Urgent warning for millions in debt over ‘sneaky’ small print that could leave you hundreds of pounds out of pocket
HOUSEHOLDS who were lent money they couldn’t afford are being warned they could end up with a shock bill if they get help making a complaint.
Borrowers who use a claims management firm to help them get compensation for un-affordable lending could find they are landed with a hefty bill to pay, adding to their financial struggles.
Claims management firms help people make claims against companies if they think they have been treated unfairly.
You can claim to third parties like the Financial Ombudsman Service (FOS) yourself for free, but claims firms will do the work for you and then charge you for their services.
They usually operate on a “no win, no fee” basis, which means they only charge a fee if your claim is successful.
They then usually take their fee from the money they help you win back, normally as a percentage.
But in some cases, such as for those with debt complaints, the claims firm might just help you to get a bill wiped, meaning you would then have to pay out of pocket for its services.
The Sun has seen two cases where customers in severe debt used claims firms to complain about unaffordable lending, and were then landed with a huge bill.
In one case, a customer, “Tom”, was struggling with debt and decided to submit a claim through a claims management firm he found online for irresponsible lending by his credit card provider.
He received an email from the claims firm with an offer from the provider saying it would credit £1,303 back to his account to wipe his balance.
So, he wouldn’t get any physical money back, but his outstanding debts would be cleared.
At the same time, he received an email from the claims management firm billing him for £625 for its services – an effective fee of 48% -which he would have to pay out of his own money.
This included £521.37 in fees and £104.27 in VAT.
The claims firm said he could reject the offer, so Tom wrote back to say he wouldn’t be able to accept it as he couldn’t afford the fees.
But the firm wrote back and said he would now not have the debt wiped, but would still have to pay for the firm’s services.
“I’m completely stuck at what to do, there is no way I can afford to pay them as I’m currently on a debt management plan with more financial worries,” Tom said.
After The Sun got in touch with the claims firm on Tom’s behalf, it agreed to waive the fees.
But Tom is one of many Brits struggling with debt who may not realise they could be landed with a bill for getting their debts wiped.
Sarah Coles, head of personal finance at Hargreaves Lansdown, said it can be tempting to sign up to claims firms because “they offer to take the hassle out of the process”, but the cost can come as a “horrible surprise”.
“The real horror of this particular charge is that you’re not getting a payout from which the claims compaeny takes a cut, so you need to find the money from elsewhere.
“In many cases, people are only making these claims because money is so tight, so paying a claims firm can push them further into financial difficulty. They’re escaping from the frying pan, straight into the fire.
“In many cases it’s perfectly possible to make a claim yourself,” she added.
“Don’t assume it’s too difficult or complicated, but speak to a charity like Citizens Advice, who can talk you through what’s involved. You could protect yourself from a nasty financial surprise.”
How to shift your credit card debt quickly
By James Flanders, Consumer Reporter
UK Finance reports that we spend a whopping £2 billion a month using our credit cards.
While that little strip of plastic makes everyday spending easy peasy, it comes at a huge cost.
According to The Money Charity, the average credit card debt sits at £2,485 per household or £1,312 per adult.
And if you’re stuck on a credit card with a high APR and only making the minimum repayments, you could be forking out hundreds of pounds extra in interest charges.
For example, if you owe £1,312 on your credit card and are charged 24.8% APR.
If you don’t make any more transactions and pay £100 a month in repayments, you will pay off the card by September 2025 but at £207 in interest.
However, by hunting around for a better deal elsewhere and switching to a balance transfer credit card with a lengthy interest-free period, you can save yourself £162.
If the same person was accepted for a 28-month-long zero-interest credit card with a 3.4% balance transfer fee and made the same £100 repayments each month.
They would pay off the debt sooner, in July 2025, and only fork out £45 towards the 3.4% balance transfer fee.
Before taking out a new credit card or increasing the amount you borrow, it’s vital to consider the consequences.
You should only borrow money if you can afford to pay it back.
It’s always vital to ask yourself if you need to borrow before committing to a new credit card, personal loan or overdraft.
If you use a credit card, I’d recommend that you always pay off your balance in full at the end of each statement period.
Lenders have a responsibility to help customers who are in debt.
If you’re in a debt crisis, your first point of call should be your lender.
They might help you out by offering you a reduced interest rate or a temporary payment holiday – so check in with your lender if you’re struggling.
How do claims management fees work?
Claims management firms are now regulated by the City watchdog, the FCA, and in 2021 it proposed to cap their fees at 30%.
But some claims firms are getting around this rule as they are actually solicitors firms authorised by the Solicitors’ Regulation Authority, where there is currently not this fee cap.
This means effective fees can sometimes be half the total winnings on a claim.
Firms are also able to send you a bill even if you never see any physical cash back, as their fees are set on the amount they “win” back, rather than the amount you actually pocket.
It’s important to remember that in most cases, you can make a complaint against a financial firm yourself for free – and you can usually get free help doing so.
You can take a complaint to the FOS for free by visiting financial-ombudsman.org.uk/make-complaint or by calling 0300 123 9 123.
An adviser can talk you through your claim over the phone.
You can also formally complain to a company for free yourself.
How to contact our Squeeze Team
Our Squeeze Team wins back money for readers who have had a refund or billing issue with a company and are struggling to get it resolved.
We’ve won back thousands of pounds for readers including £22,000 for a man asked to pay back benefits to the DWP, £2,800 for a family who had a hellish holiday and £635 for a seller scammed on eBay.
To get help, write to our consumer champion, Laura Purkess.
I love getting your letters and emails, so do write to me at squeezeteam@thesun.co.uk or Laura Purkess, The Sun, 1 London Bridge Street, SE1 9GF.
Tell me what happened and don’t forget to provide your phone number so I can ring you if I need more information. Share with me any reference number the company has given you relating to your case, or any account name/number if you’re a customer.
Include the following line so I can go to the firm on your behalf: “I give permission for [company’s name] to discuss my case with Laura Purkess at The Sun”.
Please include your full name and location in your email/letter.
Do you have a money problem that needs sorting? Get in touch by emailing money-sm@news.co.uk.
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