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Plumbing the debts

Guy Anker on the outcry as whistleblowers accuse lenders of using debt collectors as debt counsellors to aggressively chase loan arrears

Lenders have been slammed from all quarters for disguising debt collectors as debt counsellors. A trio of whistleblowers last week highlighted the practice lenders use of sending so-called counsellors to people’s homes when, in fact, they are only there to chase arrears.

Borrowers are charged anything up to £120 for the service, which is often applied to the loan, so incurring interest.

Other concerns are that these counsellors do not tell clients about other options such as talking to a financial adviser about remortgaging or refinancing options that can help them get out of the red.

Another problem is that lenders are said to be prioritising payments to such an extent that unsecured debt is ignored, which could lead to unsecured lenders seeking a charge on a property, thus increasing the risk of repossession.

Debt Solutions managing director Howard Wilson, who used to be a debt counsellor for BM Solutions and GMAC, says: “Unsecured lenders are taking debtors to court and securing a charge on the property which can lead to repossession. These counsellors do not care about residual debt.”

Another debt counsellor who wishes to remain anonymous says: “I am effectively paid to be a debt collector and I am no longer a debt counsellor. Nine out of 10 people are unaware that they can get a remortgage.”

It is not just debt experts who are complaining. Broker Ashtons Financial Services’ consultant Tim Christian says: “The average client will not have a clue and brokers should warn their clients.”

Most debt counsellors are employed by agencies and are hired by lenders on an individual basis. Such practices are not used by all lenders but those that do use counsellors have so far come up against few barriers.

However, claim firm Loancheck is likely to soon seek redress for customers. It claims to have evidence of one high-profile sub-prime lender that applies the cost of fees for visits to the loan which then incurs interest. It says a simple initial introduction letter from a debt counsellor can cost £45.

Managing director John Whittaker says: “The news that lenders’ debt counsellors do not provide independent and therefore best advice to clients is scandalous, especially when lenders insist that the counsellor’s contact with the client is compulsory and the cost for the advice is applied to the account often without the client’s knowledge.”

Citizens Advice Spokeswoman Moira Haynes says: “We are concerned that people that already have payment problems are being charged for these services. Another worry is that counsellors are representing the interests of the lenders so it is not independent advice and their priority is to ensure the lender gets paid.

“It is disingenuous to suggest that this is a debt counselling session. We are trying to work with IFAs to join up our advice service with formal financial advice as people need to know about other financial options that can help them get out of trouble.”

The CA said last week that housing debt, which includes trouble repaying mortgages and secured loans, had risen by 20 per cent since the previous year. About 10,000 people needed help with threatened repossession and 2,000 are facing actual repossession or eviction. The Council of Mortgage Lenders predicts that repossessions will rise from just over 10,000 last year to 15,000 this year.

The FSA refuses to be drawn on the issue but its MCOB rules clearly state that firms must take “reasonable” steps when dealing with arrears.

But what do lenders think? Kensington was accused by Christian of over-pressurising one of his clients into paying off a mortgage without any other options being put on the table.

Kensington defends the way it uses counsellors and the way charges are applied to customers’ accounts. Spokesman Alex Hammond says: “Customers are pre-warned that a counsellor is to be instructed, the estimated costs of doing so and that the costs will be debited to the customer’s account.

“It is important to note that it is a debt counsellor, not a debt adviser, who visits the customer and they are there to undertake a fact-find on behalf of Kensington so that it can ascertain what issues are causing the account to be in arrears, the causes of these issues and whether anything is being done to resolve them. The counsellor will be able to talk about but not give advice on prioritisation of payments. The counsellor is also able to assist the customer in putting together a payment proposal which they can then put to Kensington.”

Lender Money Partners director of communications Bob Sturges says lenders should not use the term counsellor when no help is being provided.

He says: “If a debt counselling service is being provided, then that is what should be provided. If the wrong impression is being given, then that is not acceptable. Quite often, such customers are not financially sophisticated.”

That is a theme echoed by the broking market. Alexander Hall chief operating officer Andy Pratt says: “Lenders should call the service what it is. I don’t think lenders should hide from the fact that they are using collectors and call it something else.

“Over the last five or six years, lenders have got so much better at dealing with arrears. They are in less situations where collection is proposed and lenders are trying to do what they can do to help a client.

“Lenders want to appear as warm and cuddly as they can but they must tell the truth.”

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