Citizens Advice bids to ban rogue debt firms

Citizens Advice has lodged a super complaint with the Office of Fair Trading (OFT), calling on it to ban firms offering credit or debt management services that cold-call customers, and to stop companies charging up-front fees. Legally, the OFT has to respond (see the Debt Problems guide).

The says people who are struggling financially are being targeted by firms who contact them out of the blue offering to help them find a loan.

The charity says victims are charged hefty up-front fees, but the loan often fails to materialise and they are unable to get their money back.

In many cases, people are persuaded to hand over bank account details. As a result money is withdrawn from their account without their consent.

Their contact details are then often passed on to other companies, which bombard them with texts and calls offering them loans, debt management or claims management services, with some people receiving up to 12 calls a day.

These groups also charge up-front fees, often of several hundred pounds, but like the credit brokers, they fail to provide a service.

The charity says cold calling by credit brokers tends to target people who are unable to borrow from mainstream lenders because they have a poor credit history, are on a low income or are experiencing financial difficulties.

'Hitting the desperate'

Gillian Guy, chief executive of Citizens Advice, says: "Our evidence suggests 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.

"The framework of consumer protection about unsolicited marketing and up-front fees charged by credit brokers is not only complex, but loopholes give too much room for bad practice to flourish.

"We believe that the Consumer Credit Act and data protection legislation need to be urgently updated to tackle these problems at root cause."

She adds the situation is so serious, that it has been forced to make the super-complaint.

Citizens Advice says many of the cases it has come across involve seemingly legitimate licensed credit businesses, which are breaching current consumer protection rules.

There is also evidence fraudsters are using the same tactics and posing as credit brokers to get people's bank account details and steal hundreds of pounds from their accounts.

Steven Law, president of insolvency practitioners trade body R3, says: "Debt management plans (DMPs) have an important role to play in the debt and insolvency landscape, however there remain worrying practices in the debt management market.

"Unlike other insolvency procedures, DMPs are not regulated by the Insolvency Service and we believe the OFT's regulation is insufficient to tackle bad practice in the market.

"R3 has called for DMP providers to be regulated by the Insolvency Service and to the same standards as insolvency practitioners so as to deter bad practice."

Citizens Advice wants victims to contact it with their story using its debt super-complaint link.

Further reading/Key links

Get help: Debt Problems, Mortgage arrears and Redundancy guides