OFT - Bankruptcy annulment businesses told to improve practices

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http://www.oft.gov.uk/news-and-updates/press/2010/130-10

The OFT has imposed requirements on three associated companies, The Bankruptcy Protection Fund Limited, Consolidated Finance Limited and Alpha Mortgages Manchester Limited, to improve these companies' practices when offering bankruptcy annulment services to customers.

Bankruptcies can be annulled by a court in certain circumstances, including when bankruptcy debts and expenses of the bankruptcy have been paid off in full or guaranteed to the satisfaction of the court. Some businesses offer recently bankrupted homeowners a short-term loan secured on their property in order to repay all such debts and expenses and enable them to seek to annul the bankruptcy.

An OFT investigation found that the three companies had not been transparent in their dealings with customers and failed to adequately outline the risks involved. The companies had also misled consumers about cancellation rights and, in one instance, failed adequately to take account of the needs of a consumer with limited mental capacity.

The requirements imposed set out that the companies must ensure that:

• advertising material explains the commercial nature and costs of the service and consumers are made fully aware of the links between the companies
• before entering into a contract, consumers are given clear and accurate information about the short-term loan offered, and that obtaining a mortgage or re-mortgage is not guaranteed
• before entering into a contract, consumers are given accurate information on the cost of the service and adequate warnings about the nature of the service, including that the consumers property could be repossessed in the event of non-payment of the loan
• before entering into a contract, consumers are informed of their right to cancel the agreement
• they do not provide bankruptcy annulment services where there remain doubts about a consumer's capacity to understand the information provided.

Ray Watson, Director of the OFT's Consumer Credit Group, said:

'Bankrupt people are in a vulnerable position. They need to be given full and clear information about any offer that is made to them. These requirements make it clear that the OFT expects full transparency and fairness from this sector, to make sure that consumers are not misled and do not find themselves placed in a worse financial situation.'

NOTES

1. Please see the full requirements imposed (pdf 253kb) on Bankruptcy Protection Fund Limited (BPF), Consolidated Finance Limited (CFL) and Alpha Mortgages Manchester Limited (Alpha) .
2. The three companies are associates of each other, within the terms of the Consumer Credit Act 1974 by virtue of their shared directors, premises and the business provided. BPF contacts bankrupt people setting out the service they offer and will correspond with creditors on the bankrupt's behalf offering repayment of the debt(s) due. CFL arranges the finance to enable a debtor to seek to annul the bankruptcy and, once annulled, this short term loan is secured on the bankrupt's property. Once the bankruptcy is annulled, BPF introduces the debtor to a mortgage broker (Alpha), through which the consumer can arrange a re-mortgage of their property in order to pay off the short term loan, if a re-mortgage is required and/or available.
3. The OFT issued a Minded to Impose Requirements notice to 25 June 2010. The decision to impose the requirements was made on 25 November 2010. The companies can appeal the decision to impose the requirements to the First Tier Tribunal (Consumer Credit). In this case the appeal period has not yet elapsed.
4. Failure to comply with these requirements could lead to a fine of up to £50,000 per breach or to action by the OFT to revoke the companies' credit licences.
5. The Consumer Credit Act 1974 requires most businesses offering credit, lending money or involved in activities relating to credit or hire to be licensed by the OFT.
6. Where an individual has been made bankrupt, section 282 of the Insolvency Act 1986 allows the individual to apply to court to have the bankruptcy order 'annulled' in certain circumstances. One of the ways in which a bankruptcy order may be annulled, subject to the discretion of the court, is where the bankruptcy debts and expenses of the bankruptcy have all, since the making of the order, been either paid or secured to the satisfaction of the court. As noted above, companies, such as those named here, who offer bankruptcy annulment services approach bankrupted homeowners offering to assist the bankrupt in seeking to annul the bankruptcy order by means of a short-term loan, which is then secured on their property.
7. The OFT issued a consultation 'Mental capacity - Draft OFT guidance for creditors' on 6 December 2010, which can be viewed here.
8. For advice on dealing with debt, see the Directgov website.

fermi

Requirements.

debtinfo

Interesting

philnicandamy

Very.............

fermi

Still using that phrase on their website as far as I can see.