Current Affairs NGO raises alarm over boom in debt resolution companies
One business that is booming in these difficult times is the services offered by debt resolution companies to people who find themselves with financial problems. But the charity People in Need sounded an alarm about such companies on Thursday, saying that the only difference they make is to make the original debts even bigger.
So-called debt resolution companies have prospered with unemployment still
high and the effects of the economic crisis still being felt in the Czech
Republic. Their up front invitation to desperate people with little
financial acumen is a solution of their debt burden or negotiation of a
more favourable repayment calendar with creditors. Once snared, getting out
of the contracts is usually very difficult or costly.
People in Need’s Daniel Hůle was part of a team that carried out a study into these companies methods and charges and arrived at some startling results. He describes first of all their soft sell to get the clients on board.
“The companies offer the service of reducing debt or wiping it out altogether. But this is not true at all. They cannot get these debts forgiven. They take receipt of these debts but they cannot guarantee their clients anything. They just charge for their services.”
And these charges and associated penalty payments can be very steep
indeed. People in Need found that the up front charges for financial
consultation together with the extra charges added on by the biggest debt
resolution company on the Czech market meant that an initial debt of 60,000
crowns, just over 3,000 US dollars, could easily climb by 40 percent to
84,000 crowns for nothing in return. There are even hypothetical cases
where the original debt could be multiplied fourfold if the companies’
penalty payments were enforced over a year. Although such drastic examples
are not frequent, penalty payments are often imposed for shorter periods.
People in Need say the problem posed by such companies has mushroomed over the last months.
Daniel Hůle, photo: Šárka Ševčíková, Czech Radio
“It has really surprised us how big this problem is. Half a year ago we
were not even really aware of the risk that these debt resolution agencies
presented. And now we are really afraid for the future because their growth
has been enormous. According to some data at our disposition, and which is
still not complete, we think that this growth has been fivefold in the last
six months compared with the previous six months.”
For the moment, the charity believes the best it can do is get the media on board to put the spotlight on these companies unscrupulous methods. Longer term, People in Need is calling for a change in the law. Organizers however admit that the path could take several years.
