New warning to businesses on taking up-front fees and cold calling

[Amethyst]

New warning to businesses on taking up-front fees and cold calling

In response to complaints received from consumers, we are reminding claims management businesses about the rules about taking "up-front" fees and "cold calling". The warning sets out the details and should be read by all businesses and particularly those dealing with Unenforceable Consumer Credit Agreement claims. We have been working closely with the OFT to address malpractice in this sector and this Warning is issued in conjunction with an OFT press notice issued today here

[Amethyst]

Re: New warning to businesses on taking up-front fees and cold calling

Rule breaches - a note of warning to authorised businesses
Taking up-front fees
We are aware that many businesses take ‘up-front’ fees. But some businesses taking up front fees may be failing to provide prospective clients with compulsory, pre-contract information as required by the Conduct of Authorised Person Rules 2007.
Whilst a business can take a payment or fee from a client before providing the service you must first comply with the rules relating to providing information to clients.
You must not take any payment before this pre-contract information is provided. We would not expect you to start any service you charge for before you provide the required information.
Taking up-front fees would also be a breach of Rule 1(a) that requires businesses to "Act fairly and reasonably in dealings with all clients".
Rule 10 of the client specific rules require that you must do some checks into possible alternative mechanisms for pursuing a claim, and Rule 11 requires you to provide certain information in writing (electronic versions are sufficient) before a contract is agreed.
The information that must be provided is listed in detail in Rule 11, this includes:
• Information to help the client decide about the risks of claiming, in particular the possible risk of losing money and in the case of potential legal action, appearing in court
• Information about the service you provide
• Information about the procedures you will follow
• Contract documents and how to cancel the contract
• Any charges you make and any other costs the client may have to pay
• 14 day cooling off period
• Any referral fee received by the business
• Documents you will need
• Any relationship you might have with a solicitor
• How the client can complain about you
• The “regulatory statement”
• Explicit information about the client’s right to seek further advice and to shop around
Cold calling consumers by telephone
We are aware that some businesses have been cold calling consumers and then referring their claims to a solicitor. The Solicitors Regulation Authority (SRA) have made it clear that their rules on referral arrangements means that solicitors must not
have a financial arrangement with an introducer in respect of claims which has been obtained (either by that introducer or through an intermediary) by way of unsolicited face-to-face or telephone “cold calling”.
This means that an introducer must not cold call any potential client if a claim might require legal action and therefore be referred to a solicitor or a solicitor is likely to be asked to review a claim. This does not only apply to personal injury claims, but to any other claims that are referred to solicitors, including claims about enforceability of consumer credit agreements.
You will be in breach of your conditions of authorisation if you do not fully comply with the Conduct of Authorised Persons Rules 2007.
Warning
Failure to comply with this warning is likely to lead to enforcement action being taken against the business concerned and could ultimately put the businesses authorisation at risk. The MoJ’s Monitoring and Compliance Unit has launched a fresh compliance exercise to tackle such breaches.

[Amethyst]

Re: New warning to businesses on taking up-front fees and cold calling

OFT warns consumers about 'debt sale' scams

72/09 23 June 2009

The OFT is warning consumers not to be taken in by businesses claiming to help them become debt free by 'buying' or 'selling on' their debts.

The warning follows a significant increase in the number of adverts on the internet and in newspapers from debt and claims management companies that misleadingly state they can take over liability for debts or write off debts by purchasing consumers' credit agreements.

In fact the law does not allow the sale of debt without the lender's permission and so businesses that suggest otherwise are making clearly misleading claims. Brokers who introduce clients to debt and claims management companies that say that they can 'buy' and 'sell on' consumer debts are also misleading consumers.

Consumers need to be aware that if they 'sell' their debts to one of these businesses, either directly or through a broker, they will still be liable for their original repayment obligations as well as losing the money they paid for this false service.
Consumers will also still be subject to any debt collection activity and negative credit scoring associated with the original debt.

The principal regulator for claims management companies is the Ministry of Justice. Those businesses that operate in the credit/debt sector also need to be licensed by the OFT. Some of the firms offering these services do not have consumer credit licences and the OFT is working in partnership with local trading standards services to prosecute them for unlicensed trading. Formal licensing enforcement action has already been initiated against licensed companies whose advertising or websites are making these misleading claims.

Ray Watson, OFT Director of Credit, said:

'Like most scams, when something looks too good to be true, it usually is, and this is certainly the case here. You cannot simply sell on your debt and its liabilities, and businesses that make misleading claims to the contrary are just trying to take advantage of consumers' distress.'

'The OFT will not hesitate to take swift action against businesses which deliberately mislead consumers.'

'Consumers with debt problems should contact their creditor to arrange a repayment plan or their local Citizens Advice Bureau who will be able to provide free advice.'

NOTES

1. The Ministry of Justice (MoJ) is the principal regulator for claims management companies but businesses that operate in the credit/debt sector also need to be appropriately licensed by the OFT. The Consumer Credit Act 1974 (the Act) requires most businesses that offer goods or services on credit or for hire, lend money to consumers, or offer debt purchase, debt counselling, debt adjusting services or credit information services to be licensed by the OFT. Even if a business does not offer credit itself, but introduces clients to sources of credit, that business may be engaging in credit brokerage activities for which a consumer credit licence is required.
2. It is a criminal offence under section 39(1) of the Act to carry out any activity that requires a consumer credit licence without such a licence. Under the Act, unlicensed trading is punishable by a fine, imprisonment, or both.
3. Businesses providing claims management services regulated by the MoJ are required to follow strict rules of conduct including a ban on misleading marketing, high pressure selling and cold calling in person.
4. In August 2008 MoJ issued a joint consumer alert with OFT encouraging consumers to consider their position carefully and get independent advice and in February 2009 published fresh guidance on the type and content of marketing considered to be misleading. A number of businesses have been directed to change their marketing.
5. Today, MoJ has issued a further warning on marketing issues and the threat of enforcement action against any authorised businesses which fail to comply with the requirement that they must provide consumers with clear information about the options available for pursuing their claim, the realistic chances of success and the expected costs of doing so before any fees are charged or a contract is signed. For more information about the regulation of claims management businesses and general advice see the Ministry of Justice website.
6. Consumers can check whether a business holds an appropriate consumer credit licence by searching the OFT's online consumer credit register.
7. For advice on dealing with debt, see the Directgov website or visit your local Citizens Advice bureau.

[Amethyst]

Re: New warning to businesses on taking up-front fees and cold calling

Cheers honey. So would an email sent after a phone call where they take card details intending to take the money 24 hours later qualify as a reasonable time period ? Doubt it.

You must not take a payment or fee before this pre-contract information is provided in writing and the prospective client has had reasonable time to consider the information. A reasonable time is not defined, as what might be reasonable for one person would not necessarily be reasonable for another. But we would always consider it unreasonable to provide the information at the point of contact – whether it is a cold call or the prospective client contacted the business – and request a payment or fee.

[TUTTSI]

Re: New warning to businesses on taking up-front fees and cold calling

Well hun it would not be reasonable in my view to take the money until the prospective client has had a chance to fully read the email, digest it and I would have thought at least 2 -3 full working days to consider and then the client should at that stage give the go ahead IF they want to proceed. Not everyone is sitting at their desk reading emails and understanding all the terms and conditions.

Cheers honey. So would an email sent after a phone call where they take card details intending to take the money 24 hours later qualify as a reasonable time period ? Doubt it.