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OFT Warns Over Misleading Bankruptcy Ads
The Office of Fair Trading has told borrowers to be wary of junk mailings from unscrupulous companies advising a debt management solution such as bankruptcy.
The watchdog said that many consumers have received unsolicited approaches advising debtors to scrap any individual voluntary arrangement (IVA) they might have.
These mailings misleadingly claim that consumers have been mis-sold the IVA and go on to claim that that filing for bankruptcy may be a more appropriate solution. The OFT warned that this was unlikely to be the case.
The Insolvency Service is legally required to keep a public register of IVA-holders, and the OFT warned that the companies sending out the mailings seem to have accessed debtors’ personal contact details from this register.
It stressed that the claims made in the mailings were in breach of its own guidance on debt management.
This was because the claims are misleading and do not explain the adverse consequences of ending an IVA in favour of bankruptcy.
The OFT stressed that initial payments made to a company for an IVA rarely counted towards repaying the debt itself, but rather paid for the fees of the insolvency practitioner.
As a result, cancelling an IVA would mean that there has been no reduction in a consumer’s debts and creditors will not have received any money. Also, during this time, the unfortunate debtor is likely to have found themselves in ever-tighter financial straits.
The OFT has given 12 businesses involved in the mailings a month to respond to official warnings.
The companies have been directed to remove any misleading claims from their IVA advertising and to make clear in future any possible consequences of ending an IVA agreement.
IVA News posted on 20 June 2008
