ASA Adjudication on Debt Free UK Ltd

Ad

An ad in regional press, for www.Loan-Free.co.ukstated, "If your CREDIT CARD or LOAN Was Taken out Before April 2007 it Could Be Completely UNENFORCEABLE AND WILL NOT NEED TO BE REPAID. Our Solicitors Can Use Government Legislation to Arrange for Your Outstanding Balances to be Written Off and Claim Compensation for You WITHOUT AFFECTING YOUR CREDIT RATING".

Issue

1. Lloyds TSB plc (Lloyds) and a member of the public challenged whether the ad was misleading, because it exaggerated the likelihood of a debt being written off; and

2. Lloyds challenged whether the ad was misleading, because it did not make clear that fees applied to the advertiser's services.

CAP Code (Edition 11)

Response

1. Debt Free UK Ltd (Debt Free) said their service could be relevant to individuals who had taken out credit agreements before April 2007 and who wished to discover whether the agreement they had entered into with their lender was unenforceable as defined by the Consumer Credit Act 1974. They said a significant amendment to that Act was made with the introduction of the Consumer Credit Act 2006, which came into force in April 2007, which meant their service would only apply to agreements entered into before that date.

Debt Free said their company helped clients to obtain copies of their credit agreements from lenders and to submit those to an established firm of solicitors. They said that, after submitting those agreements to the solicitors, their service was completed. They said the solicitors supervised the evaluation and audit of the agreements and, if they believed a particular credit agreement breached the requirements of the Consumer Credit Act 1974 sufficiently to render the agreement legally unenforceable, they would write to the client to confirm that conclusion and offer to act for them should they wish to pursue the matter. Debt Free said the solicitors would then negotiate with the lender to persuade them to write off the credit agreement or take court action against the lender on the client's behalf.

Debt Free said they did not know what percentage of all credit card or loan holders in the UK with credit agreements taken out before April 2007 their service could be applied to, because they did not have access to the details of all those credit agreements. However, they said that, of the credit agreements they had submitted to their solicitors, they believed approximately 76% of the credit card and 85% of the loan agreements, including hire purchase agreements, had broken the terms of the Consumer Credit Act 1974 to a sufficient degree that they were legally unenforceable as defined under it. They said their ad did not exaggerate the likelihood of a debt being written off because it stated that a credit card or loan taken out before April 2007 "could be" unenforceable, not that all would be. They said their solicitors had declined to provide information about the number of Debt Free's referred clients who had successfully had their credit cards or loans written off in the period before the publication of the ad. They sent an e-mail from their solicitors which stated they believed that to do so would breach client confidentiality, but said they had successfully challenged numerous credit agreements, with balances written off and clients' credit ratings restored.

2. Debt Free said the ad did not state or imply that the service offered by the company was provided free of charge. They said their costs varied depending on the circumstances of the client. They said interested parties would receive written correspondence with full details of the company's charges and a detailed application form which they would have to fill in if they wanted to use the service. They said any reasonable person reading the ad would be aware that a company operating in conjunction with a firm of solicitors would require a fee for their services. They provided a list of fees charged for the evaluation and audit of credit agreements.

Assessment

1. Upheld

The ASA understood that an agreement under the Consumer Credit Act 1974 had to state the amount of credit, the rate of interest, and the number, amount and frequency of repayments and that, for example, if it did not it could be potentially unenforceable. We understood that some credit card and loan agreements taken out before April 2007 might be unenforceable but that many would be valid. Because we had not seen evidence that demonstrated how many (or what percentage) of those people who had paid Debt Free to review their credit agreements their solicitors had concluded were clients likely to have a case or how many of those had successfully had their debts written off, we concluded the claim "If your CREDIT CARD or LOAN Was Taken out Before April 2007 it Could Be Completely UNENFORCEABLE AND WILL NOT NEED TO BE REPAID. Our Solicitors Can Use Government Legislation to Arrange for Your Outstanding Balances to be Written Off and Claim Compensation for You" was likely to mislead readers as to the likelihood of their debts being written off.

2. Upheld

We noted that two sets of fees could apply to customers, firstly fees paid to Debt Free and their solicitors to have them obtain and assess one or more credit agreements and, secondly, fees paid to Debt Free's solicitors to take matters forward in the event those agreements were considered potentially unenforceable. We noted the information provided by Debt Free about their fees, which stated that if Debt Free's solicitors concluded that a particular credit agreement was not unenforceable and that the matter could not be taken further, the fee paid would be refunded, minus a £50 administration charge. We noted that, whilst consumers might be likely to expect to incur some costs in the event that they had a case for writing off one or more credit agreements, the ad did not make it clear that Debt Free charged fees to conduct initial reviews of credit agreements, and that, whilst these were refunded in the event the solicitors could not assist further, a £50 charge per agreement was still applied. Because the ad did not contain any indication that fees applied to the service, we concluded that the claim "Our Solicitors Can Use Government Legislation to Arrange for Your Outstanding Balances to be Written Off and Claim Compensation for You WITHOUT AFFECTING YOUR CREDIT RATING" could mislead consumers as to the costs involved in using Debt Free and Debt Free's solicitors.

The ad breached CAP Code clauses 3.1 (Substantiation) 7.1 and 7.2 (Misleading advertising).

Action

The ad must not be shown again in its current form.

Adjudication of the ASA Council (Non-broadcast)