IVA debt deals scandal

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Marylou Cain
8 years ago
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1 IVA debt deals scandal People struggling with their finances are being wrongly led to believe that individual voluntary arrangements (IVAs) are the panacea of debt. In fact, there is growing evidence that people are being actively encouraged into IVAs even though that solution may well be unsuitable. With an IVA, a debtor makes a formal proposal to creditors through a licensed insolvency practitioner. If enough of the person's creditors agree, the debtor then pays back an agreed amount over a fixed period, usually five years. According to Sutton Coldfield based licensed insolvency practitioner, Gerald Irwin of Irwin & Company, the number of people using IVAs has soared by more than 150% over the past year, and there is growing concern that people choosing this option are often not fully aware of the implications. There is an enormous growth of fee-charging debt management companies giving unregulated advice that often fails to protect the consumer and makes it impossible for lenders to recover their debts. These companies must not be mistaken for licensed insolvency practitioners who are legally obliged to give best advice, even if that advice means going into bankruptcy said Gerald. IRWIN & COMPANY

With an IVA, a debtor makes a formal proposal to creditors through a licensed insolvency practitioner.

2 News Release Minister rejects banks' bid for crackdown on debt advisers High street banks remain hopeful of persuading the government to crack down on "misleading" advice and advertising by debt advisory firms despite comments by a minister that appeared to block further talks. The banks said they would continue to present evidence of abuses in the debt advice industry to the Department of Trade and Industry in the hope that ministers would accept the need for a stricter regulatory environment. The Liberal Democrats said the government's response to the debt crisis affecting millions of people was "to snipe at banks" rather than recognise "that there is a common problem that each has helped to create". The banks believe there is widespread abuse of individual voluntary arrangements (IVAs), allowing people to escape some debt by making regular repayments. They blame misleading advertising in tabloid newspapers and on daytime TV for a two-thirds rise in the number of IVAs issued in the second quarter of this year. Insolvency practitioners that issue IVAs are regulated, but staff in call centres are not. The banks say many people are recommended the IVA route because advisers can gain larger commissions than from more informal arrangements with lenders. In August HSBC said the aggressive marketing of IVAs by debt advice firms accounted for much of the rise in banks' bad debts. Accountants KPMG predicted the number of insolvencies this year would breach 100,000, up from 5,000 in However, Jim Fitzpatrick, the trade and industry minister, said the banks were to blame for the rise in insolvencies. He said their lending policies had encouraged people to borrow more than they could afford. A spokeswoman for the DTI said: "We are not minded to do anything at the moment that would increase the amount of regulation in the sector. But our door is always open and we will consider further evidence when it is submitted." Eric Leenders, the executive director of the British Bankers' Association, said the minister's response had put the banks in an awkward position. "The banks have had a long-held position that people who are in financial

The banks said they would continue to present evidence of abuses in the debt advice industry to the Department of Trade and Industry in the hope that ministers would accept the need for a stricter

3 difficulties should take advice. But that position is being undermined every day by firms that give false expectations of the debts that can be avoided by using an IVA." Firms say rate rise would harm recovery Angela Balakrishnan Friday October 13, 2006 The Guardian Employment, exports and investment saw healthy growth in the third quarter, the British Chambers of Commerce said yesterday in a broadly optimistic snapshot of the UK economy. However, the business organisation warned the Bank of England that further increases in interest rates would dampen the fragile economic recovery. The quarterly survey found service sector employment hit a nine-year high, with 24% of firms expanding rather than contracting their workforce in the third quarter. Manufacturers planning to raise investment also reached a nine-year high. Manufacturing export sales also strengthened markedly, with a balance of 34%, up from 19% and the highest for over a decade, reflecting the recovery in the eurozone - the destination for half Britain's exports. "Today's results should not be seen as an excuse for complacency or for damaging interest rate increases," said Sally Low, director of policy and external affairs. "It is vital that the monetary policy committee (MPC) ensures an increase in rates does not come as a shock." Two new members of the MPC - Professor Tim Besley and Dr Andrew Sentance - gave testimony to a parliamentary committee in which both warned that wage inflation could yet pick up in response to the oil price rises of the past two years. City economists said it was difficult to know whether either would vote to raise interest rates again soon. Dr Sentance said he had been worried about the economy in 2005, it was much more robust now. Professor Besley said that even though oil prices had fallen sharply since early September, this did not mean inflation would fall as sharply since firms might relax cost controls in other areas.

Commerce said yesterday in a broadly optimistic snapshot of the UK economy.

4 Lenders to blame for bad debt, says minister Hilary Osborne Friday October 13, 2006 Guardian Unlimited Lenders have only themselves to blame for rising levels of bad debts and the government does not intend to regulate companies offering insolvency agreements, a government minister has said. Trade and industry minister, Jim Fitzpatrick, said the increase in the number of personal insolvencies needs to be monitored, but he dismissed requests by the big banks to introduce rules for companies that offer individual voluntary arrangements (IVAs). These are an alternative to bankruptcy, which allow borrowers to reach an agreement with their creditors on how much they can afford to repay and when. Mr Fitzpatrick told the Financial Times: "If we've got a rise in indebtedness, if we've got a rise in people having difficulty servicing that debt... then maybe the banks are lending too much money, or maybe they're not being as careful as they used to be in scrutinising the applications."

Trade and industry minister, Jim Fitzpatrick, said the increase in the number of personal insolvencies needs to be monitored, but he dismissed requests by the big banks to introduce rules for

5 He added: "If they'd not lent it [the money] in the first place then they wouldn't be in the difficulty of trying to recover it." Mr Fitzpatrick also dismissed the "Bankrupt Britain" tag as a tabloid invention, saying the government did not need to "take desperate measures" to fix the problems of bad debt. The collective debt of British borrowers broke through the 1 trillion mark in 2004 and has remained above that level ever since, despite a slowdown in borrowing on credit cards and loans. The number of people unable to cope with their debt and being declared insolvent is increasing. In the second three months of this year there were 66% more bankruptcies and IVAs than the same period last year. Around 11,100 people entered into IVAs in this period, a 153% increase on the previous year. In the summer, the major banks all reported an increase in bad debt, with HSBC's chief executive, Michael Geoghegan, pointing the finger at aggressive marketing by debt management companies. These companies, which advertise on TV and in the press, offer to help consumers reach agreements with their creditors, charging a set up fee to do so as well as an ongoing management fee.

The collective debt of British borrowers broke through the 1 trillion mark in 2004 and has remained above that level ever since, despite a slowdown in borrowing on credit cards and loans.

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