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Your Money > Family Finances Articles > Do we need...
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By Sarah Modlock
Pretty much every trend in the US makes its may across the Pond at some stage. Everything from Beanie Babies to Starbucks has arrived here sooner or later. It's widely believed that we have the Yanks to thank for our burgeoning compensation culture, where a slip on a wet floor can result in a cheque for thousands....if you use a claim management company. Changes in the law paved the way for no-win, no-fee companies to grow in recent years. There are now 3,000 of them in the UK - a number which has doubled in just a year. Not all of them target customers who have been involved in accidents or have been injured – there is also a lot of money to be made from people who may have been mis-sold a financial product. PPI complaints The money watchdog the Financial Services Authority (FSA) recently announced that banks and other lenders must give redress to anyone who was wrongly sold payment protection insurance (PPI) alongside a loan or credit card. This means that the finance companies must review the 185,000 complaints they have already turned down and then look at other cases – possibly as many as two million. If the PPI was mis-sold then the finance company must repay the cost of the insurance plus interest. If you have a PPI policy and think you might have been sold it unnecessarily or that you were not told how it worked or how much it would cost then you should complain to the company that sold it to you. And here's where the claim management companies are jumping for joy. They have a big pool of potential new customers to approach. They can offer to handle the complaint on your behalf. They may say they will take all the boring or tricky paperwork off your hands, along with the hassle of dealing with the banks and lenders. Let's face it, writing letters of complaint is not everyone's idea of fun after a day's work so it's easy to see that an offer from a claim company might be tempting. But of course it's not that simple. You will pay for the work the company does and so it's crucial to know - before you sign up - not only how much they will be paid (this is usually an initial, non-refundable fee and/or a percentage of the funds they recover) but how and when they will be paid. The other important fact is that if you choose to tackle the complaint on your own, the complaints process is not that hard, should not be a hassle and is completely free, so you keep any money you receive, as well as avoiding a fee. All the information you need is available from the Financial Ombudsman Service: Debt 'wipe-out' cases Another area where claim managers are active is in offering to 'clear' your debts. Earlier this year, the Office of Fair Trading (OFT) warned customers not to be taken in by businesses claiming to help them become debt free by 'buying' or 'selling on' their debts. This followed a significant increase in the number of adverts on the internet and in newspapers from companies that misleadingly state they can take over liability for debts or write off debts by purchasing consumers' credit agreements. In fact the law does not allow the sale of debt without the lender's permission and so businesses that suggest otherwise are making clearly misleading claims. Brokers who introduce clients to companies that say that they can 'buy' and 'sell on' consumer debts are also misleading consumers. So anyone who does 'sell' their debts to one of these businesses, either directly or through a broker, will still be liable for their original repayment obligations as well as losing the money they paid for this false service. They will also still be subject to any debt collection activity and negative credit scoring associated with the original debt. The principal regulator for claims management companies is the Ministry of Justice. Those businesses that operate in the credit/debt sector also need to be licensed by the OFT. Some of the firms offering these services do not have consumer credit licences and the OFT is working in partnership with local trading standards services to prosecute them for unlicensed trading. “Like most scams, when something looks too good to be true, it usually is, and this is certainly the case here,” warns Ray Watson of the OFT. “You cannot simply sell on your debt and its liabilities, and businesses that make misleading claims to the contrary are just trying to take advantage of consumers' distress. Consumers with debt problems should contact their creditor to arrange a repayment plan or their local Citizens Advice Bureau who will be able to provide free advice.” Other claim companies say they can prove the original loan or credit agreement was 'unfair'. Many focus on loans taken out before April 2007 when amendments to the Consumer Credit Act introduced new paperwork. Some claim companies believe that courts will deem earlier loan agreements unenforceable. They also challenge the loan company to produce the original loan agreement - something which recently tripped up MNBA in a court case it lost. Lucy Widenka, personal finance campaigner for consumer campaigners Which? says: “The promise of having your debts written off may sound too good to be true – and that’s because it usually is. While some people have had their debts written off in this way, consumers must be aware that success depends entirely on their individual situation.” Once again, if you're tempted you need to look very closely at the costs and payment system. You may be charged hundreds of pounds for the firm to even consider your case - money which will not be refunded if they decide not to take it on. If they do pursue a case for you, make sure you know how much more you will pay out - it could be around a third of what you win. Regulation The Ministry of Justice, which has regulated these companies since 2007, has shut down 116 operations already. Most have been banned for using misleading advertising or for charging excessive fees. Kevin Rousell, head of claims management regulation for the MoJ, says: “There is a small proportion of firms operating in the market who are deliberately trying to mislead customers. About a quarter are not complying with the rules we have set out.” But it remains very easy to set up a claims company and so quite apart from the legitimate companies getting it wrong, it's not difficult for criminals to set up a website and phone line and tout for business, taking your money as an up-front fee before disappearing. Think before you sign up with a claim management firm Don't sign anything without knowing exact details of the costs and benefits, the terms and conditions and the fees and costs. Do check whether the company is regulated by the Financial Services Authority, the Ministry of Justice, or by a professional body (the Law Society, for example) and therefore must meet certain standards. Do check that the claims company is registered at the Claim Management Regulation website: www.claimsregulation.gov.uk. Do handle your own complaints instead using the free system. If you are paying for PPI with a loan but were not told key facts, including that the insurance was optional, you were mis-sold and should complain in the first instance to the firm that sold you the insurance. In 2006 the Office of Fair Trading ruled that credit card fees of up to £35 were unfair, capping the acceptable amount at £12. You can claim back the difference by writing to your card provider. Overdraft charges claims are on hold, but a ruling is expected in the Supreme Court by Christmas. To make a claim, write to your bank using template letters available online. Don't hesitate to seek free debt advice from the Citizens Advice Bureau, CCCS or National Debtline. |
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