More than a hundred debt management firms face closure after an investigation found vulnerable people were being misled and exploited for money.
Following an 11 month review of the sector, the Office of Fair Trading (OFT) has warned some 129 companies that they face closure if they do not steps to rectify concerns.
Debt management companies, which sit alongside free Government-funded and charitable services, are fee-charging firms that provide advice and solutions to consumers with debt problems.
The services they offer can include arranging individual voluntary arrangements, setting up debt management plans, and negotiating settlements with creditors.
Consumers contacting debt management companies tend to be over-indebted, vulnerable and desperate for help with managing their financial difficulties.
The key findings to emerge from the review, which included onsite compliance visits by Trading Standards Officers, a website sweep and a mystery shopping exercise, are that:
The report also found that some companies tried to extract the maximum amount of money out of already in debt consumers, regardless of their circumstances.
Others attempted to put people through numerous debt plans, charging customers for each one.
The OFT labeled the level of non-compliance across the industry as 'unacceptable', and reiterated its intention to take action if standards are not improved.
The watchdog is to work with the Debt Managers Standards Association and the Debt Resolution Forum to implement and support their initiatives to introduce higher standards to the industry.
"Being unable to maintain your debt commitments is incredibly stressful and it can be difficult to decide what to do. People who find themselves in this situation often stay with the first port in a storm," Delroy Corinaldi, external affairs director of the Consumer Credit Counselling Service (CCCS), commented.
"That is why is it so important that those who are struggling with debt are offered services that are clear and transparent and advice that is independent and of the highest standards.
"The review has found that this is often not the case within the fee-charging debt management sector."
Debt advice specialists such as the CCCS will offer free and impartial advice to those with debt problems.
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