement plan.’