Page last updated at 17:45 GMT, Saturday, 13 February 2010

Unenforceable debt successes exaggerated by claims firm

By Ruth Alexander
Reporter, Radio 4's Money Box

Picture of text message
Claims management companies should not send anonymous text messages

Staff at a major claims management firm have been misleading customers, a BBC investigation has found.

Beneficial Claims says it uses mistakes in credit agreements to get unsecured debts, such as credit cards and loans, declared "unenforceable" by lenders.

But in recorded conversations, sales advisers wrongly said there was no risk to a customer's credit rating.

The company denies the allegations and said lenders are removing debt from people's credit files.

Mystery SMS

Radio 4's Money Box first began investigating when a member of the programme team received an anonymous text, offering to get her loans "written off".

By law, consumer credit agreements have to include certain details such as the amount of credit and the interest charged.

If they are not, and you took out the loan or card before April 7 2007, the agreement may be unenforceable.

Upfront costs

For an upfront fee, which starts at £245, Beneficial Claims says its experts will get your credit agreement from your lender and review it for potential "fatal flaws".

If it finds the flaws, for a fee of 15% of your debt - minus the initial charge - you can choose to have Beneficial Claims take on your unenforceability claim.

But in numerous calls the BBC made to Beneficial Claims, sales advisers boasted about the company's track record.

Successful cases?

"Our success rates are through the roof at the moment, across the board, we've got about a 93% success rate," one adviser told an undercover BBC reporter.

"All credit cards and loans - the majority are 100%, apart from a few we've got - like Barclays is 98%."

The BBC asked Beneficial Claims how many customers had had their agreements declared unenforceable.

It said it could not give an exact number, but that many had.

It gave a breakdown of the number of agreements from one particular bank, which were deemed unenforceable by a company it commissions to carry out such reviews.

No one certainly now should be suggesting that your credit rating cannot be affected - it can
Kevin Roussell,
The Ministry of Justice

But Beneficial Claims acknowledged that the figures were yet to be accepted by the lender, or agreed by a court.

However, a potential customer would get the impression that the success rates quoted by Beneficial Claims' sales advisors did refer to formal resolutions of the disputes, according to the head of claims management regulation at the Ministry of Justice, Kevin Roussell, who has seen transcripts of the calls.

He said that was misleading and unacceptable.

"The more that happens, the more likely it is the business will have their authorisation cancelled," he said.

But the chief executive of Beneficial Claims, Keith Chorlton, said, "We are a unique company because we give all our clients a legal indemnity issued by our solicitors, which is backed up by an insurance.

"If they do not get the outcome that we have told them they are going to get, they are fully refunded every single penny that they paid to the company."

Credit rating risk

In October 2009, a High Court judge ruled that, although a lender cannot make you pay an unenforceable debt, it can register the default with a credit reference agency.

But in calls secretly recorded by the BBC, Beneficial Claims sales advisers said a customer's credit history would not be affected if they bought its services.

Mr Roussell, from the Ministry of Justice, said, "No one certainly now should be suggesting that your credit rating cannot be affected - it can.

As a claims company, we give the consumer an opportunity to get what he is entitled to
Keith Chorlton
Chief executive, Beneficial Claims

"And where we pick it up, we instruct the business to change their practice; and if they don't, we can take formal enforcement action against them."

But Mr Chorlton said, "The only evidence we're seeing now are lenders removing the actual contract from the credit file, and they're not putting flags on it, and they are not marking it negatively."

"Consumer catastrophe"

Sales representatives at Beneficial Claims tell customers that millions of agreements are unenforceable, but really no one knows how many actually are.

There have been only a small number of successes at court, although thousands more cases are said to be with solicitors, and an unknown number have been settled out of court.

It could be that the banks have a large number of potentially unenforceable debts on their books.

Mr Chorlton said, "As a claims company, we give the consumer an opportunity to get what he is entitled to."

But trying to get a debt declared unenforceable not only comes with risks - it could be far from straightforward, according to barrister Paul Brant, who has won some high-profile unenforceable credit agreement cases for consumers.

"I believe that many people who have seen the advertisements have been led into a false assumption that they have easily successful and clear-cut claims," he said.

"In that respect, this is a real consumer catastrophe waiting to happen."

But Mr Chorlton said, "The only catastrophe waiting to happen is where the banks and the lenders are going to be caught out."

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