Debt has been a significant problem for the economy and even more so since the recession in the UK began.

Borrowers and lenders are doing all that they can to lower their level of debts and looking for any means to do so.

However some are resorting to misleading and even illegal means to restore their finances. A television advert claiming that it would help to cancel credit card and personal debt has been cancelled by watchdogs.

The Advertising Standards Authority (ASA) ruled an advert from Debt Free UK - under its brand Loan-Free.co.uk - was misleading following complaints from Lloyds TSB - before it became Lloyds Banking - and a member of the public.

The advert stated: "If your credit card or loan was taken out before April 2007 it could be completely unenforceable and will not need to be repaid."

The advert also added that the firm's solicitors could arrange for debts to be written off and compensation paid. Lloyds hit out at the claims stating it exaggerated the likelihood of success and did not make fees clear.

No evidence provided

Debt Free aimed to defend itself by saying it only obtained copies of credit agreements from lenders - something which any consumer can do - and their service ended when agreements were submitted to a firm of solicitors.

It also defended itself by saying some 76 per cent of the credit card and 85 per cent of the loan agreements passed to solicitors were deemed to be unenforceable. However, the ASA stated the firm had provided no evidence of this.

The firm added the adverts stated the loan agreements only 'could be' unenforceable and that that they would be.

However, the ASA ruled the adverts were "likely to mislead readers as to the likelihood of their debts being written off".

The system of fees - both for Debt Free and solicitors - were revealed meaning people were being charged £50 for the firm to assess the loan agreements before they were passed to solicitors even if they were unsuccessful.

Consumer Credit Act

The issue of debt cancellation surrounds the requirements of the Consumer Credit Act (CCA) 1974 and some credit cards or unsecured loans taken out before April 2007.

Under the rules, a credit agreement had to state the amount of credit, the rate of interest, and the number, amount and frequency of repayments. Those agreements without these details - especially if they are sold alongside payment protection insurance and the details of how premiums were charged were separate - they may not be unenforceable.

Consumer groups have hit out against firms looking to charge people for limited services. However, they have been seen as a useful tool to bear against lenders when faced further problems of poor treatment.

The Ministry of Justice previously has warned many claims companies are misleading consumers, suggesting as many as 80 per cent of loans are unenforceable.

The OFT has also said it will take enforcement action against licensed claims management businesses who engage in unfair business practices by deliberately misleading vulnerable consumers about the services they offer.

Watch out false adverts are about

In addition, consumers have been warned to The Office of Fair Trading (OFT) said there has been 'a significant increase' in adverts on the internet and in newspapers from companies claiming they can take over a debt by buying the customer's credit agreement.

But this would be illegal, the OFT said, and customers are warned that if they pay for this service, they will still be liable for the original debt.

Ray Watson, OFT's director of credit, said: "Like most scams, when something looks too good to be true, it usually is, and this is certainly the case here. You cannot simply sell on your debt and its liabilities, and businesses that make misleading claims to the contrary are just trying to take advantage of consumers' distress."

The OFT will take "swift action against businesses which deliberately mislead consumers," Mr Watson added.

Fiona Hoyle, spokesperson for the Finance & Leasing Association (FLA), added: "The FLA has been working with the OFT and the Ministry of Justice to stop claims management companies making misleading claims, which often leave vulnerable consumers worse off.

She concluded: "Anyone who has a debt problem should speak to their lender, or seek free debt advice from a charity such as CCCS, Citizens Advice or National Debtline."