Charity urges crackdown on loan scams

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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Nationwide urges caution of broker advice

The Nationwide has warned homeowners to be cautious of mortgage broker’s advice to sign up to a fixed-rate deal.

Chris Rhodes, Nationwide’s product and marketing director, said that brokers who have suffered from the slump in mortgage lending over the past year have an incentive to encourage consumers to fix. Brokers earn a commission when they sign clients up to a new mortgage deal and receive a higher fee for fixed-rate products.

Thousands of mortgage holders have allowed their fixed deals to expire to take advantage of lender’s standard variable rates (SVR) which have been kept low by the Bank of England’s decision to keep the base rate at 0.5%.

Some analysts have been urging homeowners to switch to a fixed-rate deal as higher than expected inflation has made an increase in the base rate more likely.

Mr Rhodes suggested that some brokers may be churning mortgages to earn fees. Churning is where a broker will contact a customer they have previously arranged a mortgage for to sell them another product. A broker might recommend that a customer switches to a fixed-rate deal having previously sold them a standard rate product irrespective of whether this is in their best interests,

Mr Rhodes said: “No one knows where rates are going to go. It has to be down to your judgement what you decide to do. That is not to say that you don’t fix. If you are on a standard variable rate of 2.5% and you are offered a two-year fix at 4.5%, you have to comfortable paying that extra two percentage points as insurance.

“You may feel that you can afford to take the hit if rates rise – even if they rise by as much as 1.5 points, for instance. If the market was confident that the Bank of England had come to a point when the economy had stabilised and Bank Rate didn’t need to keep rising, then swap rates may fall again – and so would fixed rates.”

Swap rates, the rates at which banks borrow money on the market to fund their lending, have risen over recent weeks on the back of speculation about a possible increase in the base rate. This has fed through to the pricing of fixed-rate deals with some lenders withdrawing their cheaper products from the market.

However, Melanie Bien, of mortgage broker Private Finance, said: “Borrowers considering switching to a fixed rate should do so as soon as possible as there is every likelihood that fixed rates will rise further in the coming days. But those who are on a cheap variable rate, and who could cope with a few quarter-point rises in Bank Rate, may consider staying put for now”.

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CCCS urges consumers to take action

The Consumer Credit Counselling Service has recently been offering tips and advice to consumers, and has urged those in debt to take action rather than burying their heads in the sand and trying to ignore their debt problems. Last year has been identified as having the overall highest number of personal insolvencies since records began in 1960, and this is despite the fact that insolvency numbers dropped off in the last three months of the year.

The Consumer Credit Counselling Service is now concerned that a rising number of people may end up turning to this sort of measure because of their debt, even in cases where insolvency was not necessarily the only solution. With job cuts, living cost increases, and wage freezes set to continue over the course of this year more and more people could find themselves facing financial problems according to the charity.

The CCCS has suggested that consumers avoid burying their heads in the sand, and instead take the time to take stock of their debts and finances so that they can figure out a way to solve the problem. Many may be able to ease the strain by more effective budgeting and financial control. Others may be able to get debt management advice from charities such as the CCCS. There are a number of different options that can be considered before personal insolvency.

One official said: “With so many factors adversely affecting consumers’ household budgets and finances it is little wonder that so many people are struggling at the moment. This is something that could continue over the course of this year. However, consumers shouldn’t assume that insolvency is the easy way out – it isn’t, as it can create huge barriers and financial issues in the future.”

Tags: measure, three months, debt, action, job, financial

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