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BankruptcyNews
Junior Member
358 Posts |
 Posted - 14 May 2007 : 10:43:17
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Struggling borrowers targeted
Debt management firms are aggressively targeting borrowers struggling under a mountain of debt by paying large commissions to lenders to pass on their details.
They are prepared to pay up to £1,500 for the names of likely candidates for an Individual Voluntary Arrangement (IVA), according to Nick Pearson of AdviceUK, a group of free, independent advice centres.
IVAs allow those owing at least £15,000 to come to a deal with their creditors to repay a portion of their debts over five years.
Typically they pay back 30p-50p for every £1 they owe, but the majority of creditors must agree to the arrangement first.
Debt management firms manage the IVA once it has been agreed. On average, these firms rake in £7,000 in fees over five years. They can charge as much as £2,500 in set-up fees plus a management fee of 10% plus VAT.
Record numbers of borrowers are signing up to IVAs, according to the Insolvency Service - the figures have nearly doubled in the past year, to more than 48,000.
Industry experts suspect there is misselling on an unprecedented scale.
Philip Long, insolvency practitioner with accountants PKF, says: 'Loan companies are farming out customers who can't afford to take on more debt by selling them on to IVA firms. This flies in the face of the industry's ethical guide.'
He adds: 'Most people who entered into an IVA last year would have been better off being declared bankrupt rather than struggling and, ultimately, failing to make payments to their creditors.
'But there are huge fees to be earned from an IVA, whereas there's no money to be made from bankruptcy. Some might have been better off with a debt management plan, but again the fees are much lower than for IVAs.'
Debt advice charity the Consumer Credit Counselling Service (CCCS) says only 3% of its clients are suitable for IVAs. Most are put on debt management plans. It started running IVAs on a notfor-profit basis last month.
Source: thisismoney.co.uk
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Struggling borrowers targeted
