Campaigners seek scrutiny of offers to rescue struggling homeowners
· Effectiveness of IVA firms' debt strategies queried
· Groups warn of potential mis-selling scandal
The government has failed to monitor a potentially serious mis-selling scandal after a surge over the past three years in the number of overstretched homeowners advised they could avoid losing their homes if they signed an individual voluntary arrangement (IVA), according to anti-poverty campaigners.
Many homeowners have lost their homes despite assurances that the agreement offered protection from repossession.
Campaigners believe the sheer volume of agreements sold by so-called IVA factories using unregulated call centre staff has inevitably resulted in mis-selling. Last year saw a record 107,000 insolvencies, 44,000 of which were IVAs, most of them sold by IVA factories.
IVAs are an alternative to bankruptcy that allow people with debts to agree a five-year deal of fixed repayments with their creditors. IVA companies, many of them advertising on daytime TV and internet search engines, promise to reduce the level of debt to be repaid, sometimes by as much as 75%.
They have often been accused of encouraging people with large debts to agree an IVA rather than an informal deal with creditors. Whereas informal arrangements can be agreed with no charges by debt advice charities like Citizens Advice, IVAs can generate fees of up to £7,000 for the companies involved.
Some insolvency industry experts believe that 30% of IVAs fail before the end of their five-year term and, despite paying their creditors for several years, homeowners are forced to file for bankruptcy.
In the first half of this year 14,000 properties were repossessed, a 30% rise on a year ago, according to figures from the Council of Mortgage Lenders.
Campaigners want the government to produce its own figures detailing the number of voluntary agreements that fail. The Insolvency Service, the government agency that oversees the insolvency industry, publishes figures on the number of IVAs sold each quarter. However, it is unable to publish figures matching IVAs that fail with the period in which they were sold, leaving the industry in the dark over the failure rate.
Malcolm Hurlston, chairman of the Consumer Credit Counselling Service (CCCS), said the level of spending by firms selling IVAs distorted their ability to offer independent advice.
"There is bound to have been mis-selling of IVAs," he said. "When you have £1m a month being spent on advertising by these firms, that must mean they will encourage people, many of them in a desperate situation, to agree an IVA when there is a better solution."
The insolvency industry trade bodies agree that there needs to be more transparency. Peter Joyce, director general of the Insolvency Practitioners Association, said he had spent most of the year lobbying the Insolvency Service to publish figures on failure rates so that it became clear mis-selling was a problem.
The Insolvency Service said it would begin to monitor how IVAs were sold and the number of agreements that "varied" from month to month. But this information will not be published until next year and will not include figures showing the failure rate of IVAs sold up to the end of 2007.
A spokeswoman said a committee of industry representatives met for the first time in August 2007; one of the items on the agenda, she said, was to consider how to make progress on the issue of better "market information".
She said: "A sub-group was set up specifically to identify what market information is needed and, of this, what is already available, what could be obtained quickly and easily, and what additional information is desirable in the longer term."
Source: guardianonline.co.uk
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