Debt companies 'mislead' consumers

Many people turn to debt advice companies for help

The BBC's Hard Cash reporter Marcia Hughes reports on how people in debt are falling victim to companies that promise to help them.

Consumer debt has almost doubled in the past 10 years, reaching £115bn.

Many people, struggling to pay back what they owe, are turning to the growing number of advice companies who promise to help with clearing the debt.

Knightsbridge & Co is one such firm.

Based in Keightley, West Yorkshire, its adverts claim to write off up to 90% of clients' debts in five years.

For £1,400, Knightsbridge will set up a legal agreement which it says will solve problems with debt.

Voluntary agreements

The agreement is called an individual voluntary arrangement (IVA) and was introduced as an alternative arrangement to bankruptcy.

Once the payment plan is drawn up an insolvency practitioner must take the offer to court and the people who are owed the money then vote on whether to accept it or not.

He wasn't giving you advice, everything he does is to intimidate you into buying or selling you what he is selling

Stephen Gale
president of R3

This course of action was recommended by Knightsbridge to "Stephen" who had begun to get into difficulties repaying debts of £13,000.

Stephen chose this path and paid Knightsbridge's fees at the time of £1,200.

However, eight months later, to his surprise, one of his creditors rejected the arrangement.

"We'd gone to Knightsbridge with no arrears outstanding at all, " he explained.

"Eight months down the line it had cost me £1,200 and we were eight months in arrears with all our creditors."

Damaging advice

Another Knightsbridge customer had a similar experience.

Again the company recommended an IVA, saying that the method never failed and outlined an attractive repayment plan of £225 a month for five years.

Insolvency practitioners have concerns about companies giving incorrect advice about IVAs

Nine months later Knightsbridge changed its advice saying that an IVA may not be the best option, leaving the customer under the threat of court action from his creditor.

Stephen Gale, president of R3, the body representing insolvency practitioners, is concerned about companies like Knightsbridge and the damage that they inflict through bad advice.

"IVAs do so much good, they're such a very effective tool used in the right circumstances when someone knows what they're doing," said Mr Gale.

Intimidating

After observing footage of Knightsbridge's Lee Crabtree, Mr Gale said, "He wasn't giving you advice, everything he does is to intimidate you into buying or selling you what he is selling."

"He told you he was an insolvency practitioner, well our inquiries reveal that he isn't and we don't think any of the partners in this company (Knightsbridge) are insolvency practitioners."

The main point of complaint appears to be that Knightsbridge explains the IVA process, while implying that creditors always agree to it without question.

This is not the case and by omitting vital information advice companies such as Knightsbridge may land consumers in more debt.

No quick fix

The Citizens Advice Bureau also echoes the concerns raised by R3. It says the advice being given by companies such as Knightsbridge can be misleading.

It found that a lot of companies are offering IVAs to people whose income and debts don't really merit an IVA.

"They are advertising them as 'do you want 80% or 90% of your debts written off' which is obviously very attractive to people in debt because people want an instant solution to their problems" says Sue Edwards from the Bureau.

Knightsbridge declined to be interviewed by the BBC's Hard Cash programme.

But it did say: "We have helped over 1,000 clients to complete an individual voluntary arrangement in the last 12 months.

"All staff are experienced in insolvency matters and all clients are informed that the arrangement depends on it being accepted by creditors."

But experts and former clients spoken to by Hard Cash remain unconvinced.

Hard Cash will be broadcast on BBC1 at 1930 UK time (1830 GMT) on Monday, 2 April.