individual voluntary arrangements (IVAs), the popular alternative to bankruptcy, are in some cases being mis-sold by some debt advice firms that are too sales based…
advisers and consultants receive many calls each month from people being poorly advised by many, heavily sales based, debt advice firms persuading consumers that an IVA is right for them in circumstances where it clearly is not suitable.
This comes with the news that the OFT is reminding debt management companies that they also must not use misleading trading names and must make clear that they are commercial enterprises rather than charities or government services.
The reminder follows action by the OFT to refuse an application from Baker Evans Ltd to use the trading names ‘The Bankruptcy Helpline’ and ‘The Insolvency Helpline’. But it is clear that Baker Evans come under the same company umbrella as Blair Endersby and Baines & Ernst, both of which provide IVA’s, and are known in the industry as ‘IVA Factories’.
The OFT refused to authorise the use of these names because they could potentially mislead consumers into thinking they are dealing with an impartial, non-commercial or governmental organisations, rather than a commercial enterprise. Consumers need to be able to differentiate between the two.
Ray Watson, the OFT’s Director of Consumer Credit said:
‘Consumers must be able to distinguish commercial debt management companies from free charitable or government services. We will not agree to names that could mislead consumers into contacting companies when they might think that they are accessing free advice.’
Why use an IVA?
An IVA allows a debtor to reach an agreement with his or her creditors to wipe off some of the money owed in exchange for reduced monthly payments. The IVA company then formulates the repayment plan, typically lasting five years, with the creditors.
We have seen IVA applications increase in the last two years, but we are also seeing record numbers failing and being terminated. They are popular because they avoid the stigma of bankruptcy, but because they have not been advised properly they are totally un-clear on the other solutions that may be available to them, including bankruptcy which is now soon as a recommended debt solution.
Please note that IVAs are not suitable for everyone and come at a price with most firms charging huge upfront fees of up to £2,000 before work is commenced. These fee charging rogue companies are misleading their clients who can get a better service for no cost upfront.
There are set criteria which someone has to meet before they are put on an IVA. One of these is that they have to have at least a surplus income of £200 a month at least. You must also have at least 3 separate creditors.
Example of bad IVA advice
One horrific example of bad IVA advice is a nurse based in Cardiff who contacted a debt company after seeing a tabloid advert and was advised to apply for an IVA. She then contacted Integrity Debt Solutions because she was concerned that her monthly repayments were unaffordable – they had been assessed on income that included her son’s disability allowance.
In reality fees should be included in the monthly repayments of an IVA, not charged upfront.
people may be being encouraged by unscrupulous IVA companies to commit to IVAs, even where this may not be the right course of action. These companies aren’t always properly informing their customers about the fees they charge for arranging an IVA, or about the adverse effects of IVAs on credit ratings.
there is concern about the quality of advice given by IVA advisers to consumers. Firm action must be taken against any IVA company found to be issuing false or misleading advice. Not only this they are also seeing a rise in poor advice from charities offering debt advice, but then passing people over to IVA Companies who have and ‘arrangement’ with that charity.
People with debts are morally obliged to repay them. How much they repay depends on their circumstances. We conduct a thorough review of their income and outgoings before contacting creditors. It is not right to help people avoid their legal liabilities.
we are frequently hearing from customers who are being told an IVA won’t appear on their credit rating when the reality is that it will. Some companies are giving the impression that this solution has a much smaller impact than it does. While all IVAs must be sold by a registered insolvency practitioner, there is no regulation of the companies employing the practitioners or of the front-line staff.
Just be careful with an IVA it is not what it seems and remember for the first two years nothing gets paid to your creditots, it all goes in the pockets of the IVA Company.
You have been warned!
