The truth about claims management companies
Consumers hoping to write off their debts as unenforceable should learn their fate in early January - some reports indicate the 7 January – following a recent test case hearing in Manchester High Court.
The case mainly centres on whether consumers should pay their debts if the lender fails to produce an original agreement within a certain time limit of the request.
If the Court finds in favour of consumers, then lenders may be forced to write the debts off.
How is it possible that people could write off debts in this way? The answer lies in the Consumer Credit Act 1974, which was brought in to safeguard the public from unscrupulous lenders.
The Consumer Credit Act requires certain credit and hire arrangements to be set out in a particular way and to contain certain information in order to be enforceable.
Until 6 April 2008, credit agreements were excluded if the amount of credit or hire exceeded £25,000. However, this financial limit was removed for all new credit and hire agreements by the revised Consumer Credit Act 2006 (pre-existing agreements above £25,000 remain outside regulation).
If lenders do not comply with the Consumer Credit Act, then they cannot enforce repayment of the loan through the courts.
Of course, this was not intended as a means for consumers to dodge their debt or to trip up banks and credit card companies, which may unintentionally fail to stick to the prescribed wording – thus rendering their credit agreements unenforceable.
It is estimated as many as 150,000 people are currently using solicitors or claim management companies to see if they can get any credit cards and personal loans written off through various ‘legal loopholes’.
As a result, many firms have sprung up claiming to be able to get consumers out of credit card or personal loan debt commitments. Much of the hype and information surrounding this issue is incorrect or misleading.
There are companies that claim 80% of agreements are unenforceable; they charge consumers up front fees of up to £495 to get rid of their debt, sometimes a percentage of the amount they have 'saved'. Some may also claim to get consumers compensation.
In my view, these companies should not be giving guarantees or making promises to get consumers out of their debt.
While in certain circumstances some agreements may be unenforceable, this is not always the case. If consumers mistakenly believe their agreement is unenforceable and, therefore, stop making repayments then they may be incurring additional default charges and legal costs - and they could damage their credit record for six years.
Lenders also have the right to threaten legal action if a loan is enforceable and the customer refuses to pay up.
The Office of Fair Trading’s guidance clearly conflicts with some of the claims promoted by claims management companies; it says that it is both legal and acceptable for a bank that has lost the original loan agreement (or whose copy is illegible) to supply an accurate reconstituted version instead in order to demonstrate that the agreement did in fact contain the information specified by the Consumer Credit Act.
The regulator does, however, point out to lenders that they are acting unfairly, and potentially in breach of their consumer credit licenses, if they misled borrowers by:
• Hiding or disguising the fact that there was never a properly signed agreement in the first place
• Providing only a copy of the current terms and conditions, not the original ones
• Failing to preserve data so the borrower cannot be given an up-to-date statement of their account
If you are struggling to repay your debts then think about getting some professional advice on how you can manage the payments. There is no guarantee you will be successful in getting the debts written off and there is also the moral issue of paying back the lender that advanced you the money in good faith.
Used by the holder to buy goods and services, credit cards also have a monthly or annual spending limit, which may be raised or lowered depending on the creditworthiness of the cardholder. But unlike charge cards, borrowers aren’t forced to pay the balance off in full every month and, as long as they make a stated minimum payment, can carry a balance from one month to the next, generating compound interest. As the issuing company is effectively giving you a short-term loan, most credit cards have variable and relatively high interest rates. Allowing the interest to compound for too long may result in dire financial straits.
Claims management companies
Regulated by the Claims Management Services Regulator since 2006, claims management companies offer advice and legal services in respect of claims for compensation, restitution, repayment for loss, damage or negligence. To many, the term is merely a polite euphemism for “no win, no fee” law companies. If you feel they offer services you need, approach with care.