The Observer repeats nonsense on fees.

The Observer ran a special feature on debt this weekend but, despite all their research, they still managed to get it wrong on IVAs and ended up repeating the nonsense about fees peddled by many of the IVA factories.

The Observer article by Lisa Bachelor on the options of bankruptcy or IVAs refers to fees and she said:

"Fees vary enormously between IVA firms but, typically, they will amount to £7,000, which includes a £2,000 set-up fee and a continuing annual supervisory fee. The size of the fee does not affect how much debtors have to repay each month, as an insolvency practitioner will work out a repayment plan for a debtor based on how much they can afford each month for a five-year period, and the fees are taken out of this amount".

This is simply repeating the financial gobbledegook of the debt industry. Of course the size of fees effect how much debtors have to repay. If the dividend agreed by the creditors meeting remained the same and fees were lower, the monthly repayment costs would go down.

If fees were lower, the risks of failure in the early years of the IVA would also be reduced and overall returns to creditors would improve with the additional benefit that they would be paid earlier in the arrangement. This could be achieved without any change in the current dividend written into any individual arrangement.

Part of the problem here is the lack of transparency about fees and the deliberately contrived language used to explain them away. It is in the interests of the IVA providers to ensure that confusion continues.

It's therefore interesting that The Observer article also confirms that The Advertising Standards Authority is investigating four complaints about ads for IVAs and their investigation may produce additional industry-wide rules on issues such as transparency of fees.

This is something that The Mole knows about because he filed the complaints with the ASA about the misleading language on fees used to sell IVAs. It would have helped if The Observer had scratched away at that language and not simply repeated it.