The Government has started an official crackdown on misleading adverts by claims management companies offering to wipe out unpaid loans and credit card debts.
These companies wrongly entice consumers to try and wriggle-out of loans and credit card debt agreements through a “loophole” that they claim to be able to expose.
The Ministry of Justice is set to clamp down on this and has threatened closure for companies making dubious claims, or acting in a mis-leading manner.
They have also warned consumers to act more vigilantly when considering these types of schemes, by producing a guide highlighting the main concerns, and have urged consumers to seek impartial debt advice first.
Bridget Prentice, Justice Minister, said: “We have produced this guidance to protect innocent customers from being misled by businesses advertising easy and quick arrangements for outstanding loan, credit card and other similar agreements to be written off and compensation to be obtained. We would urge anyone who is considering using a business offering such services to think carefully and seek independent advice before making any final decisions.”
This has been welcomed by debt advice organisations, who receive enquiries from customers once companies like these have taken their money and plunged them further into debt.
As some of these opportunists try to exploit people’s worries about their finances, there has been a steep uplift in the advertising from these businesses recently across newspapers, radio and on the internet.
Some adverts suggest that virtually all credit card or loan agreements agreed before April 2007 can be written off as they are unenforceable under the Consumer Credit Act.
Many claims handlers charge an upfront fee – of around £500 – just to check a credit agreement, even though there are no guarantees of success. For someone with multiple agreements the costs can quickly mount up to several thousands of pounds and people may then be sold a “no win, no fee” agreement to take legal action that can then end up costing them more.
This leaves vulnerable customers with the combined payments of the claims handler’s fees on top of their original balances, pushing their total borrowings up.
Debt advice companies recommend speaking with an impartial adviser before committing, as many offer free debt advice to consumers.
If customers are struggling with their finances, they can offer some free debt help or suitable ways to repay debts at a more affordable rate – possibly by way of a debt management plan or an IVA.
Debt management is an informal way of repaying multiple debts but at a level that is realistically affordable. A debt management company will usually negotiate the repayments down, and spread this over a longer period – thus making them more manageable.
An IVA is similar to debt management in that debts can be repaid at an affordable rate, however unlike debt management an IVA is over a fixed period – usually five years.
An Insolvency Practitioner is also needed for an IVA agreement, and they will provide IVA advice and show how an IVA helps you become debt free.
In the current climate there are numerous companies operating, however reputable and established companies include Chiltern Debt Management, Hamilton Locke and The Debt People.
These companies offer a full range of debt help programmes and all offer free debt advice.
The Office of Fair Trading also warned that it would not hesitate to take enforcement action against claims management firms guilty of misleading consumers.