Debt cancellation cowboys or saviours?
Thursday, 22 October 2009 08:35
Firms claiming they can write off debts, save you from repossession and get refunds are springing up left, right and centre.
But who can you trust?
Or are all firms just legal conmen, taking your cash pretending to check credit agreements and offering nothing but false hopes and making your debts worse?
And can you complain without them?
Recent months have seen a large increase in the number of firms advertising with offers that they can write off debts through credit agreements not being enforceable.
However, the sector is dominated by firms that seem to be acting as cowboys.
So is it possible to find a fair firm? Daniel Barnes investigates the sometimes murky world of claims management firms.
Poor practice
Research by Which? finds firms are dissuading clients from trying to reclaim missold PPI of bank charges themselves.
This is unsurprising as taking on banks yourself is free, although more lengthy, while firms typically charge a commission of 25 per cent, plus VAT, if a claim is successful and many also charge upfront fees.
The watchdog found only a quarter of companies passed its tests over honesty on success rates, regulation and fees.
The watchdog looked at 38 firms and found 16 claimed 90 per cent success rates and five could not say how they were regulated.
Claims management firms should be regulated by the Ministry of Justice (MoJ).
Martyn Hocking, editor of Which? magazine said: "Claims management companies have some very crafty ways to encourage you to use them, from exaggerating their success rates to suggesting they'd be more successful at getting your money back than if you did it yourself.
"Not only are the firms breaking rules in some of these cases, but making a claim for mis-sold PPI or bank charges is a simple process, and you can do it yourself for free."
Where did they come from?
The Ministry of Justice regulates 1,126 claims management firms in the financial sector.
They first arose covering endowment mortgages, but this has spread to payment protection insurance (PPI) and bank charges.
A boom has come over unenforceable consumer credit agreement (UCCA) claims.
In 2008, changes were made to the Consumer Credit Act (CCA) 1974. Loans and credit cards taken out before then are subject to rules of the old act, and the enforceability of loan agreements that were deemed unfair or if paperwork was not in place started to be put into doubt.
Firms arrived on the market demanding upfront fees and promising often desperate people struggling with debt to write off loans.
However, many firms seemed to be offering very little.
The MoJ warns Brits to "think carefully" before responding to businesses claiming that they can arrange for debts to be wiped out and compensation paid out, especially as upfront fees can be very high - and may not be returned.
People are urged to seek independent advice and speak to Citizens Advice if they have a specific debt problem.
Rules firms must follow include no cold calling or high pressure selling, written information on how to pursue a claim and costs, and a cooling off period of 14 days for clients to change their minds.
They must also have a customer complaints department hitting certain standards.
Strict rules on advertising are also in place.
Banks strike back
Unsurprisingly, the British Bankers' Association (BBA) has launched a study into the dangers that exist from using such firms.
Its report, carried out by GfK NOP found vulnerable consumers in financial difficulties being targeted and no warning being made over the possible dangers of taking on the banks.
While it is easy to accuse banks of trying to put down those taking them to court, independent concerns have been raised about the companies.
The mystery shopping exercise found 72 per cent of firms said there was no risk in making a claim.
Risks not highlighted including losing PPI cover, getting a CCJ or ending up with a poor credit rating.
The report states: "Claims management companies are obligated to act with 'honesty' and 'integrity' and clearly a minority are (when it comes to explaining the personal risks involved).
"However, the majority are not and there is an obvious reason for this."
It adds it is unquestionable that many clients would not being making claims if they were aware of the personal risks involved.
Brian Mairs at the BBA explains: "If a customer needs to seek legal advice, nobody would dispute they should have to right to representation."
However, he warns the sheer number of firms popping up had turned this advice into a "commodity" and quality was now a major concern.
He adds for customers in dispute with their lenders there are ways of making complaints and "there is no reason to pay for a resolution" if there are other options.
"Banks have to treat complaints very seriously."
Currently if you complain to your bank and the do not find in your favour, then you can go to the Financial Ombudsman Service (FOS).
Data from the FOS show a high level of complaints turned down by banks are later reversed. Such was the level of complaints knocked back, the FSA has ordered lenders to revisit thousands of PPI claims dismissed internally.
However, the FOS cannot rule on all areas and decisions can take some time.
Poor practices
Matthew Porteus at claims management firm Ratio Money described the BBA report as "hardly objective" and claims the banks are trying "to kick the issue into the long grass with their spin machine".
However, he admits the sector as a whole does have problems.
"There are poor practices out there and they should be closed down now," he says.
"Honestly, it is horrible to be tarred with the same brush. There are many people in it just to make money."
But Mr Porteus also hit out at poor bank practices - with credit cards bills that can never be paid off if minimum payments are paid and the offering of credit to those who could not seriously ever repay.
"Some rates are absurd and criminal," he says. "You can have a AAA rating and your credit card company can up your interest rate to 35 per cent with no warning."
He explained the banks have had decades to treat customers fairly, and consumers treated unfairly were within their rights to go to the courts.
Mr Porteus defends his own firm stating initial fees are refunded if a case cannot go on and he was about to launch a free service for those who cannot afford current upfront charges - with the firm making its money on the backend of the deal.
David Jack, the Liberal Democrat prospective parliament candidate for Stoke on Trent North, has used his website to campaign against claims management companies.
He explains he started working as an agent for one claims management company but sensed something was "not quite right".
He claims he was kicked out after trying to dig too deeply.
"Insiders at the MoJ have told me they know it is a scam, but they are powerless to do anything.
"There are over 4,000 companies and just four people in the complaints department."
He explained the tender to run Claims Management Regulation went out to the lowest bidders and is now being run by some semi-retired ex-policemen and post graduates.
The MoJ has cancelled the licences of over 100 companies and suspended the licences of many more.
It has also tightened rules on advertising claims, cold calling and fees to clean up the industry.
The MoJ refused to answer our questions but pointed to Claims Management Regulation's annual report.
The regulator's Monitoring and Compliance Unit is run by Staffordshire County Council and has only 35 members of staff, covering not just financial compensation but also personal injury, criminal injury and industrial injury claims firms.
All cowboys?
However, Mr Jack admits not all firms are failing or are cowboys.
"There are about 100 of the 4,000 firms getting it right. And these firms getting it right are revolving around 20 firms of solicitors.
"There are 100 claims management companies getting it right and 3,900 getting it wrong.
"Firms are generally needed for consumer action against lenders."
He explains banks have had since 1974 and the CCA coming into force to deal with the problems of how they treat customers and they have failed.
But he maintains there are plenty of claims management firms that are ripping people off, and he is working on a community project to offer people services free of charge.
Mr Jack also hits out at firms that claim they can let you know 100 per cent if you have a claim without going through your paperwork fully.
He also explains some claims management firms have tried to take down his site, and threatened him with legal action, but he has stood up to them and maintained their claims.
"They have called my family and my parents telling them they would lose their house if I didn't take down the site," he says.
He also claims pressure coming from the Ministry of Justice directly to take down the site.
Carl Wright, chief executive of claims firm Cartel Client Review hit at the claims made by Mr French, but refuses to comment further as he maintains his lawyers are looking at suing over the site.
He also defends the use of claims management firms over the FOS due to time.
Mr Wright claims the firm recently helped a former Barclays employee sold PPI by Barclays avoid repossession, something the FOS could not do.
"We did not charge that customer a penny. We are very, very successful at stopping repossessions," he claims.
"Companies like ours can quickly handle claims. Claims about terms and conditions being signed are claims the FOS will not conduct."
Mr Wight, however, warns only 40 per cent of customers that come to the firm have claims that can go ahead.
He adds banks were starting to engage more with claims management firms.
"Through 2008 they tended to ignore us. But there is a lot of engagement now. They are on the phone every week and we are putting a lot of agreements in place.
"If banks go to court they tend to get a bloody nose, which is why they tend to settle."
He went on to predict many firms will close down. "Any new market is going to spread and then consolidate. I think it will consolidate down much fewer firms in the next two or three years."
His advice to find a good company: "Look at the size of the business, and although they would not appreciate it, call the MoJ if you are not sure."
The MoJ Claims Management Regulation website also has the option to search for firms to see if they are regulated.
The case for and against claims management firms is far from black and white.
Both the banks and claims management firms have tarnished reputations - both guilty in areas of failing and in places taking advantage of the consumer.
People with debt problems should not see claims management firms as a way out of trouble, and there are other ways to deal with debt. And using more than one avenue is possible. It is also fair to say you should stick by an obligation on a debt even if the paperwork is not up to scratch.
But where banks have treated people unfairly and left them struggling, there is a strong case for taking the lenders on. But it is key to remember there are no guaranteed winning tickets to getting out of debt.
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