Consumer advocate Which? has issued an urgent warning to people who have borrowed from London North Securities and its subsidiary Broadwick Financial Services.
The watchdog is concerned that borrowers may have been misled about the charges they are subject to and could have inadvertently run up huge debts.
A consumer finance solicitor who examined their contracts described London North as “one of the worst practices I have encountered”.
Which? became alarmed after discovering that the company routinely adds legal fees to loans, charged at high rates of compound interest, but defers payments until the loan matures.
The method virtually guarantees that customers will owe substantially more in default interest payments than they ever borrowed.
It cites Nick Jones from Nottingham who borrowed £7,700 in 1991. Despite having paid back £28,000 he still owes £120,000, built up from a small upfront fee of £259.
“We’re concerned that the cases we’ve come across are just the tip of the iceberg,” said Neil Fowler, Which? editor.
“There may be many more people who have no idea that they owe thousands of pounds more than their original loan.”
“Which? has been lobbying for stronger consumer credit laws. We hope the new Consumer Credit Act will help customers challenge any unfair terms linked to credit contracts.”
Which? recommends that borrowers compare loans and comb the small print before they sign up to any borrowing agreement.
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