Lenders are changing the IVA agenda

Is the net closing in on the individual voluntary arrangement firms? Well, no, but there are signs that moves are afoot to rein in the excesses of this relatively new sector.

The Advertising Standards Authority re-cently announced an investigation into some of the claims made in IVA firms’ advertising. This investigation surrounds the claims IVA firms make about debt clearance. Some of the offending adverts claim that IVA firms can remove up to 75% of clients’ debts.

The problem for mortgage practitioners is that there is a growing demand for the services that IVA firms offer. And the worries about this do not stop at the advertising door. As far back as last November the British Bankers’ Association voiced concerns about the growing IVA industry.

A spokesperson voiced concern that “young, inexperienced and vulnerable” people are exposed to adverts from companies providing IVAs. They went on to say that eight out of 10 IVA providers give inadequate information about the consequences of entering to these agreements, with many only emphasising the positive aspects of IVAs.

This is unwelcome in the light of what is happening. The growth in IVAs and the growth of the IVA industry in general is one of the most overlooked stories of the past six months. The figures are stark – just look at the 26,021 insolvencies recorded by the Insolvency Service between April and June 2006. Some 11,105 of these were IVAs. In fact, IVAs were up by 34.9% on the previous quarter and 153.2% higher than the same period in 2005.

What is behind this surge in IVAs, as the economy is in good shape and interest rates are relatively low? There can only be three possibilities. First, consumers’ attitude to debt and debt management has changed, second, their attitude has changed as a result of the activities of IVA firms or third, the Enterprise Act of April 2004 relaxed the rules too much.

The answer is probably a mixture of all three but attitudes to debt and the relaxation of the bankruptcy statute are surely the front runners. Whichever way you take it apart there is a growing demand for IVA firms’ services. The advertising issue is a problem they could do without.

The problem is that many credit providers have grown wise to the low recovery rates with IVAs. The feeling in many recovery departments is that they will be pushing for recovery to the max from now on. The agenda is changing as the attitude of credit providers hardens.

There are likely to be as many IVAs in the first quarter of 2007 as the whole of 2006 so there seems little doubt that the services of IVA firms will be in strong demand for some time to come.