THOUSANDS of hard-up families are having to pay extra to clear their debts – despite promises to wipe up to 89 per cent of what they owe.
Almost 88,000 people took out an Individual Voluntary Arrangement last year to agree a plan to pay back debts.
Thousands of hard-up families are having to pay extra to clear their debts
This was up eight per cent on 2021.
But they were not always the best option.
Now a fresh crackdown on the insolvency industry is looming as watchdog the Financial Conduct Authority is pressing ahead with plans to ban companies that advertise IVAs from making money from referral fees.
Richard Lane, from debt support charity StepChange, said: “With the cost-of-living crisis leaving so many people vulnerable to problem debt, the FCA’s move to stamp out poor debt advice practices is extremely welcome.”
This week, Ellie Smitherman explains what an IVA is, how the new rules could affect borrowers and how thousands could have been mis-sold plans.
WHAT IS AN IVA?: An IVA is a form of personal insolvency that allows struggling people to pay off debts.
It sees interest frozen and debts usually repaid over five years.
It can be difficult to get credit for six years after your IVA starts.
They are set up using a debt advice or management service and you agree on a single monthly payment, usually at least £100.
But firms will also add a fee on to your debt for their service, adding potentially thousands of pounds to the amount you end up repaying.
IVAs are the only debt solution that generates money for firms.
Other alternatives include a debt relief order or bankruptcy.
An investigation by the FCA last year found that taking out an IVA unnecessarily could cost customers an extra £5,000 and take an additional five years to pay off.
Now it wants to ban debt management firms from receiving referral fees.
However, new rules are not set to be published until later this year.
MIS-SELLING OF IVAs: There has been a rise in the number of mis-sold IVAs and thousands could have been affected.
Sara Williams, of finance website Debt Camel, told HOAR: “There has been a big problem with IVA mis-selling for years.
“IVAs are the only debt solution that generates large fees, so commercial companies advertise on social media platforms to find people with debt problems who they then convince to enter an IVA, even if there is a better debt solution available.”
IVAs are only suitable for people with more than £10,000 in debt and who owe money to at least two different creditors.
However, many experts warn that they are sometimes offered to unsuitable candidates who don’t have enough debt to warrant taking one out.
DEBT DANGER: Some firms promise to write off up to 89 per cent of debts in adverts online and on social media.
However, according to the Advertising Standards Authority, ads for IVAs must be responsible and not mislead consumers.
They must not suggest anyone can use their services if that isn’t the case.
It previously banned an ad which claimed to “write off 85 per cent of debts” as the firm could not back up the statistic.
Peter Tutton, of StepChange, has urged people to “act with caution” when looking for debt advice online.
He said: “The cost-of-living crisis has led to a surge in impostor firms and IVA lead generators sharing misleading adverts for debt help that might not be appropriate.
“Advertisers that offer to ‘write off most of your debt’ are often not FCA-regulated and may charge for giving advice.”
HOW TO COMPLAIN: It can be confusing for customers to know how to complain about an IVA.
You will have used either a debt management firm or an insolvency practitioner for your IVA, and the level of protection you have varies depending on which one you were referred by.
Debt management firms are regulated by the FCA, so you can complain to the Financial Ombudsman Service about poor advice.
If you took out an agreement directly with an insolvency practitioner, then you do not have the same protection, as they are not regulated in the same way.
You can complain directly to the company and then take the complaint to the Insolvency Service.
At present, it can be difficult to get compensation.
Experts say this lack of clear regulations and rules leaves customers exposed to financial harm.
Peter Tutton said: “It’s crucial that people struggling with debt get the help they need.”
He added that action needs to be taken to sort out “effective and consistent regulation” of the IVA market “nose to tail”.
Experts hope that compensation will be paid to customers who were mis-sold agreements, but this could still take years.
The FCA says no decision has been made on it yet.
Cheaper fixed energy deals in the pipeline
CHEAPER fixed energy tariffs could be back within weeks following a drop in wholesale gas prices.
Experts have predicted suppliers might soon launch deals that are lower than the Government’s Energy Price Guarantee.
Cheaper fixed energy tariffs could be back within weeks following a drop in wholesale gas prices
This is currently £2,500 for a household with average usage but is due to rise to £3,000 in April, giving less protection to bill payers.
The latest forecasts by analyst Cornwall Insight suggest customers could be able to switch to more competitive rates.
By July, the consultancy estimates annual bills for a household might drop to £2,200.
Kate Mulvany, senior consultant at Cornwall Insight, said: “If suppliers’ costs decrease and government-supported rates remain relatively high, it’s likely we will see a significant revival in reasonably priced energy plans.”
Bills have soared since 2021 following a squeeze on supply caused in part by the war in Ukraine.
This prompted suppliers to pull cheap fixed-rate tariffs from sale.
Now, around 26million bill payers are on standard variable tariffs that are subject to the Government’s cap.
Richard Neudegg, of price comparison site Uswitch, said: “As we’re seeing prices fall, it should start to be possible for suppliers to offer fixed deals that can beat the EPG level of £3,000 due from April.”
The return of affordable fixed deals would give households the chance to lock down prices for a set period and have certainty that their payments will not increase.
But the downside of fixing your tariff is that you won’t benefit if prices fall further.
NO GUARANTEE OF FALLING PRICES: Although experts have predicted the return of better-value energy tariffs, there is no way of knowing for sure.
Richard said: “It remains to be seen how competitive these deals will be, especially with the regulations currently making it even more difficult for suppliers to offer decent prices.”
HOW TO CUT BILLS AND SEEK HELP: In the short term, there may be easy switches you can do, such as turning appliances off standby or reducing your central heating thermostat setting by one degree.
Go to energysavingtrust.org.uk for quick tips to cut your use, which could save you £560.
Tips include draught-proofing, washing laundry at 30C instead of 40C and taking shorter showers.
A £900 payment to help with the cost of living will be going to millions on means-tested benefits and Universal Credit this year.
Pensioners will get a further £300 and those with certain disabilities can get an extra £150.
Suppliers offer grants and schemes, so contact yours if struggling.
Did you miss our previous article…
https://hellofaread.com/money/i-was-shocked-to-find-my-50p-coin-was-worth-186-your-spare-change-could-be-worth-a-fortune-too/
