Debt consolidation has grown apace

The industry, worth an estimated �8.7bn a year, involves consumers taking out of a single loan to consolidate a number of existing debts.

It often takes the form of a second mortgage and it is estimated that 60% of second mortgages are for this purpose.

But concerns have been expressed that consumers do not understand how the loans work.

Debt warning

The OFT will examine to what extent consumers know what they are committing themselves to and whether lenders are being responsible in their dealings with borrowers.

Our study will assess how well the market is working for consumers John Vickers OFT chairman

The OFT will also be asking if consumers thoroughly understand consolidation loans are secured on property and lower monthly repayments are often achieved by extending the term of the loan.

The advertising and marketing practices of some debt consolidation firms will also come under the spotlight.

The second mortgage sector has grown much faster than the rest of the consumer credit market as a whole.

Debt charities have warned that any economic downturn could lead to consumers being unable to cope with their debt burden.

"Debt consolidation has grown fast to become a big market. Our study will assess how well the market is working for consumers," John Vickers the OFT chairman said.