NB: THIS TRANSCRIPT WAS TYPED FROM A TRANSCRIPTION UNIT RECORDING AND NOT COPIED FROM AN ORIGINAL SCRIPT: BECAUSE OF THE POSSIBILITY OF MIS- HEARING AND THE DIFFICULTY, IN SOME CASES OF IDENTIFYING INDIVIDUAL SPEAKERS, THE BBC CANNOT VOUCH FOR ITS ACCURACY. ........................................................................ PANORAMA "THE BORROWERS" RECORDED FROM TRANSMISSION: BBC-1 DATE: 28:01:01 ........................................................................ SARAH POWELL The face of easy credit. AGENT We do videos, TVs, washing machines, mobile phones, everything. KAREN BATTEN You just want whatever it is and you pay whatever. POWELL Targeting the vulnerable and making them suffer. TRAINING MANAGER Just make them aware of how bad the situation is, really. Make them suffer a bit. POWELL The law that's powerless to protect people in debt. LESLEY ROZAK I really thought that they would have to cease trading. POWELL 14 years ago on Panorama tougher laws were demanded by an opposition spokesman. TONY BLAIR You need some measure of control and regulation to ensure that the unscrupulous aren't lending to the desperate when there's no possibility of repayment. POWELL On Panorama tonight, where the law is still failing to protect the most vulnerable borrowers. TELESALES Hello, is that Mrs Fogg? TELESALES Hello, Mr Anwa? [Hidden Camera] POWELL This is the Truro headquarters of The Mortgage Group. The company specialises in arranging loans for the growing number of people in trouble with debt. This month some people working for Panorama went in as new recruits to find out how they do business. Their job, as they told us later, was to find people with 'dirt'. JENNIE HOWARTH The two Ds are really 'dirty' and 'dodgy', they like that very much. Dirty covered people who had arrears, County Court judgments which means if people didn't pay bills they could be taken to court to pay for them. They much preferred it if people hadn't paid them and were in arrears. [Hidden Camera] RECRUIT What's your definition of a nice deal? TRAINING MANAGER Because they've got County Court judgments, they've got arrears, they've got quite a bit on credit cards. They won't be able to go to any bank, high street lender. [Hidden Camera] POWELL Traditional banks and building societies which charge lower rates of interest won't touch people with dirt. They're a bad risk. But The Mortgage Group wants people with dirt if they've got some money tied up in their property to secure the loan as their telesales staff explained to our recruits. TELESALES Have you or your wife ever had any County Court judgements or mortgage arrears at all? TELESALES: [To recruit] They couldn't get a mortgage anywhere else, they have arrears, looking to re- mortgage, they've got County Court judgements coming out of their ears. TELESALES [To recruit] He's in the shit. Yeah, deep doo-doo. He's got £2,800 arrears at the moment. JENNIE Of course they only take certain people, they only look at certain people and they're the type of people that have equity on a house. TRAINING MANAGER So yes, that's a nice deal for us - where that one, that's small amounts, that's not a nice deal because the amounts are too small. POWELL These people had dirt and equity. Until three years ago this house in Basingstoke was home to Eric and Lesley Rozak, but after a decision to borrow £7,000 for home improvements they lost everything. ERIC ROZAK 22 nice years, wasn't it. LESLEY ROZAK Yes. Yes. LESLEY & ERIC ROZAK Comparing it to the rest of the street it was looking quite tatty and we just thought, right, new windows is a must. POWELL The Rozaks new they'd have trouble persuading a high street lender to give them money. That's because they'd got into arrears on their mortgage at the Nationwide after Lesley had moved to a lower paid job. But the loans pages of the tabloids were full of lenders offering easy credit, no questions asked. LESLEY There's pages offering loans at very good rates and what have you and we knew we had quite a low credit rating and it was saying that this was no problem. [Hidden Camera] POWELL The company she rang was the broker Capital Credit. Last year that company was renamed The Mortgage Group. One of the biggest brokers in its field, the company is owned by this man, Anthony Murtagh. He estimates it did 20 million pounds worth of business this month alone. That's not so surprising. Eight million people can't get loans on the high street because they're a bad credit risk. TELSALES If you're looking to try and find a better deal would you be looking to raise any additional cash for anything like home improvements? POWELL Capital Credit, The Mortgage Group as was, sent a broker to see the Rozaks about their loan for new windows. Not happy with lending just £7,000, he persuaded them to transfer their mortgage as well. So instead of £7,000 the Rozaks ended up borrowing £47,000, all secured against their home and at a higher rate of interest than the Nationwide LESLEY It was just talk, talk, talk and he was writing down all the figures, and it wasn't until he actually gave us a form before he left.. you know.. well we need your signature here and here Mr Rozak, and the same with you Mrs Rozak that.. you know.. you have basically signed your life away without ever realising it. POWELL As the broker left he gave Lesley something he should have made them read before they signed anything, a customer care booklet. After reading it, Lesley realised they'd been pushed into acting too fast. The next day she tried to undo the deal. LESLEY I rang Nationwide because I was really concerned after reading the book and being at work all day and it going over and over in my head, and if possible I wanted to be able to stop this from going through, but Nationwide confirmed that it had been paid and they no longer had any dealings in it. POWELL So just like that, just overnight, you're mortgage had gone to City Mortgage Corporation. LESLEY Yes, it had gone through. POWELL There was nothing they could do. They couldn't even manage the first payment on the loan. They were in arrears again. They had to sell their house to avoid having it repossessed. Now they live with Lesley's father. LESLEY We moved out in the May of '98. By the Christmas I'd had a breakdown. I mean I was just having panic attacks and it just broke me. It just broke my heart. [Hidden Camera] POWELL By contacting Capital Credit, now The Mortgage Group, the Rozaks had entered a new world, the world of the sub-prime. Sub-prime brokers and lenders give loans to people that high street banks turn down. They charge higher interest because their borrowers are a higher risk. The sub-prime world can be a harsh one. TRAINING MANAGER Sub-prime lenders aren't the easiest ones if you've got arrears. They will take your property, they will repossess your property easily. They're quite hard about things like that. JENNIE What happens if the people that we lend mortgages to can't pay it back? What happens to them then? TRAINING MANAGER That's not our problem, is it? That's the lender's problem really. POWELL Sub-prime lenders account for 6% of the mortgage market, but research for Panorama discovered that last year nearly a third, 28%, of repossession hearings in the courts were brought by sub-prime lenders. Most borrowers go under without a fight, but the Rozaks took Capital Credit to court. In a ruling last year the judge said "how any honest broker believed these payments could be met beggars belief..." and unknown to the Rozaks, Capital Credit had made £10,000 in fees on the deal, that's a fifth of the value of their loan. The judge ordered those fees to be paid back to the Rozaks with interest. After the judgement the Rozaks expected action to be taken against Capital Credit but nothing happened. POWELL What does that make you feel about the types of protection that you, as a consumer, have? LESLEY We have no protection. I mean for something like that, there should be more protection. These people should not be trading. You know.. these people should be out of business and I just feel for all the other people that are phoning up these people and wanting to take out a loan and they end up with a threat of having their home repossessed. It shouldn't be going on. [Hidden Camera] POWELL Capital credit, now The Mortgage Group, say the Rozak's case is no longer relevant to the way they do business. And the government department responsible for policing the sub-prime market, the Office of Fair Trading, say they've introduced guidelines which have stamped out the worst practise. But have they? How much has really changed? Our recruit say the guidelines weren't much in evidence when she was at The Mortgage Group. JENNIE We were made aware of the Office of Fair Trading guidelines once in our training week. We were never shown them. We never read through them even though we could be sacked for not actually following them. TRAINING MANAGER Now it's a few months further - "What about your arrears, are they still outstanding?" Things like that. Just make them aware of how bad the situation is, really. Make them suffer a bit. POWELL In Bristol last year another mortgage was arranged by Capital Credit for this couple and they're not happy. Karen and Paul Barnes wanted to buy their council house but they had some bad debts and couldn't go to a mainstream lender. The deal Capital Credit got for them meant money would be tight, but they were worried they'd lose the chance to buy their house if they didn't move fast. PAUL & KAREN BARNES I just relied on the broker to do.. you know.. that he was doing the best he could for us and that was the only option for us was £411 a month and it was that or nothing. POWELL Did he say it was that or nothing? Did you ask him whether he couldn't get anything cheaper? PAUL He said that was the only lender that would lend to us and that was the repayments, and we've been working towards this for a year and our time was running out and we decided we just had to go for it. POWELL Panorama asked Ray Boulger from the independent broking firm Charcol to have a look at the deal done for the Barnes. The commission fees that Karen and Paul had been charged by Capital Credit on top of their loan concerned him. PAUL Yes, well the broker's administration £2,178 I mean that seemed an awful lot at the time didn't it Kar, we said to them but they said that was the norm and... RAY BOULGER Well that may be the norm for Capital Credit, it certainly isn't the norm in the industry. I think you could have reasonably expected to pay a fee of around 1% because your case was not straightforward and the amount you were borrowing was not particularly large, so a 1% fee would have been reasonable. A 5% fee, which is what you've been charged, I would regard as extortionate. POWELL The Mortgage Group say it is normal in their market, but it adds to the burden. PAUL It just means we have to juggle everything. Like some weeks we can't pay the poll tax and then next week there's double poll tax. We've just had a phone bill come in which we're going to have to phone up and arrange to pay so much a week. Well sooner or later we're just not going to be able to pay it. We're going to start missing payments. [Hidden Camera] POWELL Since the Barnes first contacted Capital Credit the company has changed its name and its way of doing business. The Mortgage Group no longer waits for customers to call in in response to adverts. Its telesales teams now take the initiative, actively seek out people with debt and ring them up. We discovered they're in the business of cold calling. TELESALES My name's Mark, I'm calling from Mortgage Group. TELESALES ...the longer you go, the less you pay a month, the more manageable it is. POWELL But cold calling is straightforwardly breaking the Office of Fair Trading's rules. We also discovered they're using databases of people with debts to target borrowers with money problems. That also breaks the rules. They could lose their license to trade. TELESALES: [To recruit] So it's not technically cold calling... apparently. RECRUIT It is though, isn't it? TELESALES [To recruit] Well, it is. We buy databases from different companies. TRAINING MANAGER It's from a building society and they provide us with a database and we know they've got arrears. It's all the clients with arrears that they want to get rid of. So we ask have you got any arrears on your mortgage? "No". And you think, but you have - we've got the information here of your bank. JENNIE The database we were given, now they'd come up to you and they'd say right, this is a County Court judgment database one. The majority of people on this database will have County Court judgments, or this is an arrears database, so the majority of people had arrears. So you knew that they did, and we were told in our training week basically that "Push them because you know that they have. This is the database that says that they have County Court judgments. Push them, push them, push them." TELESALES [To recruit] Stuff we've been calling has been, like, people which we know we've got dirt on. Like, people that have applied for other companies. Like that dodgy. Well, not dodgy, but people that have got, like, County Court judgements and shit and we've been calling that recently. RECRUIT What do you say to them when they say how did you get my name? TELESALES [To recruit] That's one of the hardest questions actually. We used to be allowed to say - because the answer was from Experian or Equifax. That's the people who do the credit checks. We also buy the data, from people who've got bad credit. So if you're catalogued and you owe the catalogue a thousand pounds they'll put you on a list and they'll sell that list to this company. 'Cos really the answer is, "We're cheeky bastards, sorry, we shouldn't be calling you up." JENNIE HOWARTH We had to pretend that we had this wide database of millions of people all over the country and no, we didn't know that they had County Court judgments when in reality we did. POWELL We showed our film to John Fox who monitors consumer credit and mortgages for the Trading Standards Institute. He explained why cold calling borrowers is banned. JOHN FOX INSTITUTE OF TRADING STANDARDS We saw in the tapes they were catching people cold who are, by definition, because of the market, in financial difficulties already. They should be making the decisions whether they need financial assistance or not. It shouldn't be coming from somebody with an interest to sell. POWELL Across the country big lending companies are cashing in on the weakness of the law that's supposed to protect borrowers. In Sheffield money lenders are doing their rounds of some of the poorest parts of the city. They go from door to door collecting their dues. They work for companies specialising in selling loans at high rates of interest to people who are so poor that the banks and building societies don't want them. Karen and David Batten live with their young sons on a Sheffield council estate. They're both unemployed and living on benefits. Making the family's money last the week isn't easy. DAVID BATTEN Pretty bad it is. I would say pretty bad. A lot of it was to do with work, jobs what's gone wrong and stuff like that. POWELL So what money have you got coming in every week? KAREN BATTEN It's about £130 a week. Now you're supposed to pay your bills and everything. Then you're supposed to get food, clothe your children, and that's not putting any other luxuries or anything else involved in with that, and it just does not go anywhere near where it's supposed to do. POWELL Last year Karen was ill. It knocked the family sideways. The building business that David was trying to get started collapsed after he took time out to look after everyone. Unpaid bills are already stacking up. [Hidden Camera] But tonight they're going to test just how easy it might be to get even deeper in debt. A few days ago they rang one of the biggest door to door lending companies, Shopacheck. Shopacheck has been leafleting local streets offering shopping vouchers for sale. The vouchers can be exchanged for goods in stores like Iceland and Woolworth's. Although it's against the law to canvass for new customers for loans on the doorstep it's okay to sell goods, and vouchers count as goods, not cash. The vouchers are worth £80 but will cost the Battens £104. Lenders are supposed to check a borrower's ability to repay, but there's little attempt to do so here. LENDER Employed or unemployed? DAVID Unemployed. KAREN I was surprised, yes, because I thought there would be a lot of paperwork entailed, a lot of questions, and there was none of it. POWELL In fact the BATTENS are already struggling with 10,000 pounds worth of debt. After just eight minutes the vouchers are handed over. What sort of things did you think he would have asked you that he didn't? KAREN How we were going to be able to pay back the money. You know.. if we could, and like he's saying nothing again. POWELL Karen and David will have to pay off the loan at £4 a week. It's only a small amount but it could be just the start. Now that Shopacheck have signed them up it's legal to start offering cash loans. In fact there's a whole range of ways of getting deeper into debt. LENDER Yes, we do loans as well, cash loans, we do TVs, we do videos, washing machines, mobile phones, everything you could think - leather coats, jewellery, the lot. LENDER 2 They'll send reps round here to try and flog you coats, jewellery. LENDER So always keep your account alright.. you know what I mean, there's no problems with anything. DAVID So they'll send reps round will they? LENDER 2 Yes, if you're a good payer, you know, they'll choose you out of all customers what they've got. And what you can't spend let your collector know and he'll swap them for some other ones. POWELL The agent is always on the lookout for more customers. LENDER Is there is anybody else you can think of... POWELL Shopacheck have told us they always check customers ability to repay, what's more, they say they only offer a small loan to start with to see if borrowers can really afford more debts but Karen and Dave remain surprised at how easy it is for people like themselves, with so much debt already, to get even more loans. KAREN It's easy solution and quick. You don't think about that at the time, you just want whatever it is and you'll pay whatever. POWELL How easy do you think it would be to carry on borrowing more and more money off people like that? KAREN Very easy, and that's how your debt occurs. POWELL Three million people borrow from door to door lenders, most of them on low incomes and many on benefits. Debt advisors are worried that more people are turning to these companies because the government's social fund has started tightening up on granting cheaper loans. Given that money is so tight for people why are they borrowing more money, incurring more debt? RUSSELL CAVANAGH DEBT ADVISER, CITIZENS ADVICE BUREAUX Very often it's for essential items. The social fund no longer caters for essential items, it's very much more stringent, it is very easy to get credit from doorstep collectors who are very seductive in their selling approach and if your washing machine breaks down and if you have no recourse to the usual avenues of credit then you're going to take it. If you need it, you've got children whose got clothes needing washed etc then you're going to take that money to buy that washing machine wherever you can. POWELL But how easy is it for people living on income support to actually afford these debt payments every week? CAVANAGH Well technically they can't afford it because... in terms of income support being the minimum the law says you need to live on each week according to the Department of Social Security. POWELL Many borrowers have debts with several lenders at a time. Denis Goldring and Sandra Hudson also live in Sheffield with their five children, they're both unemployed and money is tight. SANDRA For Jamie he should have black shoes for school. The teacher rung up "He needs black shoes" and we couldn't afford to get him none. DENIS Couldn't even think about it. It's like one one week, one the next week. It's not easy. SANDRA It's like school jumpers, they need some more and we can't afford to get them any from school because it's like £10 a jumper isn't it? You just can't do it. DENIS There's school trips they'd like to go on but we can't afford. POWELL A third of their benefits goes on paying off their debts to door to door lenders. [Hidden Camera] [Agent calls collecting payment] They've got five loans with four different companies. Agents call to collect most nights, this one is from Shopacheck. In total Denis and Sandra owe nearly £3,000. How much money have you got coming in at the moment to look after the family? SANDRA HUDSON & DENIS GOLDRING DENIS About £225. POWELL And is that enough? DENIS No it isn't no. POWELL And how much have you going out in debt payments? DENIS Just in debt alone about £90. POWELL So you've got £90 out of £220 going out every week. That's an awful lot of money. DENIS It is a lot, yes. POWELL Another night, another lender. Denis and Sandra find it hard to resist the offers from the constant stream of lenders who come calling. DENIS They'll come out and put the cash on the table or they'll show us catalogues. Sometimes they've asked us to go out and look in the van and pick what you want and they'll sort it out for you and that's what they do. POWELL So they show you the goods and say "Look at this, would you like this" or they may even put cash on the table? DENIS Yes. SANDRA Yes. POWELL Have you tried saying no? DENIS I've tried yes. SANDRA But we've really needed it at the time haven't we like so... DENIS Yes, we've needed it at the time, like she says. POWELL And have you always needed to get the toys, have you always needed the new washing machine at the time? SANDRA Needed a washing machine... household stuff isn't it like? DENIS Yes. POWELL The loans may be easy to get but they're expensive to pay for. The entries in Denis and Sandra's repayment books show they can sometimes only afford to pay back a pound a week, sometimes nothing at all. With £3,000 outstanding that's a lot of weeks to go. They have two loans totalling £500 from one company, from Denis' book details we've calculated that the APR is 170%, nine times more than a high street loan. They're also paying off £1,000 debt to local lender Wilson Tupholmes. Just over a year ago Denis asked to pay £200, he already had three loans with the company. Still, Tupholmes agreed and rolled all the loans together into one big one. Rolling loans together is common practice amongst door to door lenders, it often leaves borrowers confused. Did you have any idea that all the debts that you were carrying amounted to £1,000? SANDRA Nowhere near. DENIS It were nowhere near. POWELL Did he explain to you when he said he would consolidate your loans and give you the £200 that actually it was going to cost you £1,000? SANDRA No we were told nothing until he came after Christmas like DENIS Until the book came, the payment card. SANDRA Which were too late... POWELL In fact all the loans came to only £675 but Tupholmes had charged them £300 on top, an APR of 190%. Tupholmes told us this was all clearly explained to Denis at the time. RUSSELL CAVANAGH DEBT ADVISER, CITIZENS ADVICE BUREAUX By the time that people come to us it's usually a cycle of debt, they've borrowed money initially which they could afford and then for some reason they have a change in their circumstances usually due to an external factor. Now what happens is, because they believe that their fortunes may improve again they will borrow more money and then by the end of it they find that they're borrowing money as their income slides and by the time they come in here it's been a vicious cycle of debt and there's nowhere else to go. POWELL There seems to be no limit as to how high debts can go. Beverley and Gary Queenan who have two children borrowed in the hope that Gary would get a permanent job, he didn't. They've now accumulated £15,000 worth of debts, much of it with door to door lenders. Paying off these loans has meant not paying the rent on their council house. Now the local authority is threatening them with eviction. GARY So every week you've got three or four different collectors coming to the door. Okay, they only want like £5 or £10 or £15 but out of your income support you're paying them that money because they're stood on your door and you're missing other important bills that do need paying, so it ends up the council end up taking you to court for possession of your house. POWELL Door to door lending companies belong to the Consumer Credit Association. It insists its members are responsible, both about lending and about the amount they charge for credit. Isn't there something wrong there where your lenders are getting their repayments and yet families aren't able to pay their rent? JOHN LAMIDEY CONSUMER CREDIT ASSOCIATION I think you've got an element of consumer choice in this because consumers know that they can keep open a line of credit if they pay off a creditor according to their contract. Now most people, when they're paying off their credit have an eye open to the future because they think "I might need credit again" so it may be necessary, in their view, to choose to pay one lender so that they've got at least the chance of getting credit again when they need it. POWELL So it's better that they carry on paying you than they pay their rent? LAMIDEY Well I think that's a choice an individual consumer might make. No, clearly it's a foolish thing to jeopardise the place where you live but people do make choices. Now we don't influence their choice, we don't go along and say "Don't pay your rent, pay me", that's not at all what we do. POWELL In November Gary and Beverley went to their local Debt Advice Centre. Their debts are so big there's no way they can ever pay them off. The only way out, says the adviser, is for them to go bankrupt. CAVANAGH [to Gary & Beverley] I mean basically when the bankruptcy goes ahead the arrears will be written off, but they'll have to open a new account. I said that we're advising and assisting you with your financial situation, said you've got two young children, one of whom has a severe disability and that you rely on income based Job Seeker's allowance What we're saying is that arrears on the account will definitely be included in the bankruptcy order. POWELL The number of people coming to advisory services with problems about personal debt have grown by a third in the last two years. CAVANAGH ...but do pass all letters on to me and I'll deal with them if you want that. POWELL But even to go bankrupt Gary and Beverley need money, £500 to pay an administration fee. They can't borrow it because they can't repay it. So two charities, which help families under stress, have given them the money. After an hour in Sheffield County court it's all over. What happened in there? BEVERLEY & GARY QUEENAN We went bankrupt basically. It's all finalised, all the debts have gone, we start again, we start afresh. POWELL So it's as easy as that, you've now got rid of all your debts? BEVERLEY Yes. POWELL You don't have to pay any more creditors? BEVERLEY No. POWELL What about the threat to evict you from your house? GARY The rent arrears have been taken into account in the bankruptcy so there's no longer any rent arrears so as long as we now pay our rent, which we can do because we've not got any other creditors, there's no threat of losing the house. POWELL So what difference is this going to make to your lives? GARY Incredible difference. It's like there's no weight on my shoulders any more. I can now think about taking a job and getting back on track and sorting everything out. RUSSELL CAVANAGH DEBT ADVISER, CITIZENS ADVICE BUREAUX Bankruptcy is increasingly an option, especially for people who are renting or who have no equity in their property. One of the main benefits of bankruptcy for those particular clients is that it takes some of the pressure off. Very often the creditors are very persistent in piling on interest and demanding amounts of money that they can't possibly afford. This puts a great stress on the family both within the family and the family's place in the community and bankruptcy is one way of putting a final full stop on it. It's not an easy option to take but very often clients find that it is definitely the best option. POWELL Door to door money lenders are supposed to be regulated by the Consumer Credit Act but the act was drawn up nearly 30 years ago and is widely thought to be hopelessly out of date. For one thing it outlaws extortionate credit rates but no one seems able to agree what that means, and there are other problems too. JOHN FOX INSTITUTE OF TRADING STANDARDS All we can do at the moment is to collect evidence from consumer complaints, send it to the Office of Fair Trading and let them decide whether the lender is still fit to hold a license. There is no criminal offence for lending at high rates and we can't take action on behalf of consumers because of the deficiencies in the law. POWELL Is that good enough protection in your view for borrowers? FOX I don't think it is, I mean the number of cases that actually go to court under these extortionate credit provisions has only been about 40 in the entire history of the act since 1974. If it was working properly there would be that number, at least, every year. [Hidden Camera] POWELL While laws regulating borrowing are so weak there's no end to the ways of getting round them. The mortgage group tell people they're independent. TELESALES Hello, my name is Helen, I'm calling from The Mortgage Group. We're currently one of the largest independent mortgage funders. TELESALES We're Britain's leading independent mortgage broker. POWELL But how independent are they? We discovered that the mortgage group is actually placing most of its business with just one mortgage supplier, the Igroup. TELESALES [To recruit] What it is, whilst technically, we are independent... technically we are, because we can put business to anyone else, but 99% of all the business we do goes to Igroup. So, realistically, if you look on paper, we are just supplying Igroup. JENNIE Right, so do we have sort of like a deal going with them that we just deal with... TELESALES Yeah, I mean they give us a hell of a good kickback. We get a good commission off them. POWELL An Igroup deal is offered to some people already in trouble with a lender called Ocwen but some staff are reluctant to explain that the Igroup was called Ocwen until a management buy out last year. TELESALES We phoned a customer, they were with Ocwen, we put them with Igroup. It's the same company but at the end of the day you can get them a better rate. But you can't tell any of the customers that, because they're like, "What are you doing with me?" POWELL The Igroup say they're now going to talk to The Mortgage Group about disclosing this fact. Offering another sub-prime deal to a person who already has debts in this market concerns trading standards. FOX Every time a loan is re-mortgaged there is an extra broker's fee to be paid by the consumer and these brokers' fees are large and therefore are usually added onto the loan, onto the next loan, so the consumer already owes more money which can't be a good thing if they've got money problems. But also in re- mortgaging the broker will get a further commission from most of the lenders in this market so one has to question the true motives of the broker. Is it to give the consumer a better loan or is it to get more income for himself? POWELL And what do you think it is? FOX I think it's probably because they want more commission. [Hidden Camera] POWELL Anthony Murtagh, the owner of The Mortgage Group, has been a director of seven companies which had their licences revoked by the Office of Fair Trading in 1989 and four years ago The Mortgage Group, under its former name of Capital Credit, was warned by the Office of Fair Trading that its licence might be taken away. In the end it was allowed to keep it. Given what you've seen on our tapes, what do you think that the Office of Fair Trading should do now about The Mortgage Group? JOHN FOX INSTITUTE OF TRADING STANDARDS Well there are enough breaches and significant breaches of the OFT's own guidelines that are there to set standards of fitness - and brokers should be fit to retain their licence - to suggest to me that the OFT should be looking again at whether this company is fit to retain its licence and to retain in business. POWELL The Mortgage Group told us it "...does not and will not sanction any breach of Office of Fair Trading guidelines." That their "...telemarketing operation is rigorously monitored." and there would be immediate action against infringements. That their databases included financial information "...volunteered to them by customers, not given to us by third parties" and that three years ago the Office of Fair Trading had told them that their "...methods don't breach the guidelines." But the Office of Fair Trading told us it made that assessment based on what the company said it would do, not on what they actually do and they've never carried out a check. The Igroup told us its commission to the company was 1.7%, well within the normal range. The sub-prime market has been compared to the wild west - anything goes. New companies are moving in all the time to try and take a slice of this increasingly profitable business, companies like Crazy George's, part of the huge Thorn Financial Services empire. This chain specialises in selling furniture and electrical goods to people who can't get credit anywhere else. [Advertisement - George's jingle] ? ? Some folks say he's crazy, some folks say he's mad, Others say that it's the best deal that they've ever had. POWELL They've opened 100 stores in the last six years. It's been controversial from the start because of the way it displays its prices and interest rates. [Advertisement] At Crazy George's you can buy furnishings, appliances, and home entertainments and there ain't no credit checks. POWELL This washing machine is advertised at £491, over a hundred pounds more than in a mainstream store but Crazy George's lets its customers pay in small weekly instalments. The advertised interest rate is in line with other stores, that would mean weekly payments of £4.54 but Crazy George's advertises a much higher weekly rate, one which includes their optional service cover, that takes the full rate up to 76%, in total that means buying the washing machine could cost over £1,000. Hundreds of pounds more than it would have cost in a mainstream store. FOX There are a number of problems, part of it is the legislation and also the consumer credit advertising regulations, you know, where the consumer starts by looking at the adverts in the newspapers or in the shop. They are also hopelessly out of date so the information that crazy George puts in its adverts is quite legal but what the consumer ought to know or should know is either in the small print or not there at all. POWELL Debt advisers like Russell Cavenagh say they're seeing an increasing number of Crazy George's customers who seem confused about what they owe. RUSSELL CAVANAGH DEBT ADVISER, CITIZENS ADVICE BUREAUX Very often they don't know exactly how much they owe, Crazy George staff can't tell them. Cheaper forms of credit that other people enjoy just aren't open and it's because they're on such a low income and because they have such a low credit scoring the lenders know that they've got nowhere else to go. POWELL Crazy George tell us that all their staff are trained to clearly explain to customers how much they'll pay for the product, the credit and the optional services cover should they choose to take it out. Other European countries take consumer protection more seriously as Crazy George's has discovered to its cost. When they opened in France four years ago an attack was launched on the company by the then leader of the opposition Lionel Jospin, now the French Prime Minister. LIONEL JOSPIN It's something quite mad and absurd. These are shops for poor people where poor people actually pay twice as much for things as the rich. This is exploitation of poverty. POWELL Two years ago, after a campaign by consumer groups, Crazy George's closed its stores in France. Panorama, 1987 If you're poor like Joe Myatt you have less chance of striking a sensible credit bargain. Joe wanted a better life... POWELL 14 years ago Panorama highlighted the fact that laws on credit were failing borrowers. Panorama, 1987 Joe may not have been wise but what about the credit companies who lent to him? POWELL It seems little has changed since then. Panorama, 1987 Every week collectors call on Joe for repayment. POWELL On the programme there was a call for tougher consumer protection laws from an up and coming opposition politician. Panorama, 1987 TONY BLAIR What actually happens is that you get people who are so desperate they take on debt without any real expectation that they're going to be able to pay it back. Now in those circumstances I think you need some measure of control and regulation to ensure that the unscrupulous aren't lending to the desperate when there's no possibility of repayment. POWELL Once in government Labour drew up proposals to tackle the problem identified so many years before but last month those plans were dropped from the Queen's speech. It was a bitter disappointment for people working with the growing numbers of borrowers struggling with debt. FOX Successive governments have been producing reports highlighting the weaknesses of the Consumer Credit Act, putting forward suggestions for change. Nobody did anything throughout the 1990s so we were hopeful when the white paper came out in '99 which has only added to our disappointment because nothing has changed. POWELL Where do you think this leaves consumers and borrowers, the fact that you're having to work with legislation that was drafted some 30 odd years ago? FOX Well it leaves them with protection that does not match the modern market and the modern needs of consumers which is why they're getting ripped off in this way. POWELL Do you think you will be able to eventually pay off this £3,000? Do you think you will ever get out of this spiral of debt? DENIS GOLDRING SANDRA HUDSON SANDRA It will take some doing won't it? DENIS It will take some doing, it'll take us a couple of years but we're determined to do it. POWELL Do you think it will be an easy thing to do? DENIS No, definitely not. POWELL What do you think will make it hard? DENIS Temptation I think of them coming out all the time asking you, definitely. POWELL Back at The Mortgage Group they've just heard that yet another loan has been sold. It's time to celebrate. Until there are tougher laws the vulnerable will continue to provide plenty of profit for those who target borrowers with offers of easy credit. ____________________________________ www.bbc.co.uk/panorama 2 ______________________________________________________________________________________________________ Transcribed by 1-Stop Express Services, London W2 1JG Tel: 0207 724 7953 E-mail 1-stop@msn.com