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BankruptcyNews
Junior Member
358 Posts |
 Posted - 04 June 2007 : 09:50:56
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Debt management firms to agree code
The debt management industry has moved a step closer to agreeing on a set of rules that should raise standards and crack down on excessive upfront charges.
Providers of individual voluntary arrangements (IVAs), which allow overburdened consumers to clear agreed levels of debt without going into bankruptcy, have thrashed out a working code of conduct with banks after months of talks.
The new set of standards is set to come into effect formally within the next few months and will see IVA firms sign up to a self-regulatory protocol governing advertising and the sales process. Lenders and IVA providers are also set to revamp the charging structure, which could see fees spread out more evenly over the life of the arrangement.
The number of IVAs hit 44,331 last year - eight times more than in 2002 - while the number of providers has mushroomed to around 100.
Lenders have become increasingly worried over the proliferation of the debt repayment arrangements, with financial institutions such as HSBC and Northern Rock voicing fears that they were not always in the consumer's best interest.
Government watchdog the Office of Fair Trading rapped 17 IVA firms at the beginning of the year over adverts deemed misleading to consumers, with some falsely claiming that up to 90% of debt could be written off.
The guidelines drawn up on Friday will see IVA providers avoid using potentially misleading ads and tighten up the advice process so that it takes on board an individual's personal circumstances. But publicly-listed IVA firms have suffered heavy losses on the stock market amid anticipation of a squeeze on charges.
Michael Shirley, operational director of IVA firm Debtmatters, said it was unlikely upfront fees would be scrapped altogether, although providers are due to share out repayments to lenders more regularly under the proposals.He added the level of fees - on average £7,000 per IVA - would come under scrutiny.
The new standards look set to ease the lender backlash against IVAs. That caused a widespread sell-off in the sector earlier this year after two of the major providers, Accuma and Debt Free Direct, issued profit warnings citing creditor resistance.
Lender approval is vital, given that 75% of creditors by value must approve an IVA for it to become legally binding.
Source: Channel4 News
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Debt management firms to agree code
