A NOTTINGHAM insolvency practitioner today warned those in financial difficulties not to fall into the hands of unregulated debt advisers.

Michael Roome, of accountants Smith Cooper, urged the Office of Fair Trading to act so that individuals do not lose money when unregulated debt management companies fail.

Mr Roome, director of business recovery and insolvency based in Nottingham, said: "Analysis conducted for the Consumer Credit Counselling Service (CCCS) has identified 6.2 million households as financially vulnerable.

"This figure includes 3.2 million who are already in financial difficulty.

"My concern is that many people take advice from debt management companies, which are unregulated, so the interests of consumers and creditors are not protected to the same high standards they have under insolvency legislation."

A debt management plan is a formal agreement between consumers and creditors to reduce debts at a lower level over a period of time, which could range up to 20 years depending on the value of the debt,

The liquidation of debt management firm DebtDr highlights the risk of unregulated plans. All the money paid in by consumers was not paid into protected client accounts.

Mr Roome said it was time for the OFT to set the tone and ensure that consumers were no longer exposed to this risk.

"More than £600,000 was paid by consumers to DebtDr in the belief that they were working towards discharging their debts and now they are back to square one," said Mr Roome.

"The funds should have been held in protected client accounts.

"Under insolvency legislation a form of insurance protection is required so that in the unlikely event that the funds are misappropriated, the interests of both consumers and creditors are protected.

"However, the costs of putting such insurance in place may make debt management plans unworkable.

"This needs to be resolved to give British consumers greater faith in a sector that remains consistently in the public eye due to the actions of a few."

He said a form of debt management plan had its place in the current economic climate but warned that consumers should ensure they were comfortable with the advice given and the length of time to manage the debt.

"If the commitment is longer than five years, serious consideration should be given to alternatives such as an Individual Voluntary Arrangement (IVA) or bankruptcy."

The OFT published revised draft guidance for the sector setting out the standards.

A spokeswoman said: "This followed a review of compliance in the sector which found, amongst other things, widespread problems with misleading advertising and the quality of advice given in the fee charging sector.

'Following OFT intervention 88 businesses have exited the debt management market since the compliance review was published in September 2010 and warnings issued to 129 debt management firms."