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EDITIONS
 Working Lunch Thursday, 9 January, 2003, 16:20 GMT
Debt companies under fire
Leaflet about debt
Companies offer to consolidate debts into one sum
Companies which offer to handle people's debts are accused of using questionable practices.

The Consumers' Association says some of them are failing to follow guidelines which were laid down by the Office of Fair Trading a year ago.

The companies involved often advertise in tabloid papers or on TV.

They offer to consolidate all your debts into one lump sum and then negotiate with your creditors to pay it off over a longer period.

Credit rating

But although the payments can seem less because of that longer repayment period, there can be sizeable fees involved and your credit rating could be damaged.

The association's Which? magazine called 11 debt management companies and discovered some firms:

  • made unrealistic financial assessments
  • were unclear about fees
  • didn't provide enough written information
  • pushed other products

    "Every single company we tested for this report failed at least one of the standards laid down by the government," says the Consumers' Association's Mick McAteer.

    Mick McAteer, Consumers' Assn
    Mick McAteer: "Happening across the board"
    "It's not restricted to a single company - this is something that's happening across the board."

    One firm picked out in the report was Chiltern Debt Management. Researchers said it had overestimated the expenditure, making the repayment period longer and possibly increasing the fees payable.

    But Chiltern's Jackie Newton told Working Lunch it tried its best to be realistic with clients.

    "Doing an effective debt management programme means presenting a financial statement to creditors on behalf of clients," she explained.

    Sustainable

    "It's very important that this financial statement should be realistic and also sustainable for the client.

    Frequently the people who come to us and tell us about their household expenditure don't truly have a realistic idea of how much they're really spending.

    Jackie Newton, Chiltern Debt Management
    Jackie Newton: "Statements must be realistic"
    "We would usually explain to clients what the national average is and ask if they feel that that reflects their outgoings."

    But help with debt management can be obtained free from various organisations, including the Citizens Advice Bureau and the Consumer Credit Counselling Service (CCCS).

    Commercial fees might include the equivalent of one month's repayment upfront and then 15% of each payment after that - plus VAT.

    Malcolm Hurlston of the CCCS says callers to his organisation get the best advice from a counsellor instead of being sold a debt management plan by a commercial company.

    There are calls for the commercial agencies to include warnings in their advertising about the fees they charge.


    Help with debt

    0800 591084

    0808 808 4000

    0800 138 1111

  •   WATCH/LISTEN
      ON THIS STORY
      Simon Gompertz reports
    "Your credit rating can be damaged"
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