Debt advisers surrender licences to OFT
The licences of 35 debt management firms have been surrendered to the Office of Fair Trading because they could not show that they met its rules.
Another eight firms have been told that their licences will be revoked and seven are being investigated.
Debt management companies charge fees to advise on debt problems.
The OFT has been involved in a continuing campaign to stop rogue firms making false promises and levying unfair fees.
The Financial Ombudsman Service (FOS) has seen a 25% increase in complaints about debt management companies since last spring.
On its most recent count, it was upholding 60% of those complaints.
Many complainants thought that they would end up free of debt but found they were still in the red.
Others did not understand that the money they paid would be taken in charges by the debt management company, before the underlying debt was paid off.
The director of consumer credit at the OFT, Ray Watson, said the watchdog body had identified unacceptable failings.
"Companies should be in do doubt that we will act against bad practice and ensure consumers are protected," he said.
Last year, there were 562,000 debt management plans in operation set up by fee-charging firms.
The OFT warned 129 firms last year after discovering widespread cases of misleading advertising and misinformation about fees.
It found that frontline advisers were often incompetent and did not tell customers about the option of going to the FOS.
Firms were then asked to show how they complied with the OFT's rules, including the basic requirement not to advertise services as free when a charge was likely to be levied.
In response, 35 of them have relinquished their licences.
Among those still being investigated are some large firms employing hundreds of people, according to one insider in the debt management industry.
The clampdown comes as Britain's leading banks have unveiled their recommendations for a likely shake-up in the provision of debt advice.
The British Bankers' Association (BBA) wants a technology-driven "portal" where debtors could start the search for help.
The internet gateway would draw together the tools and expertise of existing free advisers such as the Consumer Credit Counselling Service (CCCS), National Debtline and Citizens Advice.
The idea is that the vulnerable would be protected because by going to the portal they would avoid the attentions of profit-making debt management companies.
"Customers are currently faced with too many confusing options for resolving their debt, and may set out too early on expensive legal procedures when a more common sense approach would be better for everyone," explained Paul Ross, the BBA's policy director.
Set-up funding for the portal would come from government, industry and the advice agencies' existing budgets.
But eventually running costs would be covered by a share of the the debts recovered, which is how the CCCS is funded at the moment.
A major shake-up is expected in the way debt problems are dealt with, after the government launched a consultation process last October.
Joanna Elson, chief executive of the Money Advice Trust, said: "We have heard fee charging debt management companies claim their industry is necessary because not-for-profit providers are unable to meet the demand for help."
"But the OFT's investigation makes it crystal clear that much of the fee charging industry is not in a fit shape to be trusted to fill that gap.
"That's why we believe that all licensed debt management companies should be obliged to inform customers of free, independent alternatives," she added.