Car and consolidation loans under the spotlight

The Consumer Credit Counselling Service (CCCS) has attacked the "persistent and widespread" use of illegal ads to lure customers into credit agreements.

The charity, which helps people who get into trouble with debt, said one in nine car finance adverts broke Office of Fair Trading (OFT) rules.

While 36 debt management and 25 debt consolidation firms were found top have breached the OFT rules.

Failure

Debt management firms will offer to manage monthly debt repayments in return for a monthly fee.

It is clear that illegal credit advertising is persistent and widespread Malcolm Hurlston CCCS

Debt consolidation firms will loan a sum of money to cover existing borrowings, often in return for a stake in the customer's property.

But, the CSSSR found, many of the adverts offering such services failed to give enough prominence to the Annual Percentage Rate (APR) - or to have failed to display it at all.

Failures

The charity looked at 1,942 car finance, debt management and debt consolidation adverts in national and regional newspapers and specialist magazines.

One in four car finance adverts in specialist car magazines breached the OFT advertising rules, while in some regions of the country two-thirds of adverts were illegal.

Common breaches included:

• Failing to show examples of monthly repayments if a set amount was borrowed
• Debt management firms failing to make it clear to consumers that if their monthly repayments were reduced, the time over which the debt was repaid was likely to be longer
• Neglecting to display the interest payable on loans prominently or at all

The CCCS has called on the government, through local trading standards officers, to get a grip on the firms' advertising.

CCCS chairman Malcolm Hurlston said: "It is clear that illegal credit advertising is persistent and widespread and that there are unacceptable disparities in standards of enforcement across the country. This cannot continue."

The OFT announced in June that it was to look at some of the tactics employed by consolidation loan firms.

In particular the OFT is looking at whether consumers are being made adequately aware of what they are signing up to when they take out a loan secured against their property.