People in debt being 'exploited' by rogue advice companies

People who are struggling with massive debt are having their situation made worse by ‘rogue’ Debt Management Companies who exploit their difficulties with high fees, poor advice an

Related topics:  Finance News
Millie Dyson
12th September 2011
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Publishing a new report , Citizens Advice Scotland reveal the ways in which such companies operate, and urge people who are in debt to avoid them and seek free advice from the CAB instead.

CAS Chief Executive Lucy McTernan says:

“The number of people who are in debt has rocketed over the last few years. As incomes fall, many households are simply unable to cope with the rising cost of living, and so many have got themselves into debt as a result.

“One of the results of this has been a growth in Debt Management Companies – organisations who offer to help those who are in debt and sort out their finances in return for a fee.

“Whilst some of these companies can offer support, others take advantage of people who are at their most vulnerable. In effect they are exploiting people who are already struggling.”

The CAS report today lists three main ways in which ‘rogue’ Debt Management companies are exploiting their clients.

They are:

- Providing misleading information about their services, e.g. falsely claiming to be a charity or a government service;

- Providing inappropriate advice, which often makes things worse for the client; and

- Charging high fees (often for very poor services).

Lucy McTernan continues:

“The main message we’d want to get across to people is that there is in fact no need for them to employ the services of a debt management company at all.

"Everything that these companies offer is done by the CAB, who provide free, confidential, independent and impartial advice to help people deal with their debts and get back on their feet.

“It is hugely important that everybody in debt has access to the best possible free debt advice. We therefore call upon the UK and Scottish Governments to provide adequate resources for free debt advice to help as many people as possible.”

ABCUL's Policy and Relations Manager in Scotland, Frank McKillop, said:

"When more and more people are struggling to pay their debts, the last thing they need are debt management companies taking advantage of them and giving them advice which can often make their position even worse.

"For some time, credit unions across Scotland have been reporting cases of their members being ripped off by unscrupulous debt management firms or poorly advised about the best route out of debt, not to mention Trust Deeds where the creditor receives a pittance after the trustee has collected their fee.

"So we're very pleased to see this new report from Citizens Advice Scotland which gathers the evidence to back up what we've been hearing."

Credit unions are locally owned financial co-operatives which operate solely in the interests of their members and not for any investors or external shareholders.

Credit unions lend to members at ethical rates of interest from the savings of their fellow members, so it is important that borrowers keep up payments on their loans.

The knock-on effect of poor debt advice is therefore of great concern to credit unions.

Frank McKillop added:

"As ethical lenders, credit unions have a long track record of helping people who are struggling to repay their debts.

"But we have increasingly heard examples of members entering Trust Deeds upon the advice of debt management companies, leaving the member's options for accessing affordable credit damaged and the credit union's capacity to lend to other members of the community undermined.

"It is important that the Government acts against unscrupulous debt management companies so that debtors and creditors alike can have faith in the independence and ethics of all the advisors working in the sector."

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