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Bankruptcy fear on IVA charges; INSOLVENCY.

Byline: By John Duckers Business Editor

A Midlands insolvency expert has stepped into the row over IVA charges. Bob Bailey, partner at Birmingham accountants Vantis and Midlands chairman of R3, the association which represents 97 per cent of UK insolvency practitioners, has warned it will push more people into bankruptcy and hardship.

Banks are taking a stand against what they see as excessive fees for processing individual voluntary arrangements.

IVAs have been soaring in the UK as cash-strapped individuals see it as a less painful way out of their difficulties.

Britain's biggest banks are this week set to tell debt management companies to accept a 40 per cent cut in their fees or face the prospect of lenders refusing to agree IVAs.

The British Bankers' Association is due to meet representatives of the debt management industry at a summit in London tomorrow after months of rising anger over the cost of IVAs.

But there is no certainty of a deal.

Banks, credit card companies and other lenders plan to mount a united front on the arrangements.

A spokesman for the BBA was quoted as saying: "We have held a series of working parties on proposals for a code of conduct for IVA providers and we now want to pull this together."

Under insolvency laws, 75 per cent of creditors must agree to an IVA before it can go ahead. The agreements, which enable borrowers to pay back what they owe with affordable monthly repayments over an extended term - often with a large chunk of the debt waived - must be brokered by a registered insolvency practitioner.

However, the growth in consumer debt over the past five years has spawned a small industry of IVA providers who charge creditors fixed fees for negotiating and administering the deals.

Lenders have become increasingly angry about the cost of each IVA, which averages around pounds 7,500.

Many banks have complained they have to pay most of the fee at the outset of the IVA, even though a significant number of borrowers subsequently default on the agreements and end up becoming bankrupt anyway.

Last week, Capital One, the US credit card lender which has built a significant business in the UK, wrote to leading IVA providers to warn them that, from June 4, it will no longer pay more than pounds 4,500 for each agreement. It also said it would refuse to agree to any IVA where the fees payable exceed more than 15 per cent of the debt being repaid by the lender.

That decision has been criticised in the Midlands.

Mr Bailey said: "Capital One's decision to cap IVA fees at pounds 4,500 will cause practitioners to withdraw from the IVA market, leading to less choice and forcing consumers into bankruptcy.

"Ironically, this would result in significantly lower returns for creditors, including the banks."

Mr Bailey added that he thought that the timing of the comments from Capital One was unhelpful, given that the industry was attempting to draw up a protocol aimed at offering help to consumers.

He said: "Here in the Midlands, R3 is working with the British Bankers Association, the Insolvency Service and other interested parties on a whole range of issues, including the marketing of IVAs.

"Ultimately, it is important that we reach an industry-wide agreement on IVAs which should outweigh any mistaken self-interest by individual credit providers."

Capital One wrote: "We believe that current IP (insolvency practitioner) fees are in most cases excessive and not proportionate to the amount of work involved."

The bank said it was likely to reduce the pounds 4,500 threshold over time as IVA companies became more efficient.

Lenders wrote off pounds 6.6 billion in personal debts last year and the figure could hit pounds 7.2 billion for 2007, according to analysts at Citigroup.

The number of IVAs agreed during the first quarter of 2007 reached 13,223, up from 8,964 in the same period last year, according to the Department of Trade and Industry. Some 44,000 borrowers entered into IVAs last year, a 450 per cent increase on the 8,000 deals brokered in 2002.

"We have held a series of working parties on proposals for a code of conduct for IVA providers and we now want to pull this together BBA
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Title Annotation:Business
Publication:The Birmingham Post (England)
Date:May 30, 2007
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