Dodgy debt-management firms and loan finders who prey on Britain's poorest families are the focus of the latest consumer super-complaint, lodged this week with the Office of Fair Trading by Citizens Advice. The charity says tens of thousands of borrowers who struggle to get credit at traditional lenders are being conned out of money by unscrupulous loan-finder and debt-management firms. Worse, the number will increase as the recession hits harder.
The scammers text out of the blue offering to help find a loan or offering debt help. Customers are then charged a hefty fee for loan or debt advice, which often fails to materialise, and cannot get their money back. In many cases victims are persuaded to part with bank account details only to find cash is withdrawn from their account without their consent.
And their troubles don't stop there. In many cases their details are circulated among other scam companies, which bombard them with more texts and cold calls offering loans, debt-management or claims- management services. In many cases reported by Citizens Advice Bureaux, people were subjected to additional rounds of upfront fee charging, but still received little or no service in return. CAB evidence suggests cold calling is concentrated among credit brokers, which appear to target people unable to get mainstream credit because of a poor credit history, low income or current financial difficulties. In other words, it is a particularly nasty practice which relies on fooling people who are vulnerable and likely to grab at any straw to find a way out of debt.
The fees rogue firms charge may seem relatively small – from £50 to £500 – but they can make a huge difference to their victims. In one typical case reported by Citizens Advice, a man was cold called by a loan-finding firm but did not agree to a take out a loan. So he was surprised to discover he had been charged a brokerage fee of £69, which was taken out of his account. His only income was employment and support allowance of £105 fortnightly, so losing the cash put him in severe financial difficulties. In another case, a 30-year-old man was cold called and offered a loan of £10,000 by a caller fraudulently using the name of a well-known credit brand. He was told to pay £245 through a money transfer service to access the loan but it did not arrive. He has since paid further sums of £399, £499, £599, £200 and £240 but received no money.
"Current economic conditions provide fertile ground for unscrupulous credit businesses and fraudsters," says Gillian Guy, chief executive of Citizens Advice. "Increasing numbers are at risk of falling into debt because of job loss or a fall in income. For many, mainstream credit is out of reach, and a cold call or text offering help is naturally tempting.
"Our evidence suggests that rogue operators are cashing in on the desperation of people hit by the recession who are least able to afford it, and this problem will grow worse."
How do the scammers get away with it? Citizens Advice blames complex consumer protection rules. "Loopholes give too much room for bad practice to flourish," says Guy. "We believe the Consumer Credit Act and data protection legislation need to be updated to tackle these problems at root cause, but the situation is already so serious we are making a super-complaint to the OFT and asking them to launch an immediate investigation."
CAB is calling for a ban on cold calls and upfront fees. That sounds like an excellent suggestion. But one of the key problems with the UK's consumer-protection process is that the wheels of progress generally turn staggeringly slowly. That's not necessarily the OFT's fault – it's the system it has to work within. This is the OFT's statement in response to the super-complaint: "The OFT will shortly invite interested parties to provide any evidence which may be useful to its assessment. It will publish a response within 90 days." In other words, it is going to be at least three months before we see any sign of a crackdown on these dodgy practices.
That's 12 weeks for the scammers to find more victims. The OFT says loan-fee scams affect at least 110,000 people a year and cost individuals £190m. In three months, that means a further 40,000 people could become victims.