Debt management firms holding on to cash
Some debt management companies have been holding on to clients' cash rather than paying it to creditors, a BBC investigation has found.
The practice has left heavily-indebted families thousands of pounds worse off.
The Office of Fair Trading (OFT) has condemned the practice as "totally unacceptable" and has promised a crackdown.
One senior figure in the debt management industry says 10,000 people could be in danger from the practice.
If a firm goes out of business and client funds are not kept in a protected account, some or all of the money is likely to be lost.
Nina and Ged Murphy told BBC News that they had had to put their house on the market and could face repossession. They say it was the result of responding to a cold-call from a debt company.
The firm, Global Debt Solutions, which is based in Bolton, offered to arrange a repayment plan for £40,000 of credit card debt and loans.
The debt had mounted up after Mr Murphy lost his job and Mrs Murphy had a spell in hospital.
But after making payments to Global Debt Solutions for several months, the couple found to their horror that the money was not being handed over to creditors.
"Our creditors have taken us to court," says Mrs Murphy, "so we have County Court Judgements and now we're going to court on the mortgage."
The Murphys' debt problems had actually got worse.
"It's going to get to a point where we lose our house and lose our home. I don't know what we're going to do, to be honest," she adds.
Private debt management companies have 375,000 clients on repayment plans and take £250m in fees, so it is a lucrative business.
Global Debt Solutions, later known as 3 Step Finance, has been shut down by the Insolvency Service, which found that it did not monitor payments properly.
But now it has emerged that other companies have adopted the same tactic of accepting money from people in debt and not passing it on to creditors.
"It's apparent a lot of people have been seriously harmed by this practice," says Andrew Smith, a manager at another debt firm, ClearDebt, which keeps to the industry guideline of passing on any payments within five working days.
ClearDebt has taken on the files of 1,000 victims of another debt management company, Apex Debt Counselling & Management, which held back clients' money then went out of business.
Mr Smith says that there are as many as four other companies still using the same tactic and that up to 10,000 customers could be in danger.
The companies keep the money back as a ploy to try to negotiate a lower settlement with creditors.
But the customer runs a real risk that a company might fail while the funds are in its account.
"We've had letters from people who are feeling suicidal," Mr Smith says. "We've had people in our office who have paid in £30,000 or more and seen their debt hardly reduce."
David Fisher from the OFT is promising action.
"We regard the practice as unacceptable," he warns. "Where we have evidence we will remove a company's consumer credit licence, which means it cannot operate.
"We will also next month be issuing stronger rules for the entire sector, which explain what we expect of them."
That is too late for Mr and Mrs Murphy. By that time they could be dealing with a repossession order.
They wish they had taken advantage of the free debt advice which is available from Citizens Advice, Payplan, National Debtline and other organisations.