OFT warns bankruptcy anulment firms to clean up act

THE OFFICE of Fair Trading has issued a warning to three Manchester-based firms offering bankruptcy annulment services to improve their practices or face heavy fines and/or suspension of their credit licences.

The three associated firms – the Bankruptcy Protection Fund Limited, Consolidated Finance Limited and Alpha Mortgages Manchester Limited, were investigated and the OFT found that they had not been transparent in their dealings with customers, nor had they adequately outlined the risks involved in the services they offered.

The firms were also found to have misled customers about their cancellation rights and in one case failed to take account of a customer’s limited mental capacity.

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 allowing them to annul the bankruptcy.

In this case, Bankruptcy Protection Fund approached companies as an advisor and then referred them for short-term loans to Consolidated Finance. Once a bankruptcy was annulled, Consolidated Finance then introduced clients to Alpha Mortgages Manchester to arrange a mortgage in order to pay off Consolidated’s short-term loan.

The conditions imposed by the OFT on the firms included requirements that advertising materials clearly explain the cost and nature of the services offered, as well as the links between the companies.

The companies must also provide adequate warnings about the risks associated with any agreements being signed and customers must informed about their rights to cancel agreements.

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.’

If the firms fail to comply with these requirements they could face fines of up to £50,000 per breach or action by the OFT to revoke their credit licences.