Transfer scams hit the hard-up and desperate
Claims that companies can help people become debt-free by buying their debt are bogus, says the OFT
Saturday 27 June 2009
The Office of Fair Trading (OFT) warned consumers this week to avoid companies offering to buy, sell or transfer their debt. The consumer credit watchdog branded the tactic a scam. But that's not stopping desperate debtors being duped by their attractive promises.
Advertisements typically claim that in return for a percentage of the unsecured debt in the form of an upfront fee – often 10 per cent – firms will take over the liability of the borrower's debt, leaving them supposedly 'debt free'. The 'buyer' of the debt would then attempt to prove the unenforceability of the original consumer credit agreement in the courts.
It can appear attractive to those who are desperate and debt-laden. However, regardless of what the ads may say, 'selling' debt doesn't discharge a borrower from their financial obligations. The OFT says that the law doesn't allow debt to be sold without the express permission of the lender and warns that any firm suggesting otherwise is making "clearly misleading claims".
Ray Watson, the OFT's director of credit, says: "Like most scams, when something looks too good to be true, it usually is, and this is certainly the case here. You cannot simply sell on your debt and its liabilities, and businesses that make misleading claims to the contrary are trying to take advantage of consumers' distress."
So how many firms are involved in this debt transfer scam? An OFT spokesman told The Independent that it has seen a "massive increase" in the advertising of these bogus schemes.
Similarly, credit reference agency Callcredit says it has been contacted by a number of consumers who had been given the impression that having 'sold' their debts they would no longer have the debt reported on their credit file. It warns that unless the creditor agrees to the sale of debt, its existence will still be "fully visible" on credit files.
A quick search reveals a plethora of misleading claims on the internet. One website states "the transfer of debt is legally allowable and refers to credit cards, unsecured loans & bank overdrafts". Explaining how lenders often sell debt to third parties (debt collection agencies for example), another advert claims: "If the bank can sell its debt so can the borrower." These are misleading statements that the OFT is looking to crack down on.
Consumer finance internet forums and message boards are rife with hearsay, misleading statements and wishful thinking over the viability of debt transfer. And many posts advertising debt transfer services highlight the fact that legitimate financial services intermediaries are also beginning to market the bogus business model.
Debt transfer scammers are targeting credit crunch-hit mortgage brokers and independent financial advisers with the enticement of lucrative commissions. One site suggests that, for the right type of person, earnings in excess of £100,000 per year "should be easily achievable". In fact, while the OFT was sounding its warning this week, free seminars for brokers espousing the debt transfer concept were taking place around the country.
So what action can the OFT take? An OFT spokesperson said it had a wide range of sanctions available at its disposal. Licensed operators could face anything from an informal warning to legally binding behavioural requirements being placed upon it, or ultimately, the revocation of its licence. This latter most severe penalty would see the firm losing its right to practice in the consumer credit sector.
Anyone found operating without a licence is committing a criminal offence. However, the OFT admits that its adjudication process can take a long time, and any disciplinary action can be appealed, adding even more time before serious action can be taken. All the while, the firms in question can still be offering false hope to consumers.
Matters are further complicated by the fact there is an overlap of regulators. Currently the Ministry for Justice (MoJ) is the Claims Management Regulator in England and Wales. At the same time, the Consumer Credit Act 1974 requires companies who offer debt counselling/adjusting services to be licensed by the OFT. Businesses which are authorised by the MoJ to provide claims management services will also need to be licensed under the Act if they engage in any debt counselling/adjusting activities.
Perhaps unsurprisingly, the MoJ argues its claims management supervision has been a successful one. A spokesperson for the Claims Management Regulator says: "MoJ regulation is focused on the activities of claims management companies – the businesses that usually act as intermediaries between claimants and solicitors. Regulation was introduced in 2007 and has been successful in stopping unauthorised advertising and leafleting of hospital casualty departments. It has significantly reduced cold calling, tackled misleading marketing and removed unfair terms in contracts with clients. All of this progress has benefited the public and helped to reduce their annoyance and distress at these issues.
"We have forged close working relationships with other regulators like the Solicitors Regulation Authority, Office of Fair Trading and the Financial Services Authority (FSA) to ensure malpractice is more effectively dealt with across all those individuals and organisations involved in the claims process."
But it's not just the regulators that those involved in debt transfer advertising are inflaming.
The tactics of the debt transfer brigade are frustrating those involved in financial claims management, who argue that they provide a valuable service to those who have been treated unfairly by lenders.
These controversial firms seek to audit unsecured loans, credit cards and overdrafts to see if they can be contested in court and ruled unenforceable, resulting in the borrower completely clearing that debt. The core of their argument is that many loan agreements are in breach of the Consumer Credit Act of 1974. Generally these firms either take fees before looking at the client's loans or before beginning any legal proceedings. The size of such fees varies considerably, with some charging up to £500 up front per loan agreement.
Carl Wright, managing director of Cartel Client Review, is highly critical of the debt transfer message. Crucially, he believes that telling consumers not to meet monthly repayments is in breach of regulatory legislation."Consumers must be very wary of firms that make misleading claims of buying up debt," says Wright. "To some, their methods may appear attractive. But their lack of legal experience with unenforceable credit agreements will only leave consumers in deeper financial trouble, and potentially even in court."It is imperative that the Ministry of Justice, Office of Fair Trading and FSA step in to ensure these companies are investigated and regulated. If they're found to be in breach of the law, they should be reprimanded accordingly."
Yet these claims management firms themselves aren't immune from controversy. Cartel Credit Review had a complaint about its adverts upheld by the Advertising Standards Authority at the start of the year. And in the past 10 days, the advertising watchdog has rapped two other firms, Debt Free and Claim Management UK, following complaints about their advertising. The latter, for example, was found to have sent misleading text messages advertising their services.
Their business is all about persuading people to pay them cash in the hope that they can wriggle out of their debts. The firms point to a loophole in the law which means that some consumer credit contracts that have been drawn up prior to 2007 may be non-enforceable. However, critics of the firms say they are 'claims harvesting' – accusing them of profiting from the fees they make from people tricked by persuasive ads to sign up for a process they have no chance of winning.
In February, the MoJ issued guidelines to claims management firms, following widespread concern over the statements a number were making. Messages that it considered to be misleading include: "80% of credit agreements are unenforceable", "50 million credit agreements are created every year, at least 25 million are unenforceable", and "A positive outcome is guaranteed".
At the same time, the OFT said it would take action against "claims management businesses that engage in unfair business practices by deliberately misleading vulnerable consumers". In the meantime, it urges anyone coming across adverts or websites marketing debt transfer schemes to report them to their local trading standards office.
Helping hand: Where to get free debt advice
Anyone struggling to meet monthly debt repayments is likely to be better off getting free help from debt advisers rather than turning to a claims management company. There really is no need to pay for debt help when a number of charities and other organisations can advise you for free. Citizens Advice Bureaux will also be able to explain your legal options at no charge if you think you may have been mis-sold a loan or other financial product. Any of the following bodies could help you.
National Debtline (0808 808 4000) Offers free, confidential and independent help over the phone for people in England, Scotland and Wales.
Consumer Credit Counselling Service (0800 138 1111) Has a helpline providing free, independent and impartial advice to people who have debt problems.
Payplan (0800 716 239) Provides free advice on debt and budgeting, including free debt-management plans and IVAs.
Citizens Advice Bureaux
They provide free information and advice on legal, money and other problems. You can find details of your local office in the phone book.
Bargain Hunter: Comparethemarket.com launches two-for-one cinema tickets offer
Help to Buy Isa Q&A: Are they real help for first-time buyers or simply a vote-winner for the 2020 election?
You'll need £220,000 for a minimum wage in your retirement
Pension freedom: Steve Webb answers your questions on the big shake-up
Bank-beating exchange rates on your international payments
- 1 Germanwings crash: Police make 'significant discovery' at home of co-pilot Andreas Lubitz
- 2 Zayn Malik already working on solo material, just days after quitting One Direction
- 3 The West has it totally wrong on Lee Kuan Yew
- 4 #FreeTheNipple: Women in Iceland bare breasts in solidarity with trolled student
- 5 Jeremy Clarkson calls on trolls to leave producer Oisin Tymon alone: 'None of this is his fault'
Nigel Farage brands LGBT activists 'filth' and 'scum' and accuses them of scaring away his children after they invade his local pub
Ukip supporters are 55 or older, white and socially conservative, finds British Social Attitudes Report
JK Rowling responds to fan tweeting she 'can't see' Dumbledore being gay
Russia threatens Denmark with nuclear weapons if it tries to join Nato defence shield
Jeremy Clarkson sacked live: Alan Yentob 'wouldn't rule out' ex Top Gear host's BBC return
Germanwings plane crash live: Andreas Guenter Lubitz intentionally crashed flight 9525 into the Alps in act of mass murder and suicide – latest
iJobs Money & Business
Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...
Negotiable: Recruitment Genius: You will be the first point of contact for all...
£18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...
£35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...
Day In a Page
A four-bedroom apartment on the ground floor of a stunning period property in North Yorkshire, with two kitchens and a large south-west facing garden.
This high-spec two-bedroom home is part of a smart collection of new flats at Beaufort Park and has a large decked balcony that's perfect for summer drinks.
Capitalise on the fabulous views of Trevone Bay by taking two homes and creating one spacious boutique B&B. Just a cliff-top walk from Padstow.
Overlooking a golf course, this six-bedroom Edwardian detached home spans four storeys and retains many period features including the original, operational servants' bells...
On the edge of the city, this six-bedroom home comes with an outdoor swimming pool and a large garage block that has annexe potential.
In a Grade II-listed manor just outside of Bath, this three-bedroom home is arranged on two floors with a skylight in a vaulted roof line.
Open the living room's bi-fold wooden doors to reveal a retro-style kitchen, and a conservatory leading to a paved garden at this three-bedroom home.
A Grade II-listed, four-bedroom home, in a charming Somerset village, with a two-storey studio that could be converted into a holiday cottage
A modern four-bedroom Victorian home, within walking distance to the high street
A luxury apartment in the Gothic mansion of Wyfold Court in Kingwood, offers six bedrooms spread over three floors and a turret
This school conversion, near Stockwell Tube, oozes New York loft style. The one-bedroom flat features double height ceilings and exposed brick work
This six-bedroom Georgian home is on three floors with open fireplaces, a two-oven Aga, an annexe, and cottage gardens with outbuildings and a car barn
High Crest House covers an impressive 9384sq ft, with almost three acres of grounds including a tennis court and summer house enclosed by electric gates
A six-bedroom farmhouse with separate accommodation in converted stables. Situated in the village of Church Aston, within walking distance to the market town
A two-bedroom flat with under-heated walnut floors and bespoke built-in storage. The Tube and Clapham Common are a short stroll away
A refurbished seven-bedroom townhouse with staff quarters, cinema room, superb gym, steam room and plunge pool
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
A boutique mews house, set around a central courtyard, with three bedrooms and a private roof terrace
A four-bedroom farm-conversion with three bathrooms and two reception rooms
A two-bedroom detached house with ensuite bathrooms and a sun-drenched decked terrace, £750,000
A modern and spacious two-bedroom, penthouse flat with two bathrooms in a prestigious development
A beautifully renovated five-bedroom terrace with three reception rooms and a courtyard garden, £700,000
A four-bedroom period house which has been extended to provide almost 2,500sq ft of living space, £675,000
A pretty three-bedroom Georgian home with a 22ft drawing room and a master suite with a balcony, £525,000
A substanstial family home with five bedrooms and landscaped gardens in the much sought-after Branksome Park area
A well-presented three-bedroom house with front and rear gardens, close to White City station, £475,000
A handsome five-bedroom house in a sought-after location close to the city centre
A five-bedroom country home with valley views, equestrian stables and 27 acres of land, £725,000
A six-bedroom farm house with separate, detached cottages and 371 acres of land
A two-bedroom cottage with parquet floors, chunky beams and an open fireplace
A three-bedrrom flat with 2,733sq feet of living space, a beautiful private garden and 15 acres of communal grounds
A four-bedroom chalet bungalow with three bathrooms and a spacious garden, £525,000
A two-bedroom flat with an open plan kitchen and two balconies, close to Arsenal station