Beware ‘we will buy your debt’ scam
“Mum suddenly cheered up. She had been out of sorts for a few weeks, and then the mists cleared – she told me she’d found an amazing company that could sort out a little problem she had fallen into.”
When Jonathan Brown, a 45-year-old manager from West London, probed a little deeper into his mother’s good news, he found that she had been approached by a company that said it could buy all her debts, which she could then repay with a far smaller monthly repayment.
Jonathan says: “It sounded too good to be true, so I got in touch with the Citizens Advice Bureau. It told me mum was the victim of a scam.”
Jonathan’s mother was lucky that her son checked the offer out. These companies have been a huge disappointment to thousands of consumers.
“They say they’ll buy your debts and you then pay them a smaller monthly repayment, but if you study the small print, you’ll find it’s structured so that you will be spending three or more times the amount you would have under the original agreement,” says a spokesperson from the Office of Fair Trading (OFT). “But that’s not the worst of it: the real problem is that these products are scams.”
It isn’t actually legal to sell a loan without the lender’s permission, so these promises are entirely misleading. Ray Watson, director of credit for the OFT, says: “You cannot simply sell on your debt and its liabilities, and businesses that make misleading claims to the contrary are just trying to take advantage of consumers’ distress.”
You will in fact be setting up entirely separate loan agreements with these companies, so you will be responsible for repaying these loans to your new provider, but you will still be liable for the original loans.
If you stop making payments to the original companies because you think the loan has been bought, you’ll land up in hot water, and your credit score will suffer accordingly.
It’s important to be clear, however, that these are not debt consolidation firms, which are legal operations that give you a loan that you can use to clear other debts.
In June 2009, an explosion of adverts aggressively marketing these debt-purchase scams led the OFT to publicly warn against them.
“We will first issue a warning to companies to stop, and if they don’t, we’ll take court action,” says the OFT spokesperson. “They are also supposed to be licensed by the OFT to operate in the credit sector, and some are not.”
In time, the worst offenders will be closed down, and with any luck the people behind them will be prevented from rising like a phoenix from the ashes and setting up another scam elsewhere. Watson says: “We have already initiated formal licensing enforcement action against licensed companies whose advertising or websites are making these misleading claims.”
However, if you come across one of these companies in the interim, the best advice is to steer well clear.
Sue Edwards, head of consumer policy at Citizens Advice, says: “We would urge people in debt to think very carefully indeed before spending money they’re unlikely to get back and can ill afford on a ‘solution’ that in many cases will just make their debt problems worse. Usually, if something looks too good to be true, that’s because it is.”
But what if you have already fallen foul of this scam? The OFT spokesperson says: “Don’t just stop paying these companies. You will have set up an agreement with them, and if you don’t meet your obligations, you could end up in even more trouble. So keep paying, but get some advice immediately.”
You need legal advice as early as possible, and a good place to start is the Citizens Advice Bureau. This is always a useful place to go if you run into difficulties with debt.
Edwards says: “The CAB provides free, confidential, independent and expert advice that can help people get debt-free and stay that way.”
Jan Smith, industry relations director at Callcredit, a credit reference agency, adds that before going to a third party, borrowers can start by contacting the organisations they owe money to. “The best way to tackle problem debts is to discuss them with your creditors and to seek advice from an independent agency if needed,” she says.
Of course, it’s also worth turning to those closest to you for advice and help. Jonathan says: “Once we knew mum was having problems, all her kids pulled together to clear her debts, so she could start again with a clean sheet. She’s still really cross with me for sticking my oar in, but I’m so relieved I did.”
Your credit score is a three-digit number (ranging from a low of 300 to a high of 850) calculated from the information in your credit report. Your credit score enables lenders to determine how much of a credit risk you are. Basically, a low credit score indicates you present a higher risk of defaulting on your debt obligations than someone with a high score. If you have a low credit score, any products you successfully apply for will carry a higher rate of interest commensurate with this risk.