Let’s Talk About Individual Voluntary Arrangements (IVAs) — Part Two
The Insolvency Practitioners Association (IPA) held their annual Personal Insolvency Conference 2022 on 24th November. I attended the conference to take part in a debate about IVAs.
So what did I learn?
Insolvency Service Update
CEO, Dean Beale, (centre) confirmed that the IS is currently reviewing the Personal Insolvency Framework. With a recession looming, it is difficult to predict insolvency numbers but current trends show a gradual increase in IVAs, a steady decline in bankruptcies, and DROs lethargically plodding along despite the widening of the eligibility criteria.
Call for Evidence
Paul Bannerman, Head of Policy, confirmed that 64 substantive responses were received to the Call for Evidence, including We Are Debt Advisers’ submission (backed by over 500 debt advisers), 20+ from debt advice providers and then smaller numbers from creditors, regulators, barristers and academics.
General consensus of opinion is that reform is needed with some arguing that this is urgent. Debt advisers overall would like to see insolvency give debtors a ‘fresh start’ rather than binding them to long-term payment commitments. No surprises there.
There was also lots of support for the idea of a ‘single gateway’ to insolvency, with debtors able to move seamlessly between different insolvency options if their circumstances change.
Acknowledgement that there are still far too many barriers to surmount for people trying to deal with their debts via insolvency, including costs, stigma, lack of flexibility, misleading advertising, revenues from ‘certain procedures’ and home ownership, of course.
There was also divided opinion on who exactly should be paying for the fees and costs of insolvency.
One IP suggested to Bannerman that it was time Insolvency Practitioners were allowed to be intermediaries for Debt Relief Orders. Why should we have all the fun? Debt Relief Orders aren’t profit-making though, so is this just a means of stopping debt advisers being all up in the IVA market’s ‘grill’. (Gregory Pennington Ltd has managed to pull off the reverse ferret and something rather ‘special’ with its recent Money & Pensions Service commission, which some fear will finish not-for-profit debt advice off for good.)
Bannerman concluded by promising to consult stakeholders as the review of the CFE responses continues and a set of proposals emerges. No timeline on this!
Mis-selling, advertising etc.
So what’s wrong with ads like this?
Claire Hardgrave, Head of IP Regulation, (note individual IPs are regulated not the firms), told delegates that her team are monitoring adverts, in line with the recent Advertising Standards Authority (ASA) Notice which ordered IPs and lead generators (but not FCA authorised companies like Mums With Debt) not to:
- imply their products were endorsed by government
- imply they were affiliated to bona fide debt advice charities (advice bureau?)
- overexaggerate the benefits of IVAs (83% write off anyone?)
- understate the risks involved (just a 30 second test and you’re in!)
- target certain demographics (e.g. mums with debt)
Hardgrave is keen to understand the ‘true picture’ of the problem on the ground in terms of unaffordable, ‘mis-sold’ IVAs and how regulations can better protect vulnerable people, which prompted a question on:
From 6th December 2022, Google will ban paid-for advertising by insolvency practitioners (unless FCA regulated — that cast iron guarantee of quality). Google has stated, according to the IS, that it has ‘seen evidence’ of misrepresentation in debt services. They say their new policy:
…means that Insolvency Practitioners will no longer be able to rely on regulation by a Recognised Professional Body to run debt services ads in the UK after this change.
A quick Google search for debt advice provides some examples:
Difficult to have confidence in an organisation that doesn’t check its ads for typos — but neither of the above appear to be FCA authorised according to their websites, so ads like these should disappear in the very near future, I sincerely hope.
There was a sense in the room, when this was announced, that this is unfair to insolvency practitioners. It felt like an awkward moment for the Head of Regulation, who could only encourage more engagement with her team to tackle the clear problem of FCA authorisation being used as a loophole to avoid a ban on unethical advertising.
The Statutory Debt Repayment Plan (SDRP) Announcement
That very morning, HM Treasury announced that the proposed SDRP was — following consultation — being mothballed for the foreseeable. You can read the full government response here —(do enjoy the heartwarming comments from creditors about the SDRP’s over-generosity to debtors.)
The response points to ‘significant challenges and concerns raised by respondents’, not least in regard to timing. Debt advisers (including me) found it bewildering that HM Treasury had been considering plonking a new debt management procedure into an already creaking structure that is scheduled to be dismantled and rebuilt. Some of us are still quite shocked the powers that be listened.
Stepchange has been dotting its APIs and crossing its algorithms in readiness for the SDRP for some time, so not thrilled about this development, it’s fair to say.
Back to the conference, and Peter Tutton, Head of Policy at Stepchange informed delegates of some trends in debt advice that will be familiar to debt advisers; more clients presenting now with deficit budgets and a higher proportion of these clients in full-time employment. He also mentioned Stepchange’s proposed mass variation which allows for reduced payments or completion of IVA on funds already paid. (Debt Camel has written extensively about this here). Tutton reported that creditors have been inconsistent in their responses so far to early completion.
There were some pointed questions from delegates in the SLIDO Q&A:
‘Why do you think the number of IVAs Stepchange approves monthly compared to the number of customers you engage with is significantly less than all the other firms?’
‘Given PR re Google, please explain why the Stepchange CEO believes IPs can’t be trusted to advertise their services and what evidence he has to support this stance?’
Tutton supports the Google policy — after all, Stepchange (along with Citizens Advice) is regularly imitated by unscrupulous firms attempting to poach credibility by using variations on their name and logo, a point I was going to make (see part one of my blog and the slideshow).
As to the first question — who knows? But not a bad thing in itself.
What time is it? Myth-busting Time
So…
Myth One: IVAs don’t fail due to bad advice.
Well, not all fail due to bad advice, that’s true. But are clients in debt being given full and impartial advice about their options? I described the case I’d recently dealt with (as mentioned in part 1). As always, these cases start with a person needing help with their unmanagable debts and turning to Google/social media to find answers.
The top results are sponsored and are the usual ‘little known Government scheme’ merchants. If any of the ‘debt solution’ businesses behind these adverts were giving proper debt advice about all available options and the advantages and disadvantages of each, I find it hard to believe they would have recommended an IVA to a client who had no money, no assets and a pending eviction. Call it what you like — it was poor ‘advice’, stemming from a misleading advert, leading to the sale of someone’s details to a company with only one debt solution in mind. It is by no means an isolated case.
We discussed the adverts at length and, quite surpisingly, there was a question from the audience about this subject to Paul Mason, whereby the delegate was disparagingly quoting from Creditfix’s website. Unexpected. Mason described the legality of advertising the ‘hook’ of an 81% total debt write off. i.e. it’s legal to advertise 81% if this has been achieved by 10% of their customers in the previous 12 months. A factual advert that states 90% of our clients did not achieve 81% write off isn’t as appealling.
The debt advice environment I occupy is not comparable with that which purports to be ‘debt advice’ in this market. I don’t have customers. I have clients, who ask for help and advice about their rights and obligations. I don’t have one debt solution or another to sell. I don’t have ‘fees’ and I don’t have anyone else’s interests in mind apart from the client sitting in front of me. I don’t need ads, although I can occasionally produce a decent meme.
Myth 2: Without the IVA market — creditors wouldn’t get their returns and this would make obtaining credit difficult and less affordable
What good does it do to lock people into repaying debts for years and years, not putting that money into the economy? How much of this debt has already been written off as ‘bad debt’? How much of this debt has been sold off at 9p in the £1, enabling the lucrative secondary debt market to reap the rewards? And what about the poverty premiums already in play, whereby sub-prime lenders are already charging higher interest rates to benefit from those already struggling? Just look at overdrafts. Some of the charges and interest rates are truly eye-watering. You might even argue that those teetering on the edge of unmanagable debt are given a firm push by creditors whose actions are guaranteed to make that individual’s situation worse. And I haven’t mentioned the irresponsible lending that goes on.
Myth 3: Not-for-profit face to face advisers don’t see the same individuals (as IVA companies). Our clients have ‘multiple problems’ rather than ‘just predominantly debt’
We do see the same clients, albeit the ones that first went down an IVA route that wasn’t right for them or isn’t any longer. Many of my colleagues in debt advice have said they feel like they pick up the pieces of these IVA failures. And many ask why it takes such a long time to terminate an IVA once the client has decided to take this step. Insult, injury etc.
Myth 4: A person with £76 per month disposable income…
That’s the myth right there. Monthly disposable income. Yes, we have to use some sort of arbitrary figure to show that someone qualifies for a Debt Relief Order, or can’t afford to pay their Council Tax or their County Court Judgment etc, but nothing could be less helpful and indicative than a financial statement which uses trigger figures based on the lowest percentile of the ONS household spending survey.
Why do we accept such low standards of living for people in debt? If you suffered misfortune through a relationship breakdown, poor health, job loss or even just a rise in the cost of living that defeats your bank account, why does this mean you no longer deserve a lifestyle that is in any way enjoyable? (I can still hear the words of a local authority creditor who complained that the Standard Financial Statement is ‘generous to the point of profligacy’.)
I will stake £76 of disposable income on this person never having had to live within the constraints of a tight budget that determines that you spend the exact same amount of money on food, travel, gas, electricity, communication, clothing, birthdays, etc etc every single month come rain or shine. Where’s the cushion for those economic shocks we all experience from time to time? A trip to the vets, a bad MOT, a broken boiler, a leaking roof?
If one in four of us has no savings at all to rely on (source) then a disposable income of £76 per month is hardly something to aspire to, although many of my clients would welcome it at the moment.
And no, they probably shouldn’t be considering an IVA either.
Myth 5: IVAs aren’t perfect — can they be improved?
It’s not a myth at all. IVAs definitely aren’t perfect. They go on for too long and are too financially beneficial to those that administer them. But I did find myself saying that compared with the ill-fated SDRP, they appear more attractive by virtue of being shorter and involving some element of debt write-off, even if much less than the truly mythical 81%.
If they were shorter still — 3 years? Maybe. If ‘introducers’ became a thing of the past, maybe. If those horrible, targeted adverts disappeared off the face of social media, maybe. If every IVA applicant firstly had impartial ‘proper’ debt advice, possibly. I’m not sure there is much appetite for real reform but I’d be happy to be wrong about that.
My last words to the conference delegates were about the lead generators/introducers. Get rid of them, I suggested. You’re all professionals here, you don’t need them, they sully your profession.
So, to sum up then
In the past week we have learned that another IVA company, Quality Insolvency, has gone into administration, and there are rumours circulating about others facing financial troubles. It really is time for insolvency as a whole to get its act together — this starts with the review of the insolvency framework and hopefully ends with a single gateway — with quality independent advice gatekeeping — and a less punitive, less expensive set of remedies to help people regain control of their finances and their mental health.
And finally, to the Linked In guy who DM’d me this last week:
