Rogue loan firms and debt management companies are conning desperate consumers who cannot access mainstream credit, according Citizens Advice.
The charity has lodged a super complaint with the Office of Fair Trading (OFT) about the unscrupulous behaviour of some businesses and called for a crack down on cold calls offering loans or debt management services.
The consumer group says that tens of thousands of people are being tricked into handing over large sums of money for financial services or products that fail to materialise. In some cases, people are being persuaded to hand over their bank details only to find money taken from their account without their consent.
Victims are typically low earners who cannot access credit elsewhere or are in severe financial difficulty and seeking advice. They receive multiple calls and text messages a day from different companies.
Some 840 million cold calls were made by debt management firms in 2009 according to Citizens advice. The super complaint highlights the case of a man who thought he was applying for a £10,000 loan with a well-known lender and was persuaded to hand over £245 in upfront fees. Despite paying this and other large sums of money, he did not receive a loan or any of his money back.
The OFT must fast-track the review of the super complaint and report back within 90 days.
Gillian Guy, chief executive of Citizens Advice in England and Wales, said: “Current economic conditions provide fertile ground for unscrupulous credit businesses and fraudsters. Increasing numbers of people are at risk of falling into debt because of job loss or a fall in income. 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.”
Steven Law, president of the Association of Business Recovery Professionals which represents legitimate debt management companies, said: “It is extremely important that those who are financially vulnerable are given the correct advice and use the most appropriate debt solution so that they are able to resolve their finances as quickly as possible.”
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