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Citizens Advice ‘super complaint’ calls for OFT investigation and ban

Tens of thousands of people are being tricked out of large sums of money by rogue loan finder and debt management firms taking advantage of the difficult economic climate, a new Citizens Advice service report says today.

The national charity has lodged a super complaint* with the OFT and is calling for a ban on cold calls offering credit or debt management services, and a ban on up-front fees.

Cashing in, based on evidence from Citizens Advice Bureaux all over England, Wales and Scotland, describes how victims of the recession are being targeted by firms who phone or text out of the blue offering to help find a loan. People are then charged a hefty fee for a loan that often fails to materialise, and cannot get their money back. In many cases they are persuaded to part with bank account details only to find money is withdrawn from their account without their consent

Their details are often then passed on to other companies who bombard them with more texts and cold calls offering loans, debt management or claims management services. In many cases reported by Citizens Advice Bureaux, people have been subjected to additional rounds of up-front fee charging, but still received little or no service in return. CAB evidence suggests that cold calling is concentrated among credit brokerage firms that appear to target people unable to get mainstream credit because of a poor credit history, low income or current financial difficulties.

Many of the problems seen by the CAB service involve seemingly legitimate licensed credit businesses breaching current consumer protection rules. But CAB evidence also suggests that fraudsters posing as credit brokers are using the same tactics to extract bank details from people and steal hundreds of pounds from their accounts.

Citizens Advice says these practices are widespread, with 840 million cold calls made by debt management firms in 2009 and loan fee scams affecting at least 110,000 people a year and costing the UK public £190 million annually.** They warn that these numbers are bound to rise further at a time when, according to recent estimates, up to six million households are either in arrears with bills or credit commitments or are finding a constant struggle to keep up.***

Gillian Guy, Chief Executive of Citizens Advice (England & 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.  

“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, 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.”

Lucy McTernan, Chief Executive of Citizens Advice Scotland, said:

“In times like these, it is essential that those struggling with their finances receive the right kind of advice and support they require for their circumstances. Instead, Citizens Advice Bureaux are seeing increasing numbers of people who have suffered as a result of the unscrupulous practices of businesses looking to take advantage of their plight. Evidence from across the UK shows that there is a compelling case for action to stop the harm consumers are suffering as result of cold calling and upfront fees.”

Cases seen by Citizens Advice Bureaux include the following:

A man was cold called by a loan finding firm but did not agree to a take out a loan. Some time later the same company contacted him with further details of the loan offer which he refused due to the very high APR. The first he knew of the brokerage fee of £69 was when he accessed his bank account. He tried to get his money back but was refused. His only income was employment and support allowance (ESA) of £105 fortnightly so losing this amount of money put him into severe financial difficulty.

A  woman applied to a credit broker for a loan to keep going and to service her debts. They refused to give her a loan, but soon afterwards she received a cold call from a debt management firm who took her details and went on to take fees of £825 from her bank account even though she was clear she did not enter into a contract. The debt manager also introduced her to a claims management firm who wanted to charge her £705 to investigate whether her credit card agreements were valid. They gave her the impression that in 80 per cent of cases they were successful getting the credit agreements set aside.

A disabled pensioner received unsolicited phone calls from various companies offering her loans. She had already given her bank details to one company that took £65 to find her a loan that never appeared. Since then she had received up to 12 calls a day from other companies asking for her bank details. The companies would keep her talking before asking her to phone them back as they had important information for her. It was only when she received her phone bill that she realised the phone calls were charged at premium rate.

A 30 year old man was cold-called and offered a loan of £10,000.by a caller fraudulently using the name of a well known credit brand. He was told that he had to pay £245 in order to access the £10,000. He paid the money through a money transfer service but the loan did not arrive.  He had since paid further sums of £399, £499, £599, £200 and £240, but still received no money.

Citizens Advice top tips on fake loans:

• Never pay money up front
• Never give out bank account details to cold callers
• Be very wary of cold calls offering loans, and internet sites offering quick and easy credit
• If it looks too good to be true it usually is
• If you need credit, shop around, use a trusted source and always check the paperwork
• If you’ve already paid money up front for a non-existent loan, inform Trading Standards (www.tradingstandards.gov.uk). The Consumer Credit Act says that all but £5 of any brokerage fees should be refunded if no loan is taken up within 6 months.
• If you suspect a scam or fraud, report it to Action Fraud 0300 123 2040, the National Fraud Authority’s reporting line.
• Get free, confidential, independent debt advice from any Citizens Advice Bureau (go to www.adviceguide.org.uk for more information and contact details).


Cashing in: CAB evidence on cold calling for credit and up front fees charged by loan finding firms is available online at www.citizensadvice.org.uk/cashing_in  from Thursday 3 March 2011

* A super complaint can be made by a designated group of consumer organisations on a specific issue.  The complaint is a request to the OFT or other specified regulator to investigate an issue or a market that the consumer body believes is working against the consumer interest.  The OFT or other specified regulator is required to publicly respond to a super complaint within 90 days to say whether:

• they believe it is an issue – if not, why not
• how they intend to deal with it.

This is the third super complaint to be lodged with the OFT by Citizens Advice since the new powers designed to end market abuses were introduced in 2002.  The first was about doorstep selling and triggered an OFT investigation, leading to tighter controls including improved cancellation rights  The second, in 2005, was about payment protection insurance (PPI) and prompted an OFT investigation and referral to the Competition Commission, leading to changes including a ban on the sale of single premium PPI with unsecured loans and improved complaints handling.

**Source: Research on the impact of mass-marketed scams, OFT 2006  

***Source: The impact of Independent Debt Advice Services on the UK Credit Industry  Friends Provident Foundation 2010

Notes to editors:

1. The Citizens Advice service comprises a network of local bureaux, all of which are independent charities, and national charity Citizens Advice. Together we help people resolve their money, legal and other problems by providing information and advice and by influencing policymakers. For more information in England and Wales see http://www.citizensadvice.org.uk/index/aboutus.htm
2. The advice provided by the Citizens Advice service is free, independent, confidential, and impartial, and available to everyone regardless of race, gender, disability, sexual orientation, religion, age or nationality. For online advice and information see www.adviceguide.org.uk
3. Citizens Advice Bureaux in England and Wales advised 2.1 million clients on 7.1 million problems from April 2009 to March 2010, an 18% increase on the previous year. For full 2009/2010 service statistics see: http://www.citizensadvice.org.uk/index/pressoffice/press_index/press_20100517.htm
4. Out of 22 national charities, the Citizens Advice service is ranked by the general public as being the most helpful, approachable, professional, informative, effective / cost effective, reputable and accountable. (nfpSynergy’s Brand Attributes survey, May 2010).
5. Most Citizens Advice service staff are trained volunteers, working at around 3,300 service outlets across England and Wales.
6. Volunteer hotline 08451 264264 (local rate)