Advertising rules being introduced today will make it harder for fee-charging debt management companies to mislead the public by advertising their services as "free".

Under changes to the advertising codes run by the Committee of Advertising Practice (CAP) and the Broadcast Committee of Advertising Practice (BCAP), companies will not be allowed to advertise a product or service as "free" or "without charge" if the consumer has to pay anything other than unavoidable costs.

At present, debt management companies can advertise their services as free despite charging monthly tariffs that can end up costing customers as much as £5,000, according to the Consumer Credit Counselling Service (CCCS).

The CCCS came across the case of one debt management company customer who was repaying £30,000 of unsecured consumer loans under a debt management plan at £300 a month, but the upfront arrangement fees and subsequent monthly costs were equivalent to 15% of the total debt. It resulted in a total repayment of £35,894 compared to £30,000 if he had arranged a repayment plan with the CCCS.

Debt management company Money Tailor typically levies an upfront fee of £999, while Chiltern and Hamilton Locke both charge a minimum of £295, according to the CCCS.

For anyone tackling debt problems, free and independent advice is available from charities such as National Debtline, Citizens Advice and the CCCS. Yet thousands of consumers continue to arrange expensive debt repayment plans with profit-making debt management companies.

Malcolm Hurlston, chairman of the CCCS, said: "We know that when it comes to debt advice, desperate consumers tend not to shop around. Those marketing debt management plans have been clever at taking advantage of this and enticing customers in with the offer of a free service."

Debt management companies must also comply with the Guidance for Debt Management Companies published by the Office of Fair Trading. However, some have gone a step further and subscribed to a code promoting consumers' interests beyond the basic requirements of the law.

Hurlston added: "Our research shows that clients on debt management plans with fee chargers, not only pay through the nose but also take a lot longer to pay off their debts. We will be observing these siren companies even more closely from today and reporting any breach of the new CAP and BCAP guidelines as we see them."

Source: Guardian