- Measuring The Payday Lender Problem
- Rules for credit union interest rates may change
- Insolvency Figures For England and Wales Produced
- Scottish insolvency figures released
- New OFT Rules For IVA Websites
- PPI Claim After An IVA
- IVA Advice And The New OFT Debt Management Guidance
- IVA Advice Forum on Retirement
- CAB Debt And IVA Advice Under Threat?
- Advice On Individual Voluntary Arrangements
The consumer organisation Which? has today published data that is had obtained in a study of payday lenders. The results will come as no surprise to debt and IVA advisers that have long known that payday loans are extending and worsening debt distress during turbulent economic times. The results also serve as a useful antidote to some incredibly one-eyed data recently published by a payday loan trade association supporting the notion that payday loans are in fact incredibly useful and that clients are treated well.
Amongst the survey sample 60% of people stated that payday loans had been taken out simply to manage everyday expenditure. It’s common, when people already have other significant debts, to run out of money early in the month. Payday loans are seemingly being used to fill the void. The paradox of course is that the high interest and/or charges will only make the situation worse the following month. Hence begins a downward debt spiral that can eventually result in the need for a formal insolvency such as an individual voluntary arrangement (IVA), a debt relief order, or bankruptcy.
This helps to explain why almost half of those that used payday loans subsequently roll them over. This means the debt wasn’t paid on the due date and it can be assumed that in many cases that this was simply because there was no spare cash to repay it. Almost two thirds were also encouraged to borrow again, a tempting danger when times are tight. The capacity to create or worsen debt problems is not only evident, it’s real and happening every day.
Many people would assume that regulators require all types of lenders to be responsible when they lend. In fact, they do. The problem is that a significant proportion of payday lenders appear to pay this requirement no heed whatsoever. A significant minority of the payday lenders in the Which? survey did no credit checks. The majority of borrowers were asked about their income but not their existing commitments. In general, there is widespread non-compliance with responsible lending rules and guidelines. The inevitable result of this will be debt distress, debt management plans, IVA cases and other personal insolvencies.
The case for further regulation of payday lenders has often been made here and in many other places. However, there seems little point in tightening the rules when existing rules are already being widely ignored. A proper enforcement system will be required to protect people from the large predatory element amongst the payday lending industry. Only then can new protective rules stand a chance of preventing more and more debt problems feeding growing IVA and bankruptcy numbers.
If you are juggling your finances each month due to debts, and using payday loans to bridge the gap, we must encourage you to consider a tough reality. The fact that you are using payday loans in such circumstances also generally confirms that you cannot afford to repay them (along with your other commitments). Why continue to make things worse? Reaching out for debt or IVA advice is a really difficult step to take, but the earlier this is done the less severe the debt solution remedies on offer tend to be.
A report by the Government suggests that restrictions on the interest rates that credit unions can charge may render them “financially unsustainable”. The maximum monthly interest rate is currently 2%, with a proposal now being made that this could increase to 3% in the future. In terms of the APR rate for comparison this would be a move from 26% to 42% APR. In cash terms this would be an extra £28 of interest on a one year credit union loan of £400. The aim is to make it more economical for credit unions to loan smaller amounts to members in the future.
In Scotland there is a consultation running currently that seeks to secure views on potentially leaving credit union debts out of Scottish trust deeds (which are similar to an IVA) and bankruptcy. The motivation seems to be to protect credit unions as their capacity to recover loans that are written-off in insolvency is seriously hampered by the low interest rates that they can charge. No such moves are currently under formal consideration elsewhere in the UK, though clearly the same logic could be applied to individual voluntary arrangements. Protecting credit unions from losses due to IVA cases amongst their members would also help to bolster their financial sustainability.
The consideration of the future sustainability and growth of credit unions appears to be driven by concerns about the growing high-cost credit sector. Payday lenders and doorstep lenders, both of which commonly charge APR percentage interest rates that run into the thousands, are experiencing huge demand for their products as people struggle financially (and our mainstream banks stand to one side). This type of lending is also manifesting itself in significant levels of debt distress. IVA and debt management companies are witnessing ever-increasing numbers of clients that have obtained large numbers of payday loans at incredible and unaffordable rates of interest.
Can credit unions help to alleviate this situation? Almost certainly they can do so. By encouraging people to save regularly (even if it’s small amounts) their members accumulate a fund that can be used when an emergency arises rather than falling prey to the likes of Wonga or Provident. Even if that fund is insufficient to meet the need, the availability of a loan on reasonable terms minmises the risk that any borrowing will later turn into a borrowing problem.
Encouraging more people to join credit unions may therefore be a step that results in fewer people using an IVA or becoming bankrupt in future years. Much work needs to be done to extend membership levels. Currently only around 2-3% of people around the UK use credit union services though many more (when surveyed) say they’d like to if they knew of a credit union that was available to them to join.
While the case for allowing credit unions more flexibility to cover their administrative costs on relatively small loans is clear, the same cannot be true in connection to protecting them when a bankruptcy or an IVA occurs. Many counter-arguments exist in terms of the negative effects on other creditors (not all of whom will be major financial institutions that can easily bear the losses). There is also a case that credit unions might relax affordability checks if their debts were prioritised in insolvency.
It’s to be hoped that credit unions are given more flexibility, that they’re helped to extend their memberships, and that they can play an increased role in the future helping people to make sensible financial arrangements that exclude rip-off payday and doorstep lenders.
Tags: credit union, IVAThe Insolvency Service has today released the latest quarterly statistics for bankruptcy, IVA’s, and debt relief orders in England and Wales.
The use of debt solutions is subject to seasonality (for example there is often a busy period in the aftermath of Christmas, perhaps reflecting higher average spending patterns) so comparing the figures to the same period last year can be useful.
The headline figures compared to the same quarter last year:
- 27.2% fewer people became bankrupt.
- 16.3% more people used a debt relief order.
- 8.1% more people entered into an IVA (individual voluntary arrangement).
The current and continued economic malaise may hold some clues to the discrepancies between increasing and reducing use of the various insolvency measures.
Debt advisors have been quick to point out that the excessive cost of becoming bankrupt in England and Wales may be preventing many people from accessing debt relief. It costs £700 to become bankrupt, a figure many people with low incomes and increasing costs have no way of saving up. A continued squeeze on disposable income is almost certainly leaving thousands of people trapped with debts that they have no prospect of repaying because they cannot afford bankruptcy.
The same cannot be said of debt relief orders which cost an altogether more realistic sum of £90. 16.3% more people used this option compared to the same period last year which indicates that there are an increased number and proportion of people with insufficient disposable income to have any prospect of repaying their debts in full.
In the face of squeezed disposable income it might be expected that fewer people would take up the IVA option (which relies upon a significant sum being paid towards the debts for an agreed period of years). The fact that more than 8% more people are now using the IVA option suggests that a new demographic group have become increasingly exposed to debt. Middle-earners may have previously been able to manage their (sometimes substantial) debt repayments, but stagnant incomes and higher costs of living are meaning that more and more of them cannot make their full debt payments (but do have some disposable income to fund an IVA). As many middle-earners are also homeowners the IVA option will generally be preferable to bankruptcy and especially so where there is equity in the home.
The figures contrast with some of those recently released in Scotland. The cost of bankruptcy in Scotland is currently £100 and the numbers of persons becoming bankrupt is similar to last year. This may confirm the earlier point that thousands of people in England and Wales find themselves in the coldly ironic position of being “priced-out” of bankruptcy. The option of a trust deed in Scotland, which works in a similar way to an IVA, was taken up by many more people this year than last. This helps to confirm the speculation that the middle-classes have increasingly found themselves at threat from debt in all parts of the UK.
RSM Tenon, represented in our forum by Mike Sloper, have issued a prediction that the insolvency figures for 2012 may eventually turn out to be the lowest since 2005. This may be the case, but that shouldn’t necessarily be taken as a sign that there are fewer people that are actually technically insolvent. A prohibitive £700 bankruptcy fee ensures a signficant difference between the number of people that are technically insolvent and the number of people who are actually able to access insolvency.
Tags: IVAThe Accountant in Bankruptcy, which oversees insolvency in Scotland, has today produced their quarterly insolvency statistics. Such figures might be an indicator of any future possible changes to IVA and bankruptcy numbers in England and Wales.
Bankruptcy has marginally reduced in frequency compared to the same quarter last year. However there has been a substantial increase in the number of Scottish trust deeds which have been signed, with a more than 40% increase compared to the same period last year. Protected trust deeds are in many ways similar to an individual voluntary arrangement in England and Wales.
Scottish trust deeds typically run for a period of three years rather than the standard five year term of an IVA. This may, on first sight, suggest that they are a reasonably soft option for residents of Scotland. However much progress has been made in terms of the flexibility of an IVA in light of the impossibility of releasing equity in a home using conventional mortgage products. Scottish homeowners have no such protection when selecting Scottish trust deeds making such an arrangement risky for their home (if they have equity) in situations where an IVA would add layers of protection.
The unique Scottish “debt arrangement scheme” is growing at a pace. Nearly 1000 DAS arrangements were established in the last quarter compared to less than 500 in the same period last year. The debt arrangement scheme is a more formal and secure version of informal debt managements plans which are widely used around the UK.
Unlike trust deeds or an IVA, a debt arrangement scheme doesn’t result in debts being written off. The full amount of debt owed will need to be repaid over time at an affordable rate of repayment. Unlike an informal debt management plan, DAS does offer protection from legal action by creditors as well as the guaranteed cessation of interest provided the arrangement is properly maintained.
IVA professionals will have noted the recent news that the AIB will be increasing the fees charged to become bankrupt in Scotland. The fee is moving from £100 to £200 soon. £200 certainly compares very favourably to the £700 cost of bankruptcy outside of Scotland, but is now distinctly more expensive than the £90 cost of a debt relief order for those with lower debt totals and little capacity to fund repayments.
An overall growth of 14% in the Scottish insolvency figures hints that IVA and bankruptcy numbers south of the border may also be on the climb. There certainly seems to be no sign that personal finances are anywhere near recovery at this point in time around the UK.
Tags: IVANew guidance on misleading trading names has been issued by the OFT today. Companies that hold licences that allow them to trade in debt management, loan broking, and IVA services are all subject to these new rules.
It’s clear that the Office of Fair Trading has learned much from the attention they have given the debt management, IVA and high-cost credit markets in recent years. This has been signalled in OFT comments that trading names they previously believed to be acceptable may no longer be viewed in the same way. As the definition of trading names includes the web domain names that companies use, it may be the case that some individual voluntary arrangement websites that have been operating for a long time may be subject to regulatory challenge.
One example of a specific update to the rules relates to the types of domain names that commercially motivated IVA websites will be able to use. The guidance specifically focusses on domain names which use the “.org” suffix when they are operated by profit driven entities. It is considered that using a “.org” suffix may mislead website visitors regarding the commercial motivations of the website. One such website is currently highly ranked on Google searches for “IVA” and therefore is likely to be receiving many visits each day from consumers around the UK.
The Office of Fair Trading demonstrated their commitment to the use of fair trading names in 2010 and 2011. Companies trying to licence (or keep licences covering) domain names including the word “helpline” failed to get permission to do so. It appears that it was considered that the word “helpline” when used by a profit motivated entity could be deemed to be misleading. Other words that IVA websites need to be extremely cautious about using in their domain or trading names include “debtline” and “government”.
Websites covering the subject of individual voluntary arrangements may be subject to these new rules, but the rules themselves are only as tough as the enforcement procedures applied. It’s very common to find debt management, IVA advice and loan broking websites with trading and domain names that are utterly misleading. It’s even more common to find acceptable domain and trading names using unacceptable meta-titles and meta-descriptions (the information that appears on search engine results) in spite of rules governing the type of information that can be used there.
Consumers around the UK that are searching online for help with an IVA, debt management or loan brokers clearly deserve as much protection as possible from those that might attempt to deceive them. The new OFT rules on acceptable trading names are clearly a step in the right direction. However, history suggests that without sufficient enforcement resources being provided to the regulator some unethical IVA, debt management and loan broking operators will happily carry on duping the public for as long as they can get away with it.
Tags: IVAOur IVA advice forum recently included a very interesting thread concerning whether it is possible to reclaim PPI insurance after your individual voluntary arrangement is completed. In this instance the discussion was focussed specifically on payment protection insurance connected to accounts that were included in the IVA.
If you have recently completed your IVA, or will soon do so (and haven’t been asked to make PPI claims as part of your IVA), you may be curious to know whether there is any likelihood that a PPI claim after your IVA finishes is likely to result in a payment being made to you (assuming of course that the PPI policy was actually mis-sold).
Mike Sloper, an insolvency practitioner and one of our IVA advice forum experts, reported in our forum the legal advice that his firm had received in connection to PPI claims following discharge from an individual voluntary arrangement. The legal advice that they received and reported on can be summarised as follows:
- An IVA will not affect your right to claim mis-sold PPI.
- You can reclaim money paid prior to the IVA.
- A creditor cannot offset any due payment to you if all of you debts to them are already written off (at the end of the IVA).
What does this mean in practice once your individual voluntary arrangement is completed?
You do have the right to claim for mis-sold PPI after your IVA. Provided that you can establish that the PPI was mis-sold, and the bank agrees (or is forced to agree by the Financial Ombudsman Service), you may be in line for a repayment.
However, you may only be able to claim for PPI payments that you have actually made. It is possible in some circumstances that PPI costs were loaded onto your account balances. In some circumstances these PPI costs (or part of them) may not actually have been paid prior to the commencement of your IVA (with the balance of the PPI costs becoming an IVA creditor). It seems unlikely that a lender will choose to repay PPI fees where it was mis-sold but the fees have not actually been paid before the individual voluntary arrangement began.
What should you do if you make your PPI claim but a payment is refused because you have been in an IVA? This situation is common, with some of those responsible for mis-selling PPI looking for ways to minimise their exposure to having to refund it now. The advice that we would offer in such circumstances is that you hand the matter over to the Financial Ombudsman Service at this point in order that they can make a ruling on whether you should be repaid. You may wish to warn your lender of this first in order that they can reconsider the position; once you hand the case to FOS they face an extra £850 bill from FOS for handling the case so they may choose to offer payment to you.
Should you use a claims company to reclaim PPI after an IVA? We’d suggest that this isn’t necessary. A claims firm will consume a significant proportion of any payment you might secure. The evidence is that the success rate for claims companies isn’t substantially higher than that achieved by persons acting for themselves. Many consumer websites offer excellent guidance on how to go about this process. If you do decide to use a claims company please make sure that they are aware of your IVA before you instruct them for work to begin. You will want to confirm that you will not be hit by a claims company invoice if the bank admits mis-selling but will not agree to actually making a payment to you.
One last thought on the subject. Be cautious if you have finished making your IVA payments but have not yet been formally notified of completion. A PPI payment prior to this happening may be considered to be a windfall that must be paid over to help repay your creditors. You may prefer to wait a little while before initiating any claims as some banks are now offering refunds quite quickly.
For further information on this subject, or anything else in connection to an IVA, please visit our IVA advice forum where a range of experts are ready to offer individual voluntary arrangement information and advice to you.
Tags: IVA, iva advice forumThe OFT has today produced their new “debt management guidance”. This guidance is applicable to anyone involved in debt or IVA advice and therefore applies to charity advisers, not-for-profits, IVA advice websites, and the insolvency practitioners that deliver IVA advice and services.
One of the key themes of the new debt management guidance is a focus on transparency within the debt and IVA advice industry. There are a considerable number of websites, for example, which appear on first sight to be actual providers of individual voluntary arrangement services. In reality they deliver individual voluntary arrangement advice with a view to selling the information gathered to an insolvency practitioner that will deliver the IVA service itself.
The new guidance makes it very clear that such intermediaries in the IVA advice process must be extremely clear about the costs of the services that they provide. They should also make it very clear which firms (often IVA firms) that they trade with and the commercial nature of these trading relationships. Most IVA intermediaries make no charge for IVA advice itself, but there is one well-known major operator that seeks to charge clients hundreds of pounds in advance fees for services that an insolvency practitioner would usually provide as part of the standard IVA fees. This lack of transparency and fairness may no longer be possible in the future.
The insolvency practitioners themselves are going to have to be increasingly careful who they trade with. IVA advice intermediaries that flout the debt management guidance sell the cases they generate to IP’s. From this point forwards an IP will be risking their own ability to provide IVA advice and services if they are found to be trading with a party that is breaking the new debt management guidance rules.
If you conduct your own research on IVA advice websites you’ll find many which promote themselves as being “free”, “impartial”, or “independent”. The new debt management guidance specifies that commercial debt advisers should not use such terms to describe themselves or their IVA advice services. Many of the same websites claim that, in some way or other, an individual voluntary arrangement is Government endorsed. This is another area of malpractice directly identified in the new OFT debt management guidance.
The team at IVA Advice Forum welcomes the new OFT guidance and rules. There will be much work needed to enforce the rules upon less reputable firms which seek quickly to make a profit without due consideration of the interests and needs of their clients. We hope that those responsible for enforcement will be provided with the resources that they need to ensure a better deal for those that rely on debt or IVA advice when they are financially vulnerable.
Tags: individual voluntary arrangement, iva adviceData released recently indicates that debt concerns are increasingly frequently being carried through to retirement. Certain debt and IVA advisory services are reporting that the average age of those who contact them is increasing steadily. In this IVA Advice Forum blog we look at the implications for those with unmanageable debt in their retirement years.
The availability of credit has increased tremendously in recent times. While for many people this has been advantageous there is a sad inevitability that for others it will spell trouble. Very often money is borrowed without sufficient thought about how it can be fully repaid, and in other cases circumstances change in a way that makes it impossible to repay debts in the way it was originally expected.
Unexpectedly early retirement is one of the issues that has been raised with IVA Advice Forum staff by enquirers. Some companies have refused to allow people to work beyond the usual retirement age when previously (in better economic times) this was considered to be acceptable. Other older workers have been made redundant, found great difficulty in obtaining suitable or comparable work, and have reluctantly decided to retire. Both situations can leave people with debts they’d thought would be cleared prior to retirement. Ill-health leading to an early retirement may cause similar troubles.
IVA Advice Forum advisers also hear from enquirers sometimes that increases in their expenditure have caused significant financial pressures. The retired often have fairly fixed (and reduced) incomes meaning that the significant increases in the cost for gas, electricity or vehicle fuel (for example) affects them to a greater degree than it does others.
An individual voluntary arrangement may not be suitable for some retired persons, though the option should not be ruled out completely prior to taking advice. One issue is that an IVA requires that a monthly payment is made to help repay creditors from surplus income. The IVA Advice Forum team sometimes find that the retired have insufficient surplus income to fund such an IVA payment, though those with private pensions in addition to basic state entitlements may be exceptions to this rule.
The IVA Advice Forum team also often finds that retired homeowners have very significant amounts of equity in their homes after having paid their mortgages for many years. Such a situation may make an IVA unsuitable in the eyes of creditors and therefore refinancing options, perhaps including equity release mortgages, might be considered to be more suitable.
The key point for persons in retirement who are worried about their debts is that they shouldn’t wait too long to take advice. Once debts are unmanageable the IVA Advice Forum team often find that they can quickly escalate to a higher and higher total. Dealing with the problem soon after it is identified offers the best prospect of a solution that is less severe than might otherwise have been the case.
For further information about the use of an IVA in retirement please read around our IVA Advice Forum website. You may also wish to ask a question in our forum (after registering) and our experts will share their knowledge and experience with you.
Tags: iva advice forumThe CAB plays a massive role in delivering debt and IVA advice in the UK. This trusted organisation, with an enormous network of locations, offers a unique resource to people who are worried about money (and especially where they prefer to meet someone face to face). Worries are now surfacing as to whether the CABs capacity to deliver this debt and IVA advice will be affected by various funding arrangement changes.
One key development is the appointment of the Money Advice Service (MAS) by the government to co-ordinate debt advice, and especially free debt advice, around the UK. The Money Advice Service has let it be known that the allocation of funds, to organisations including the CAB, will not be affected at this time. However, MAS is expecting the same level of funding for debt and IVA advice to be utilised to assist an additional 50% of clients by these services. Detail as to how this will be delivered are thin on the ground.
Another key factor is the funding of Local Authorities which are a major contributor to CAB funds. There is extreme pressure on Local Authorities to make cutbacks and this inevitably may affect the CAB’s ability to deliver debt and IVA advice in certain parts of the country.
The Law Society Gazette recently led with a headline that stated “Cash crisis could close half of CABs”. This story partly relates to government cutbacks on legal aid. They also state that the CAB workload may increase as they take on some of the roles previously undertaken by Consumer Focus, the OFT, and the Competition Commission.
One CAB source told the Law Society Gazette that as many as 50% of CAB centres could be shut due to funding pressures.
At a time when debt and IVA advice has never been in greater need, many will worry seriously about the multiple pressures facing the CAB. While there are many sources of telephone or internet based debt or IVA advice, there is nothing to compare with the local presence appreciated so much by those who desire or need genuine face to face help.
Commercial debt and IVA advice providers also appreciate the role that the CAB plays in the overall UK advice industry. There is no doubt that some clients have greater needs that cannot be properly serviced using telephone or internet based systems. The commercial sector commonly refers debt or IVA advice clients to CAB when it’s clear that it’s best-placed to deliver advice which is appropriate to the needs of an individual.
If the CAB capacity to deliver debt and IVA advice on a free and face to face basis is jeopardised, the team at IVA Advice Forum cannot see anyone who would win or benefit from this outcome.
Tags: iva adviceThere has been a huge expansion in the UK debt-help sector in recent years. At times it can seem like every man and his dog are offering advice on individual voluntary arrangements and debt management plans. In this blog we look at some of the ways people can ensure that, if they are considering individual voluntary arrangements to deal with their debts, they find high-quality professional sources of IVA help.
It’s important firstly to understand that not every debt advice provider can deliver individual voluntary arrangements services. An IVA is operated under the auspices of a licensed insolvency practitioner, and these are the only professionals that are able to take appointments from clients to set-up and run individual voluntary arrangements.
Why is this important? The less salubrious sector of the UK debt advice industry includes people and companies operating websites that imitate legitimate debt advice charities and companies, cold-call people without proper permission, and sometimes leave people facing a deluge of unsolicited text messages or emails. These types of operators may appear to be providers of individual voluntary arrangements, but will almost always turn out to be intermediaries looking to sell your details to others for a fast buck.
When individual voluntary arrangements might be appropriate, an individual will want to search themselves for an actual provider of IVA services who can help them directly.
One possible starting point to locate firms directly involved in the provision of individual voluntary arrangements is the membership lists for trade associations the Debt Resolution Forum and DEMSA. Debt solutions firms which have become members of these trade associations have opened themselves and their operations up to external scrutiny which should go some distance to reassure potential clients to their commitment to quality individual voluntary arrangements advice and services.
It may well also be a good idea to do your own market research online. This might sound complicated, but it need not be. If you have drawn up a shortlist of individual voluntary arrangements providers that you are considering contacting you may wish to put their names into a search engine and find out what the public at large have written about them. This isn’t a scientific approach of course, but it may well help you to avoid companies that have attracted a lot of criticism in the past.
We hope that these ideas will be helpful to readers considering individual voluntary arrangements to deal with debts that they are struggling to repay. An IVA certainly isn’t for everyone, but finding quality advice from a reputable firm at an early stage will quickly equip you to make an informed decision about your options.
Tags: individual voluntary arrangements