New figures released from W3 Debt Solutions show that banks and other lenders should recover an average of 48p in the pound of their unsecured bad debts under W3s Individual Voluntary Arrangements schemes.
Reducing bad debts will be increasingly important for lenders as bank base rates climb from their current levels of 4.75% to a predicted 5% this month. Inevitably the pressure will increase on borrowers as mortgage and other credit costs increase.
W3 suggests full transparency on likely returns to creditors should become industry best practice among IVA specialists. It believes that banks and other lenders should know how much to expect from IVAs taken out under their supervision.
The rise in popularity of IVAs has created a fast growing market, currently worth around an estimated 130m per annum, as people in serious financial difficulty use them to reschedule debts run up on credit cards and loans.
The market for IVAs is growing quickly and some estimate it could be significantly larger in a years time. Latest figures from the Department of Trade and Industry showed a 153% rise in the number of IVAs since August 2005.
Greg Mullarkey, chief executive of W3 Debt Solutions, says: We believe companies operating in the IVA market have a duty to protect creditors as well as people in debt. It is therefore important that our leading practitioners are as efficient as possible so that creditors receive the best possible returns in each set of circumstances.
All professionals working in the IVA market should make it clear how much they would expect to return to creditors. There is a place for IVA solutions as a means of maximising debt recovery. But the IVA industry will work better if we collaborate with creditors and they share more of the benefits from economies of scale produced by reduced costs and therefore higher rates of recovery.