In no less than five recent cases, the ASA has upheld complaints about debt counselling service ads. In each instance Individual Voluntary Arrangements were promoted as a panacea for financial problems when the reality was not so rosy. Tim Coles extends his credit.
Topic: Financial Services
Who: ASA v The Debt People Limited
ASA v Yourclear Limited
ASA v W3 Debt Solutions
ASA v Money Debt & Credit Limited
ASA v Accuma Insolvency Practioners Limited
Where: UK
When: April 2007
What happened:
In April 2007 Debt Free Direct Limited lodged complaints with the ASA regarding similar T.V./radio adverts placed by the five companies named above (the "Companies"). Each of the adverts made claims such as "up to 75% of your debts could be written off" (80% in the case of Accuma) or "reduce the amount you owe by up to 75%".
In each case, Debt Free Direct Limited challenged:
1. whether claims such as "write off up to 75% of what you can't afford to pay" were misleading and could be substantiated, because they believed the claims exaggerated the amount that most consumers were likely to be able to write off; and
2. whether such adverts were misleading, because they did not make clear the fees payable under the terms of an IVA.
Responses
In response to the first complaint, defences raised by the Companies included:
1. that a proportion of clients, dependant on their circumstances, had been able to write off the amount of debt claimed in the adverts;
2. that the write offs claimed in the adverts were achievable in principle;
3. that no minimum dividend was enforced in law and that 25p in the pound was a typical minimum only; and
4. that claims were qualified by text or voice-overs including words such as "up to a maximum of 75%", "could or may be able to reduce debt" and "subject to acceptance".
In response to the second complaint, defences raised by the Companies included:
1. that they did not charge for debt advice or for the preparation and supervision of IVAs;
2. that fees were collected from debtors and held on behalf of creditors, who permitted the Companies to deduct fees before distributing the balance to creditors. Therefore the debtor was not responsible for paying fees;
3. because fees were taken out of debtors' repayments by Insolvency Practitioners, the creditors bore the costs of IVAs;
4. clients were made aware of all the costs involved in an IVA, including fees, before they entered the arrangement and they would be informed how much of their debt would be written off and what proportion of their payments would go towards paying off fees by the Insolvency Practitioner; and
5. it was pointed out to debtors that creditors had the legal right to challenge the fees charged and that those fees were made clear in the IVA proposal.
The evidence adduced by the Companies in support of these assertions was however very limited.
Assessment
In each case the complaints were upheld. The ASA commented that whilst it understood that, even taking fees into account, a small number of debtors might be able to write off 75% or more of their debt, they considered that, because they had not seen evidence that demonstrated a significant proportion of consumers could do so, it deemed the adverts exaggerated the benefits of IVAs and therefore concluded that the adverts were misleading.
The adverts breached CAP (Broadcast) TV Advertising Standards Code rules 5.1 (Misleading advertising), 5.2.1 (Evidence), 5.2.2 (Implications) and 5.2.3 (Qualifications) or CAP (Broadcast) Radio Advertising Standards Code section 2, rule 3 (Misleadingness) as applicable.
Action
The ASA decreed that the adverts should not be broadcast again and told the Companies to ensure that in future, similar claims were based on the amount of debt that a significant proportion of consumers could expect to write off, taking into account the impact of fees.
Why this matters:
These adjudications represent a crackdown by the ASA on a burgeoning and increasingly competitive 'debt advice industry' and serve as a reminder that the ASA will clampdown on advertising claims that are only technically true or true in only a minority of cases.
A wider issue is that these are not the first such cases and all indications are that they will not be the last. Just how long will the Office of Fair Trading tolerate this type of activity before pressing for specific controls over IVA advertising?
Tim Coles
Trainee Solicitor
Osborne Clarke London
tim.coles@osborneclarke.com
