Category: News
Date: 04.05.2006
Printable version
BBC ONE's Real Story has uncovered concern about celebrity-led advertisments that
can lead to borrowers putting their homes at risk by consolidating existing debts
into loans secured against their property.
In one featured case loan company FIRSTPLUS lent Emma and Kris Galloway more than
the equity of their property.
The salesperson claimed that other companies will
only consolidate loans up to 95 per cent of the value of a property - but in a
transcipt obtained by the programme FIRSTPLUS said that they will lend into
'negative equity'.
The Galloways decided to contact FIRSTPLUS - the biggest loan consolidation
company in the UK - after they saw an advert for the company promoted by Carol
Vorderman.
They had debts of more than £20,000 across a variety of credit and store
cards and wanted to extend their credit and pool their loans into a single
payment.
Their joint income at the time was only £18,000 a year, yet they were
lent more than £47,000 secured against the value of their home.
When they took their loan out in December 2003 their interest rate was 10.9 per
cent - since then it has risen to 12 per cent.
FIRSTPLUS reserves the right to
alter their interest rates to reflect base rate rises or to "improve their
service to customers".
The subsequent rise in the Galloway's monthly payments
means the couple are now struggling to meet their monthly payments.
Independent loans analyst Iain MacQueen-Sims is critical of loan consolidation,
saying: "The Americans tend to call it predatory selling where you take advantage of a
particular borrower's situation.
"They're called toxic loans because they can
damage your financial health. You end up being in a worse situation than you
were before. This is bad news especially when your home is at risk."
Next year the value of the secured lending industry in the UK is likely to be
worth more than £30bn.
However, independent charity the Consumer
Credit Counselling Service (CCCS) believes other options should be
considered before converting unsecured loans into loans secured against the value
of a property.
The CCCS is supporting an appeal to Carol Vorderman to stop
promoting secured loans.
CCCS Chair Malcolm Hurlston tells the programme: "I think the problem is because of her high profile, she is well known for having
a kind of expertise and this is transferred in the mind of the consumer.
"I think
there's a very great danger for anything that is heavily advertised and promoted
that will lead people towards a conclusion which is unsuitable for them."
FIRSTPLUS told the BBC the company has never repossessed a home: "We hope that Carol gives people the feeling that FIRSTPLUS can help restructure
debts quickly, simply and responsibly.
"The vast majority of FIRSTPLUS customers
experience no problems and we receive dozens of thank you letters to that
effect."
Carol Vorderman declined to comment.
Real Story: Home or a Loan? will be broadcast on BBC ONE on Monday 8 May at
7.30pm.
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