Buyer Beware
Despite the fact that Consumer watchdog groups have been warning consumers to be careful, this month will see thousands of UK consumers turning to debt management schemes that will, possibly, cost them everything in the end.
“We often see people that have taken out a consolidation loan,” Meg Van Rooyn, information officer for National Debtline, told BBC News Online in 2003.
“A major danger is that people tend to look at how much they borrow not how much they will pay back in total.”
Prior to this, in December 2001, the Office of Fair Trading (OFT) established guidelines for the debt management industry.
The OFT dictated that firms needed to conduct a thorough review of clients’ financial position, reveal their fees upfront, and not mislead consumers into thinking that repayment of their debts would improve their credit rating.
In 2003, The Consumers’ Association mystery shopped seven leading debt management firms, all failed the OFT test in one or more ways.
In one instance the charges that the management firm would impose were larger than the debt repayments.
With the introduction of IVAs, it became more difficult for consumers to find a responsible method of reducing their debts. Many are paying exorbitant fees for a service that garnishes their money for five years, and still leaves them with no credit rating.
One word of caution is being whispered by debt consolidation and debt management firms in the UK, buyer beware. They are warning consumers to take time to find a good firm. Never be ‘sold’ by a fatherly or motherly salesperson who treats you like family.
Instead, the best way for consumers to avoid bankruptcy is to shop around, ask for advice, and take their time.