Re: Can you clear credit cards debts legally without Iva etc??
legally escape debt?
Firms are increasingly offering borrowers the chance to legally escape debts, but is this a fair tactic or an underhand ruse?
The case of heavily indebted couple Basil and Amanda Rankine, who have attempted to get their debts cancelled, has highlighted the sharp end of an industry using legal loopholes to beat the system.
Claims firms argue they are helping those who have been trapped by debt and lenders have abandoned.
Other borrowers, who are committed to paying back what they owe, may think otherwise and see this as another example of people trying to wriggle out of responsibility.
So, are those seeking to escape a mountain of debt cheating the system, or is this a legitimate way to get life back on track. Alan O'Sullivan investigates...
Why is this a growing industry?
We are essentially an indebted nation. The amount of secured and unsecured debt in the UK has rocketed in recent years, at times funded by ever-escalating property prices.
But it now appears these prices are over-inflated, highlighting how owners have been borrowing against value that does not exist, meanwhile those who lived life on the never never of credit card spending are getting a rude awakening.
Lenders are also less keen to give out new loans and credit cards in the wake of the credit crunch, so that borrowers cannot continue to switch debt from one provider to another, taking advantage of low introductory ratesm, as they have been doing.
Throw in rising inflation, joblessness and falling savings rates, and it there is much less spare cash to go round than in the previous years of plenty.
The result? More repossessions, unpaid bills and bankruptcies. The cure? Well, it may not actually be a cure, but the solution being offered to some desperate borrowers is to somehow try to get out of credit agreements by challenging their right to exist long after the cash has been spent.
Is this a fair method or are these just chancers trying to get out of paying the debts they rightfully owe?
There have been a flood of so-called Claims Management Companies (CMCs) arriving in the market in recent years to cash in on those people looking to get out of their debts. Some of these claimants have been genuinely hard done-by due to exploitative contracts, mis selling and being lent money they should never have been able to access, these include many bank charges claimants and those reclaiming missold payment protection. However, it is fair to say others are merely opportunists trying to get out of dealing with the debt hangover after the party has finished.
A couple featured in a Panorama documentary Can't Pay, Won't Pay on BBC One earlier this week: Basil and Amanda Rankine have had £37,000 of their debts written off by studying the detail of credit agreements and challenging the lenders. If they include debts that have been frozen, the total is closer to £100,000. This is out of total debts of £120,000.
Their first success was with an HSBC credit card. They queried the paperwork in a letter to the bank and it wrote off the total debt of £10,000, because it had lost all of its own paperwork.
However, they eventually fell foul of a High Court ruling, which accused them of deliberately trying to wriggle out of debt and landed them back where they started – with approximately £100,000 in court fees.
Who are these companies offering to clear debts?
There are an increasing number of CMCs, some of them established for many years, others new-comers to the market. Then there are traditional law firms specialising in contract law.
How do they plan to free people of debt?
Up until now these companies have typically poured over the contracts to loan and credit card agreements, looking for discrepancies in the agreement under the Consumer Credit Act which showed the loan was mis-sold or inappropriate, that there were incorrect charges in the paperwork, hidden legal fees, interest rates that were too high or complications caused by certain clauses.
Are there any reasons why this may not work?
There is every chance a particular case may work – and there is every chance it may not. When companies claim they have won thousands of these cases already, it must be noted these were won before the Consumer Credit Act was changed earlier this year.
The old law was very prescriptive: agreements were deemed unenforceable if they fell foul of certain criteria, such as exploitative interest rates that were not reflective of the risk taken on by the loan provider. However, the new law is much more arbitrary and uses terms such as 'unfair relationships' instead of 'high interest'.
None of these cases have been tested in court since the new law was brought in. Loan providers have preferred to settle out of court rather than get landed with a case that sets a huge precedent under consumer law. This means a borrower could win or could lose and in a sense everything is still to play for. Many are willing to chance their arm on this, rather than pay back the debts they owe. However, for anyone considering doing this what is infinitely more important is the terms of an agreement with the company investigating the case.
What are the catches?
There's always a catch, and claims firms are not in the market for purely altruistic reasons, they are there to make money - often on a win or lose basis. Depending on the CMC or law firm, people may get saddled with even more debt if your claim is unsuccessful.
One CMC launched earlier this year, Cartel Client Review, charges an initial payment of £495 per disputed product (i.e. credit card) plus £125 per additional product. CRC promises a refund of the £495 down-payment in the event of an abandoned or unsuccessful claim. However, scrutiny of its terms and conditions shows that, if it decides to abandon a case, there is no refund of the payment for disputes over such products as credit cards and personal loans, which could leave those trying to wriggle out of debt several hundred pounds out of pocket.
Even those opting for a no win-no fee firm can get stung for a hefty sum. A CMC called Bank Smart does not charge an upfront fee, but takes 25% of all reclaimed funds plus VAT, with a minimum fee of £99.
Firms that will offer more favourable terms include the Financial Claims Service, which earns all of its money from legal referrals, so the indebted get the full benefit. Meanwhile, one of the best offers from law firms comes from top 100 law firm Stephensons, which earns a large proportion of its money from the costs awarded on winning cases. The rest comes from 'no win, no fee' cases and legal aid. If a loan provider offers to write-off a debt but refuses to pay costs as a part of a case, Stephensons asks the customer to weigh up the benefit of paying the firm's costs against the amount of debt cancelled. Often, paying costs may be the cheaper option.
Where else can people get caught out?
Lenders are not oblivious to the growing litigious nature of their customers. Many are conscious of the fact that their loan agreements are not up to code and an increasing number of them are asking their customers to re-sign or 'update' their agreements as a result.
The new agreement is always blissfully free of any discrepancies – and borrowers have no recourse to then drag the provider to court. So anyone contacted about 'updating' loan agreements can presume something is afoot.
But is all of this fair?
It's one thing discussing what one can get away with, but another to look at what one should do morally. Obviously, there is an obligation on lenders to not only make sure all agreements are drawn up properly - but to ensure borrowers are not exploited and given a fair rate.
There are also growing calls within the debt advice industry for banks to lend more responsibly by using adequate credit checks; for example, a person with an annual wage of £18,000 should not be able to accumulate £20,000 worth of personal debt.
However there is also an obligation on consumers to fully pay back funds they have knowingly borrowed. There should also be a degree of self-awareness to a consumer's borrowing: only borrow what you know you can pay back.
What do banks and consumer groups think of all this?
Debt advice groups tend to not comment on individuals, individual companies or industries, so it is difficult to get a definitive view. They highlight that only a tiny minority turn to the credit management industry to try and have their debts written off, these borrowers have generally got a legitimate case - and this is usually at the suggestion of the debt advicer, not the borrower.
However the banks take a slightly tougher line on CMCs. Helen Banks, director of the British Bankers Association, said: 'The people signing up to these services fall into two types: those who can't pay and those who won't pay.
'Those who won't pay are just seeking a way out of their credit agreements: they feel no moral obligation to honour their contracts. Those who can't pay on the other hand deserve help and support. Too many vulnerable people are lured by claims management companies and unscrupulous legal firms into spending money up front in the hope it can clear all of their debts - and if they are heavily indebted it is money they can ill afford.
'For both types of people debt problems need to be faced properly - attempting to get debts written off is not a good way to do this.'