With the cost-of-living crisis pushing more people into debt, Citizens Advice has found worrying numbers of people in Individual Voluntary Arrangements (IVAs) unable to keep up with repayments.
Often because of poor pre-IVA advice from debt providers who charge clients for the service.
Almost three quarters (73%) of people who are or have been in an IVA said they struggled to make repayments, while more than a third (39%) said their IVA has had a negative impact on their debt levels.
An IVA is a legally-binding plan that writes off debts after 5-6 years of agreed monthly repayments. If people aren’t able to keep up with repayments, the IVA will fail, leaving them unable to write-off their debts and in a worse situation. Additionally, because IVA firms charge high front-loaded fees, people may find they’ve paid thousands in fees but very little towards their actual debts.
IVA adverts target people in vulnerable situations on social media. Citizens Advice found many adverts shared harmful practices – appearing to offer impartial advice, failing to mention risks and fees, making unverifiable claims, and used names that emulate trusted debt advice charities that provide the same service with no charge.
The market for IVAs has mushroomed and firms are incentivised to bring in as many potential customers as possible in order to generate a profit from fees. Before 2003, there were fewer than 10,000 IVAs annually but in 2022, there were nearly 88,000 IVAs registered in England and Wales. But the advice given by the IVA industry isn’t held to the same robust standards as mainstream providers by the Financial Conducts Authority (FCA). Citizens Advice wants to see this loophole closed in order to ensure people are advised on the best solution for them. The charity is urgently calling on the Treasury to bring pre-IVA advice under FCA regulation to bolster protections for consumers in the IVA market and ensure that anyone going into an IVA will have received debt advice that they can trust is in their best interest.
One client was working until a recent accident left her disabled and unable to work. She had previously been managing repayments on a few credit cards and long-term loans totalling £23,000. With her husband now her full-time carer, their sole income is a private pension and benefits. To repay her debts, she sought advice from an insolvency firm that manipulated her income and expenditure to ensure she was accepted for an IVA. She wasn’t told about other options that could have cleared her debts more quickly. Since the IVA began in 2019, she has struggled to pay the high monthly repayments and has only paid off a tiny amount of the front-loaded fees, not her actual debt. Due to an IVA being legally-binding, she cannot cancel it even though she could no longer afford to make payments. When she could no longer afford the IVA payments, the IVA company chased her for months which really affected her mental health. Worse still, despite years of regular payments, her debt had not reduced as the money she had paid only covered the IVA company’s fees.
IVAs are meant to provide a solution to problem debt but too often, people are flooded with inaccurate or misleading advice, leading them to make a poor choice which pushes them further into debt and much further away from a lasting solution to their problems.
If you find yourself in any kind of debt and need help you may be able to find answers on our national information website www.citizensadvice.org.uk.
Our local website www.canosn.org.uk has information about how we can help if you need more support and all our support is free. You can also call our Adviceline on 0808 278 7906.
As a charity, donations enable us to help more people. If you wish to make a donation you can find details of how to do this on our website, or cheques can be sent to Citizens Advice North Oxfordshire, 26 Cornhill, Banbury OX16 5NG
