Consumers warned to beware debt loophole write-off firms

The Office of Fair Trading warned people against using companies that misleadingly promised consumers they could use sections of the Consumer Credit Act to wipe out debts.

The firms offer to “buy” consumers’ debts from them, claiming they can get them written off, but charge people an “administration fee”, often several hundred pounds.

The scam relates to the Consumer Credit Act, under which consumers can request a copy of their credit or hire agreement.

If the lender fails to provide the requested information, the debt becomes unenforceable, meaning the lender cannot get a court judgment against the borrower, take back hired items or things bought on credit or anything that was used as a security, such as a car.

But the OFT, which has produced a consumer guide on the issue, warned that even if the debt was unenforceable, people would still owe any outstanding money to the lender.

The lender could also continue to add interest to the loan or hire agreement, as well as default charges, while consumers’ credit records could also be impacted if they did not repay the money.

The OFT also warned that the debt became enforceable again as soon as the lender produced a copy of the credit agreement.

The High Court recently ruled that for a debt to be enforceable, lenders did not have to produce the original credit agreement. Instead it said a reconstituted version was acceptable, as long as it was accurate.