Debt Advice May Worsen Plight For Thousands Of People, Charities Warn

Thousands of people who seek debt advice potentially find themselves in an even worse situation due to the aggressive marketing of repayment plans that they can no longer afford afterwards.

Statistics released on Thursday by the UK’s Insolvency Service showed the number of people entering into individual voluntary agreements, which allow people to repay part of their debts according to a schedule agreed with their creditors, has reached a record high. new high of 78,000 in 2019, up almost 10 percent from 2018.

The proportion of IVAs that fail in less than a year has doubled in five years to its highest rate since 2002, with statistics showing 8.4% of those held in 2018 had already ended. The two-year failure rate of 19.5% was the highest since 2007 and the three-year failure rate of 25.1% was the highest since 2009, the Insolvency Department said.

The trend is worrying because when people fail to maintain IVA payments, they can be held responsible for all original debts and any interest or fees that have been frozen. Early failure is particularly problematic as payments in the first few months of an IVA are often only used to reimburse setup costs: fees typically exceed £ 1,000 and can be considerably higher.

Figures suggest regulators are struggling to address long-standing concerns that commercial debt counselors and ‘front-end firms’ are urging vulnerable people to take IVAs rather than referring them to others. forms of debt relief that would best suit their circumstances.

StepChange, the debt charity, said IVAs run by its own affiliate had a much lower failure rate, at 2.6%, than the market as a whole – suggesting that “bad practices of the market in some neighborhoods, exacerbated by unequal regulatory oversight ”were“ failing some people ”.

“Our concern is that the regulatory system is not robust enough to ensure that the pursuit of profit does not trump good practice,” said Peter Tutton, head of policy, research and public affairs at association.

IVAs were originally conceived as an alternative to bankruptcy for independent traders and entrepreneurs, carrying less stigma and allowing people to write off their debts, usually within five years, without selling their homes. They have become a mass market dominated by a handful of high-volume vendors, with a single company, Creditfix, accounting for over a quarter of the total.

A spokesperson for Creditfix said the growth in the number of IVAs and the failure rate was largely due to the economic environment, with more unsecured debt now available in the UK. The company’s service was “highly personalized” and he welcomed any initiative by regulators to crack down on bad practices, he added.

Despite recent efforts to strengthen market surveillance, many practitioners recognize that the regulatory framework may no longer be fit for purpose. The Insolvency Department consults on industry regulation, soliciting opinions on the case in order to create a single regulator.

The Association of Insolvency Practitioners, one of the leading professional bodies that license insolvency practitioners, has stepped up its oversight of larger suppliers over the past year.

Michelle Thorp, CEO of IPA, said the organization “is starting to have a real impact on how these businesses operate”, but acknowledged that the issues were “by no means all resolved”. She believes the IPA needs new powers to oversee companies issuing IVAs, not just individual insolvency practitioners – who now sometimes oversee thousands of cases.

R3, a trade association, believes the biggest problems lie with introductory companies that refer people to IVA providers, receiving fees in exchange for feeding the big providers with new business. Some, but not all, of these “main generators” are regulated by the Financial Conduct Authority.

Charities, such as Stepchange, and commercial debt counselors, such as the PayPlan company, say they are constantly fighting to remove copy websites created by front-end companies masquerading as them. These continue to appear at the top of web searches for debt counseling, despite a Google policy change this year that aimed to stamp out the practice.

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