The Office of Fair Trading has warned consumers to stay clear of firms claiming to use a legal loophole to clear debts.
Following an increase in the number of companies claiming to utilise a so-called debt write-off loophole that could render a borrower’s unsecured debts unenforceable, the OFT has published a consumer guide warning consumers.
According to the OFT, companies claiming to help people exploit such a loophole can charge hundreds of pounds in administration fees , even though a judge has found that the loophole does not exist in UK law.
The companies claimed that debts were unenforceable under the Consumer Credit Act 1974 if the lender could not produce a copy of the original agreement within 12 days of being requested to do so.
However, a recent ruling by Judge Waksman at the High Court in Manchester found that it was acceptable for lenders to produce reconstituted copies of original loan agreements, for the purposes of providing the borrower with information about their loan, information that can be requested for just £1.
The OFT has not published a guide, warning consumers to avoid such schemes.
“Consumers have a right to information on debts they owe, but it is important that they realise that these sections of the Act cannot be used to write off legitimately owed debts,” said Ray Watson, of the OFT’s consumer credit group.
“Although the debt can be classified as unenforceable until the right paperwork is provided, people are encouraged to seek advice and help on how they can continue to repay the money they owe.”
He said the borrower could not “sell” a debt to a claims management company. The lender could also add interest and default charges to the loan, and the borrowers’ credit record could also be impacted.
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