My top tips on how to get out of financial misery... Dailly
LAST week the Advertising Standards Agency banned a series of misleading adverts from commercial debt advice companies. The online ads exaggerated the speed and ease that debts could be reduced. They used misleading reviews and didn’t explain the risks that came with certain solutions. They made misleading claims of associations with debt charities or endorsements by government.
When someone is down on their luck and in serious financial shtook, it never surprises me how there are plenty of folk whose business model is to sell you something you can get for free. Worse, you might be sold something that is detrimental to your financial health.
Such practices are on the rise as more people experience financial difficulty from the impact of lockdown and the pandemic.
Before the Financial Conduct Authority (FCA) took over the regulation of consumer credit in 2014, there were 311 private debt management firms across the UK – 87% of those businesses folded because they failed to meet the standards under the FCA’s new rules.
You may remember the debt adverts that used to be so prevalent on television: make one monthly payment to all of your debts. For many consumers the bulk of those payments never reached creditors – it paid the firm’s own fees.
Even by 2019, the FCA was still routing out shocking commercial debt advice practices. One firm failed to identify an 87-yearold widow on a 95-year debt management plan as vulnerable, despite her telling the firm she had difficulty with technology and paperwork.
Another firm collected unaffordable payments from a vulnerable customer for six months, despite being told the customer was struggling financially and had given up work after being diagnosed with cancer.
If you find the impact of
Covid-19 pushing you into unmanageable debt, the first thing to do is be open about it. Talk to someone. You can find free, confidential and impartial advice by visiting the website available at moneyadviceservice.org.uk/en/ tools/debt-advice-locator There are many self-help options available. You’ll probably need a breathing space to take stock and work out the best options. You can apply to the Accountant in Bankruptcy (AiB) for a debt moratorium. You can do this yourself by filling in an application form and e-mailing it to the AiB: aib. gov.uk/debt/deal-debt/whatmoratorium
Once you’ve done this, creditors can’t take you to court, enforce payment orders against you or try to make you bankrupt for a period of six months. Bankruptcy is something a homeowner never wants to be forced into, as your home could ultimately be repossessed to pay-off debts. A debt moratorium will provide essential time to access free advice.
If you’ve purchased a car on hire purchase or a conditional sale agreement you won’t own the vehicle until the credit is paid off. In default payment scenarios, car finance firms will want to repossess the vehicle. You can prevent this by making a time order application to the court under section 129 of the Consumer Credit Act 1974. You can get free help from a local law centre solicitor to do this.
One thing to bear in mind is whether you can reduce your overall indebtedness by using laws and FCA rules that might protect you. When you took on responsibility for a loan – or acted as a guarantor for a family member’s credit – did the lender carry out proper affordability checks?
The Financial Ombudsman Service (FOS) is empowered to require lenders to write off charges, interest and sometimes balances where it finds a lender has failed to act reasonably and proportionately in selling you credit. A common scenario from the FOS is, for example, a consumer who borrows £5000 but can’t afford to make the payments of £250 over three years, repaying £9000 overall.
A lender assessed a customer’s monthly income as £2000, however, it failed to check if some of the money going into the customer’s bank account was from payday loans. The true monthly income was £1000 per month so the person could never have afforded the loan. The FOS required the lender to refund all interest and charges paid, adding interest at 8% per annum. The customer’s credit file was amended to remove adverse reporting from the default on the £5000 loan.
Likewise, for guarantor loans, lenders need to be able to demonstrate that they carried out proper affordability checks for both the debtor borrowing the money and the person acting as the loan guarantor.
Before you can complain to the FOS you need to first complain to your lender. The lender generally has eight weeks to try to resolve matters, failing which you can complain to the FOS. You have six months to do so from the date of the final response of the lender. You can do this yourself online at financial-ombudsman.org.uk/ consumers/how-to-complain