Borrowers warned about bogus deals to wipe away debts

Tuesday, 17 February 2009 11:51

Consumers are being warned to steer clear of firms offering to wipe off credit card or loan debts saying agreements are unenforceable.

Claims from firms saying 80 per cent of credit agreements are unenforceable or credit card debts can be written off in weeks have appeared newspapers, on local radio and on the internet in recent weeks - however the Ministry of Justice (MOJ) is warning these are deliberately misleading consumers.

Firms often demand a £500 upfront fee to check credit agreements - with no guarantee of success.

Citizens Advice warns where people have several debts, the fees can quickly mount up to several thousands of pounds and they may then be sold a 'no win, no fee' agreement to take legal action that can cost them even more.

Justice minister Bridget Prentice said: "Vulnerable people facing debt problems need help and support.

"We have produced guidance to protect innocent customers from being misled by businesses advertising easy and quick arrangements for outstanding loan, credit card and other similar debts to be written off and compensation to be obtained."

Citizens Advice explains most credit agreements are enforceable and its advisors can investigate to see if there are any problems for free.
In one case a couple was about to of hand over £1,275 to a firm to get all their debts checked.

However, Citizens Advice Bureau (CAB) advisors found only one minor debt was likely to be unenforceable.

Sue Edwards, Citizens Advice head of consumer policy, said: "These ads appear to offer an easy way out to people who have credit debts they are struggling to pay.

"But many credit agreements do meet the legal requirements and therefore can't easily be challenged as unenforceable. A CAB adviser can check for free if there may be genuine grounds for a challenge."

She added: "We would urge people in debt to think very carefully indeed before spending money they are unlikely to get back and can ill afford on a 'solution' that in many cases will just make their debt problems worse.

"Usually if something looks too good to be true that's because it is."

Mike Oaten, managing director of Refunds Direct, explained upfront fees should make people aware of possible rouge operators.

"Of course, how companies are charging can highlight problems," he explained - stating his own firm charges 25 per cent of payouts won and does not take fees before looking at a claim.

"Everyone involved will need a claims management licence issued by the Ministry of Justice, and a Data Protection licence."

The MOJ guidance tells firms they must justify claims in adverts and failing to do so will see their businesses shut.

Ray Watson, Office of Fair Trading director of consumer credit, said: "The OFT will not hesitate to take enforcement action against licensed claims management businesses who engage in unfair business practices by deliberately misleading vulnerable consumers about the services they offer.

"Businesses should also be aware that if they offer debt counselling or debt adjusting services without holding an appropriate licence, they will be committing a criminal offence and risk prosecution, and that any agreements they enter into with consumers whilst unlicensed may be unenforceable."

The MOJ has highlighted a series of statements used by firms that are misleading, including:

• 80% of credit agreements are unenforceable
• 50 million credit agreements are created every year, at least 25 million are unenforceable
• We are currently handling over 5,000 cases!
• We are currently managing £30m of claims!
• We'll get your credit cards written off within 6 weeks!
• Fast results guaranteed!
• We have a 100% success rate
• A positive outcome is guaranteed

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