Culture, Media and Sport CommitteeWritten evidence submitted by StepChange Debt Charity [NTC 036]

Introduction

1. StepChange Debt Charity is the UK’s largest specialist provider of free, independent debt advice. The Charity offers support and solutions to over 400,000 heavily indebted consumers every year. In 2012 we helped clients repay £327 million in unsecured debt at no cost to either them or Government.

2. Evidence from our clients,1 included in this submission, shows that nuisance calls and text messages are not merely an annoyance; they can cause genuine harm.

Key problems caused by nuisance calls and texts:

Mental health difficulties.

Increased financial vulnerability.

Fraud.

3. Problems often result from the unsolicited marketing via telephone of high risk unsecured credit products, such as payday loans, or fee-charging debt management services. This is not banned by regulators—a serious regulatory gap, especially considering the unsolicited sale of mortgage products in this way is banned by the Financial Conduct Authority (FCA) under MCOB 3.7.3R.

4. We believe the Committee should recommend the FCA bans unsolicited real time promotion of high-risk unsecured credit products and fee-charging debt management services. We will return to this point later in the submission.

In early 2013 a payday loans company called a StepChange Debt Charity client, Sarah, at her work. After speaking to one of her colleagues the company’s salesperson convinced them that he was an acquaintance of Sarah and managed to secure her mobile number. The company subsequently bombarded Sarah with nuisance calls. This left her feeling immensely vulnerable and under great mental stress.

In February 2013 a StepChange client, Amy, received an unsolicited marketing call (a “cold-call”) from a fee-charging debt management company (DMC), which convinced her to switch to an Individual Voluntary Arrangement (IVA) it operated. During the sales conversation the DMC informed Amy that it would “make up” the budget figures on which the IVA would be based and ignore some sources of income when making the IVA offer. Amy was not advised on any of the key basic of an IVA, for example that it is a legally binding process, and the possible ramifications of fraudulently supplied information. This has left Amy very vulnerable to having her IVA fail and becoming bankrupt.

Aaron received an unsolicited call from a company offering debt advice and agreed to a home visit. He was told that he could be debt free in twelve months. Convinced by the attractive offer, he agreed to cancel his contract with StepChange Debt Charity and signed papers to hand over financial control to the company. After the visitors left Aaron realised he had not been given any copies of the paperwork. He called the company and was subsequently sent paperwork that contained no confirmation at all he would be debt-free in 12 months.

The Problems

Mental health difficulties

5. Debt is a key cause of mental health difficulties. The more debt people have, the more likely they are to have mental disorders overall.2 Over 90% of the over 5,500 people who used Wellbeing, the StepChange Debt Charity mental health diagnosis tool, in 2012 indicated they were suffering from some form of depression. We are gravely concerned that constant nuisance calling can exacerbate mental health difficulties.

6. Indebted consumers are often bombarded by nuisance calls, likely far more than most people. We believe on account of their financial history, their details are held by multiple financial services companies who sell them on to multiple third parties for marketing purposes. This increases the pressure on families, already being called many times a week by debt collectors, causing significant mental stress and leaving many scared to answer their telephones.

7. Indeed, one issue the Committee may want to consider is the overlap between nuisance calls and debt collection calls. Due to poor record keeping in many cases clients receive calls from firms chasing debt repayments from former residents of the same property, family members who have moved out or deceased relatives. In these instances such calls are not legitimate collections activity but nuisance calls themselves.

Walter went bankrupt three years ago and is unlikely to work again due to mental and physical health problems. Despite this payday lenders continued to contact him with offers. Walter now has eight payday loans from five companies and has accrued £3,194 of debt. Unable to repay, his loans are being rolled over at a very high cost. In one case Walter took out three £30 loans, repayable at £44 each. As he has been unable to settle these, he has been paying £10 a fortnight each to roll them over for around a year—about £260 extra in rollover charges for each loan. As a result of his debts he has been bombarded with calls, some as early as 6.30am, from payday lenders demanding repayment. For someone in Walter’s condition, this is adding serious mental and physical stress to his already vulnerable condition.

Nicola has had a debt collection company persistently ringing her parents’ house even though the company have been told on numerous occasions that she does not live there. The company has spoken to her 13 year old sister, telling the sister that the woman owes them a lot of money and they need to speak to her. This has resulted in huge family arguments over her financial situation.

Last year Zara was contacted by a company chasing a debt for £89 from 1975. This was not her debt, but her son’s—who had been dead for 10 years.

Increased financial vulnerability

8. Indebted consumers are more likely to take up services offered during a marketing call or by a text message. Over 40% of consumers in problem debt do not feel that they are able to take a reasonable decision about whether to take out their loans (compared to 30% of all consumers).3

9. Over a third of our clients have arrears on a priority bill, such as council tax, and therefore are liable to be visited by bailiffs chasing payment. Clearly for people in such desperate financial straits an unsolicited call offering a payday loan can be very tempting.

When already indebted consumers take up an offer of a high-risk product following a nuisance call the result can be devastating. Purchasing credit after a nuisance call can exacerbate financial difficulties and increase the pressure on hard-pressed families.

10. A survey carried-out with 950 of our clients in 2012 found that for 78% debt problems had affected their self-confidence/faith in their ability to support themselves or their family.4 What makes this particularly problematic is that companies either, a) have no awareness of the financial position of those they are calling and therefore no idea if they will create further difficulties, or b) understand that the people they are calling are vulnerable and attempt to sell them high-risk goods regardless. In the latter scenario companies are essentially preying on vulnerability in order to make profit.

A client, Paul, who was already on a DMP operated by the Charity, received a cold call from a fee-charging debt management company, claiming that StepChange Debt Charity would never get the client debt free. The company advised an IVA would help him become debt free quicker and convinced Paul to pay them £200 per month. After four months of payments Paul was informed that he had been unsuccessful in applying for an IVA, but that no refund would be given. However the company could set him up on another DMP for his debt—for a monthly charge.

Greg, a 74 year old man, was on a DMP with StepChange Debt Charity. He was contacted by a fee-charging DMC who offered to have the majority of his debt written off. Greg agreed to pay the DMC £150 per month and maintained the payment for seven months. He was consequently contacted by his creditors and informed that they were receiving only a £1 per month token payment. Greg called the company to find out what was happening. He was informed that his money was being kept and saved until a full and final payment can be made in the future. However the fee-charging DMC was taking 82.5% of the monthly amount for their fees. Along with the £1 token payment this left only £20, a negligible amount compared with the original £150, to be saved per month. What Greg has already paid to the company is non-refundable.

Fraud

11. Because consumers on the receiving end of a nuisance call or text can often be vulnerable, unscrupulous operators have opportunity to engage in fraudulent activity. The charity sees examples of cases where, for example, clients have money taken from their account after giving credit or debit card details “for identification purposes only” during a telephone call. In other cases clients have been persuaded to make payments on debts they do not hold by companies calling them out of the blue.

A financial services company recently spoke to our client, “Mr Fowler”, about an outstanding debt. The client, who had been going through a stressful time dealing with the impending death of his father, started a payment instalment to repay the debt. The company then increased the instalment amounts, causing him to question what the debt was for. It transpires that he had no debt at all, but the company had been contacting many “Mr Fowler(s)” in the local area demanding payment. After writing to complain the company refused to offer a refund or even look into the matter.

Laura was contacted by a legal service company, acting on behalf of a payday lender. The caller demanded that Laura pay £300 within 45 minutes or else a court would be contacted and she would be arrested. Laura has no record of borrowing from the lender. Asking for proof of the debt, Laura was subjected to verbal abuse from the caller, threats to play the recorded phone call in court and told that she would be visited by the police the next day at work. The caller then hung up. Laura was badly shaken by the incident and called StepChange Debt Charity for urgent advice.

Why Problems have Arisen

12. Nuisance calls and texts have proliferated and are proving increasing detrimental to consumers for several reasons.

Confused and weak legislation.

The ease with which firms can acquire consent to share consumer data for marketing purposes.

Under-powered/under-resourced regulators.

Serious gaps in the protection offered by the Telephone Preference Service (TPS).

Confused and weak legislation

13. The current legislation governing nuisance calls is perplexing and poorly joined-up. For example, while the unsolicited marketing of mortgage products by telephone is prohibited by MCOB 3.7.3R, it is allowed for unsecured credit products and fee-charging debt management services—unless it is via text, picture or video messaging when it is banned by the Privacy and Electronic Communication Regulations (PECR) 2003.

14. Such confusion is exacerbated by weaknesses with the overall legislative framework. Key pieces of legislation, such as the Data Protection Act (DPA) 1998 and PECR are not strong enough to prevent abuses of consumer data leading to nuisance calls. Just a few examples demonstrate this:

Currently the balance of proof is with the consumer to prove their data has been misused, rather than with companies to prove they have not misused data. This makes it far too easy for unscrupulous companies to act badly.

The DPA allows companies to repeatedly exploit consumer data by letting them reuse it if the new use is for a different purpose than for which it was collected.

Companies do not have to compensate consumers for psychological harm caused by the misuse of personal data. This leave individual vulnerable to harassment and intensive sales techniques.

15. Compounding both these problems is the fact regulatory oversight of nuisance calls is divided between multiple parties—Ofcom is responsible for enforcement on silent and abandoned calls, while the Information Commissioner’s Office (ICO) is responsible for live and recorded marketing calls and spam text.

16. All these issues have conspired to leave consumers in a vulnerable position and utterly confused as to their rights in relation to nuisance calls and to whom they should complain.

The ease with which firms can acquire consent to share consumer data for marketing purposes

17. A root cause of the growth in nuisance calls is the simplicity with which firms can acquire consent share consumer data for marketing purposes. It is far too easy for firm to gain permission to share data extensively via a simple “tick-box” or through the “soft opt-in”. The soft opt-in provision of PECR allows consent to be gained by firms in the course of a sale or negotiation of a product or service, even if the sale is not completed.

18. This is problematic because there are minimal limits on how long consent is considered valid and when and how personal data can be shared. ICO guidance on the two issues is remarkably unclear. For example, on the former the ICO guidance merely states consent for marketing purposes remains valid “until there is good reason to consider it no longer valid”.5 On the latter, although the ICO guidance says personal information on a database should not be sold unless the individuals on it have been told this will happen, in cases “where a business is insolvent, bankrupt, being closed down or sold” this does not apply.6

We are concerned this has resulted in a situation where on average an individual’s personal data is held on 700 separate databases, increasing hugely the chances of them receiving nuisance calls from multiple parties.7

Under-powered/under-resourced regulators

19. Firstly, the ICO does not currently possess the right tools to protect consumers when they have been affected by nuisance calls. This is primarily related to data protection powers, where breaches can lead to nuisance calls. For example, when companies fail to update contact details or allow personal details to be sold without a proper record of whether individuals are signed up to the Telephone Preference Service (TPS).

The ICO cannot currently take enforcement action as a result of a data protection breach; it can only do so if it proves substantial damage or distress occurred as a result.

Even if substantial damage or distress is proved the ICO has no power to award compensation to individuals as a result.

When conflict arises over whether consent for data sharing has been given the burden of proof is on the individual, rather than the company.

PECR does not cover firms selling on personal data, only those that conduct direct marketing.

20. Secondly, as a recent report from the London School of Economics pointed out, the ICO and Ofcom do not have sufficient resources to tackle the growing problem of nuisance calls. Since March 2012 the ICO has received over 200,000 complaints to its “snap survey” on nuisance calls, Ofcom receives over 10,000 complaints a month. However, the two regulators between them appear to have fewer than 20 full-time equivalent staff members to deal with the problems in this area.8

21. This secondary problem is likely to get worse if the incipient EU General Data Protection Regulation is implemented in its entirety. The House of Commons’ Justice Committee predicted that if this happens the ICO is in danger of having its funding reduced by £42.8 million.

Serious gaps in the protection offered by the Telephone Preference Service (TPS)

22. The TPS is a sign-up service designed to help households block unwanted nuisance calls. However, it is currently proving ineffective at doing so—even when people are signed up with the TPS they still receive on average 10 calls a month.9

The current 28-day waiting period for registering with the TPS and the service coming into effect is far too long for vulnerable families being constantly bombarded with unsolicited sales calls.

The service does not stop calls from overseas. On this point we question why it is possible to purchase a service from a national telephone company that stops such calls, but a Government sanctioned organisation like the TPS cannot do the same.

There is no function to prevent unwanted text, picture or video messaging.

23. While the TPS continues to fail to fulfil its function it reduces faith in the effectiveness of regulation, and undermines trust and reliance on the telephone. However, more importantly, for consumers it contributes to the problems identified above—mental health difficulties, increased financial vulnerability and fraud. Leaving exposed those who believed themselves to be protected.

Potential Solutions

24. The area of nuisance calls is a complex one. However, there are some areas the Committee may wish to focus on when formulating its recommendations.

(1)A significant regulatory gap, one which causes huge consumer detriment, is the allowing of the unsolicited marketing of high-risk unsecured credit products and fee-charging debt management services via telephone. We believe the FCA should consider banning unsolicited real time promotion of high-risk unsecured credit products and fee-charging debt management services.

(2)Current guidance surrounding acquiring consent to market products and share personal data lacks clarity. It would be in the long-term interest of the consumer to put in place stricter rules on obtaining consent and how long this consent can be held for. Consent must be bounded, so that consumers know who holds their data, and how long the data can be used for marketing purposes.

(3)Considering the rapid growth of nuisance calls the ICO in particular appears to lack capacity. Innovative ways to address this problem could be considered. For example, the Justice Committee (see above) recommends, a) allowing any current FOI funding surplus to be used for data protection purposes, and b) increasing funding of the ICO from central Government.

(4)The TPS needs to be strengthened and filtering systems for text messages developed, so that consumer belief in the service recovers. In particular the Government may want to consider working with telephone companies to ensure that consumers registered with the TPS cannot be targeted by calls from outside the UK.

25. It is important that Government, regulators and consumer groups work closely to ensure the best protection from nuisance calls. A comprehensive package of measures addressing the problem will help protect consumers from unsolicited marketing, reduce financial vulnerability, fraud and give households confidence they know who has their details. StepChange Debt Charity is happy to work with any individual or organisation keen to make such positive changes.

August 2013