Citizens Advice today submitted a super-complaint to the Office of Fair Trading (OFT) relating to the marketing and charging practices operated by businesses offering credit brokerage and debt services.
Citizens Advice has identified two business practices which it has asked the OFT to look at:
- Firms cold-calling consumers by telephone and text to promote consumer credit products and ancillary services, including debt management
- Firms taking upfront fees for credit services, often by persuading consumers to give them their banking details, sometimes taking unauthorised deductions
The OFT now has 90 days to respond to the super-complaint and will invite interested parties to provide any evidence which may be useful to its investigation.
What’s the problem with credit brokers and debt management companies?
According to a report published today by Citizens Advice, tens of thousands of people are being tricked out of large sums of money by rogue loan finder and debt management firms taking advantage of the difficult economic climate.
Firms are phoning or texting out of the blue offering to help people find a loan. Consumers are then charged a hefty fee for a loan that often fails to materialise, and cannot get their money back. In many cases, they are persuaded to part with bank account details only to find money is withdrawn from their account without their consent.
To make matters worse, individuals’ details are often then passed on to other companies who bombard them with more texts and cold calls offering loans, debt management or claims management services. Citizens Advice evidence suggests that cold calling targets people unable to get mainstream credit because of a poor credit history, low income or current financial difficulties.
What is a super complaint?
Citizens Advice, like Which?, has legal powers under the Enterprise Act 2002 enabling it to file super-complaints with the Office of Fair Trading (OFT). A super complaint allows designated consumer bodies to complain to the OFT and specific sectoral regulators about market features that may be significantly harming consumers’ interests.
Which? announced recently that it is to submit its own super-complaint to the OFT about excessive debit and credit card surcharges. Visit our surcharges campaign page for more detail and to pledge your support.
High cost of debt management calls and loan-fee scams
Citizens Advice says 840 million cold calls were made by debt management firms in 2009, while loan fee scams affect at least 110,000 people a year and cost the UK public £190 million annually.
Gillian Guy, Chief Executive of Citizens Advice (England & Wales) said: ‘Current economic conditions provide fertile ground for unscrupulous credit businesses and fraudsters. For many, mainstream credit is out of reach, and a cold call or text offering help finding a loan is naturally tempting. Our evidence suggests that rogue operators are cashing in on the desperation of people hit hard by the recession who are least able to afford it, and that this problem is set to grow much worse.
‘We believe that the Consumer Credit Act and data protection legislation need to be urgently 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 with a view to deciding that a ban on cold calls and upfront fees is appropriate.’
Expert tips to avoid loan scams
Citizens Advice has produced tips on how to spot and report fake loans:
- Never pay money up front
- Never give out bank account details to cold callers
- Be very wary of cold calls offering loans, and internet sites offering quick and easy credit
- If it looks too good to be true it usually is
- If you need credit, shop around, use a trusted source and always check the paperwork
- If you’ve already paid money up front for a non-existent loan, inform Trading Standards. The Consumer Credit Act says that all but £5 of any brokerage fees should be refunded if no loan is taken up within 6 months.
- If you suspect a scam or fraud, report it to Action Fraud on 0300 123 2040, the National Fraud Authority’s reporting line.
- Get free, confidential, independent debt advice from any Citizens Advice Bureau.
Which? borrowing and debt advice
For more information on your borrowing options, read the Which? guide Your loan options.
If you’re struggling with debt, read the Which? guide How to deal with debt, including 10 reasons you should never use a commercial debt management company.
Which? Money when you need it
You can follow @WhichMoney on Twitter to keep up-to-date with our Best Rates and Recommended Provider product and service reviews.
Sign up for the latest money news, best rates and recommended providers in your newsletter every Friday.
Or for money-saving tips, and news of how what’s going on in the world of finance affects you, join Melanie Dowding and James Daley for the Which? Money weekly money podcast
For daily consumer news, subscribe to the Which? news RSS feed here. And to find out how we work for you on money issues, visit our personal finance campaigns pages.