Farepak: will the insolvency practitioner gravy train ever stop?

Over 100,000 victims of the Farepak Christmas club, which collapsed in 2006, will now receive almost 50 pence in the pound, primarily thanks to a charitable fund (17.5 pence) and a new £8m ex gratia payment from LloydsTSB (19 pence).

The work of the insolvency practitioners, BDO LLP, netted 13 pence in the pound yet their fees and outlays cost 19 pence in the pound; £8.2m - in other words they charged 60 pence to recover 40 pence.

The OFT's market study into this industry uncovered market failure in 2010. Big secured creditors, like banks, were able to exert some control over corporate insolvency practitioners (IP) fees and outlays. Yet, the OFT found in 40% of cases where unsecured small creditors were involved there was little or no oversight of IP fees and charges.

GLC's Mike Dailly speaks to BBC Radio 4's Money Box on the apparent licence that IPs have to print money, with little or no effective regulation from the UK Insolvency Service. In GLC's experience a similar problem exists in relation to IP fees and charges in the personal insolvency market.

GLC would like to see the OFT's recommendations - including an independent complaints body with real legal teeth to review IP fees and charges, and the power to impose fines - implemented.

The Insolvency Service consultation on these issue last year produced major industry opposition for any real change. Hardly surprising, when the present system represents the lightest touch of regulation for one of the most expensive and well paid industries in the world. An industry that frequently costs considerably more than it generates in recovered income.

Banks deny customers' rights over payment cancellations

BBC Business reports that two of the UK's biggest banks have admitted denying some customers their right to cancel recurring payments.

But since 2009, banks have been legally required to cancel CPAs when a customer asks. Customers seeking to cancel continuous payment authorities (CPAs) have been told by banks such as Lloyds TSB, Bank of Scotland and Santander that only the payee can agree such action.

The new rights were enshrined in the Payment Services Regulations, which came into force in November 2009, but have been subject to ongoing discussions between the banks and the Financial Services Authority (FSA).

Mike Dailly, a consumer lawyer at the Govan Law Centre, who also sits on the FSA's Consumer Panel, told Radio 4's Money Box programme that the obligations for banks were clear. "You have the right to cancel one of these continuous payment authorities and you can go to your bank, they can't put up any hurdles," he said.

"They should have a simple procedure for you to do that. You don't have to have the permission of the payee."

Mr Dailly said he has experienced a problem when trying to help a client who banks with Bank of Scotland, also now part of the Lloyds Banking Group:

"I can think of a case of a pay-day loan company where the consumer was paying that through one of the government schemes yet the pay-day loan company is still taking money from the person's account”.

"Now that person went to the Bank of Scotland and asked for them to cancel the CPA and they said 'You can't do it. You need to get the permission of the pay-day loan company.' Now, that's wrong in law."