Simon Read: Action at last against claims managers
Saturday 20 March 2010
I have often written about claims management companies in this column as I believe their activities to be largely reprehensible. They prey on hard-up people by telling them that they can write off their debts and be free of financial worries. But often they simple take a fee from a desperate person and do nothing to help them, leaving then in an even worse position.
But there was some good news this week when the Ministry of Justice finally shut down one of the biggest claims companies, Cartel Client Review. As we reported last Saturday, Consumer Credit Litigation Solicitors (CCLS) – the firm that provided legal services for CCR – was shut down by the Solicitors Regulation Authority after accusations of "suspected dishonesty". The law firm was discovered to have tens of thousands of customer files just put in boxes, almost untouched.
Now that Cartel has been shut down, the full extent of its activity is likely to be revealed. It advertised in downmarket newspapers with suggestions it could help people walk away from their debts. In return for a £495 fee, Cartel said it it would check if people's debts, such as on credit cards and other loans, could be legally challenged and written off. In fact, it passed on the actual checking work to solicitors like CCLS.
Cartel is believed to have taken about £20m from up to 70,000 hard-up customers over the past two years. It did have some successes, in that lenders decided to pay up rather than face massive court costs, but those successes were minimal. In effect, it appears that all Cartel did was pocket people's fees while very little work was done for them.
Cartel's activities began to unravel after a series of court cases put paid to its contention that people could write off their debts through a legal loophole. The main argument put forward by Cartel and rival claims companies was that loan agreements struck before April 2007 could be challenged in court under the terms of Section 78 of the Consumer Credit Act and cancelled if the lenders were unable to produce a copy of their original agreement, or if the agreement was illegible or did not contain the specific terms required under the Consumer Credit Act.
But a case in December confirmed that banks and other lenders are allowed to "reconstitute" their terms and conditions to show that their original agreement with a borrower had been in line with the law. In other words banks and other lenders have ery right to chase debts even if they have lost the original agreement.
The Ministry Of Justice announced it was investigating Cartel in February. On Thursday it shut the firm down by suspending its authorisation. However, there are still plenty of other dubious claims companies out there and the MoJ should act and shut them down too.
For customers of Cartel, the Ministry's move has come too late. Cartel's boss, Carl Wright, said this week that the firm doesn't have the money to repay clients. There seems little chance therefore that people suckered in by the adverts will see any of their money back.
The MoJ could only advise: "If you are a customer of CCR your agreement with them, as with any provider, is a private contractual matter between yourself and the provider in which MoJ cannot intervene directly because it is not a regulatory matter for which MoJ has responsibility." In other words, tough.
Other claims management firms are already circulating over Cartel's carcass with one dodgy outfit proclaiming: "Been screwed by Cartel Client Review? We will take over your case." Sadly such opportunism is likely to be rewarded by confused people tempted by the chance of getting their fees back, when all they're likely to get is fleeced of even more cash.
There are lessons for everyone involved in this sorry tale. The claims management industry has come under criticsm from all sides since it started just over two years ago, yet the MoJ still went ahead and issued trading licenses to hundreds of firms. It has subsequently shut down several, but the principle that almost anyone can set themselves up to offer people what is perceived as financial advice is totally wrong. Anyone who has turned to these firms for help has been misadvised and probably have lost money.
On the other side of things why have so many people felt the need to turn to these firms? Largely in desperation, I suspect. Some may have foolishly believed they could walk away from their debt, but most were tempted by what they thought of as a legitimate way to take on their banks and credit card companies and their excessive charges. If it had been legitimate, would the charges have been so high?
A fond farewell to unwanted cheques
MBNA has announced plans to scrap credit card cheques from the end of the month. It should have happened years ago. The cheques have been sent out unrequested to credit card holders for years. While most people have simply torn them up, struggling folk have been tempted to borrow extra cash.
But the price has always been high and those who have been tempted are often those who can ill-afford to do so. A £500 cheque could easily spiral by an additional £150 in just 12 months once the fees – at 3 per cent – were added to interest at 28 per cent.
"Sending these cheques to people with little financial discipline or willpower was akin to posting bars of chocolate through a school letterbox," says Andrew Hagger of Moneynet.co.uk.
The other issue with them was security. Because recipients didn't know when they were sent, they would have no clue if they were stolen until the bills started arriving. Although the credit card companies would have been liable for any losses, there was still the inconvenience.
So let's hope others follow MBNA's move and end the blight of the unwanted and expensive credit card cheque.
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