Trapped.co.uk and Your Clear.com

Some web sites pop up on google that are only intended to lead to other sites. Anyone searching for debt advice might, for example, stumble across infobloggs which then lead to an article called Could an IVA Help You Out of Your Debt Crisis? placed by a company called Trapped.co.uk.

The article reassures uninformed debtors that:

"Many people see IVA’s as an easy way out of their debt. However, this is not strictly true. Often, companies only allow you to take on an IVA if you are really struggling. With so many people in debt, they need to know that you are truly in need of help. So, if you are just about getting by but you would like extra help, an IVA may not be for you. It is only if you really, honestly cannot afford your current repayments that certain companies will help you."

The fact that IVAs have anything to do with insolvency and are intended - in appropriate cases - to provide an alternative to bankruptcy is not mentioned.

Duly encouraged, debtors might then follow the link to the Trapped.co.uk web site where their headline blurb says that IVAs are: "formal agreements that could see up to 95% of your debt written off".

This claim is clearly in breach of Office of Fair Trading (OFT) guidelines and although Trapped also seem to offer advice on Debt Management Plans, IVAs and Consolidation Loans there is no indication that they have a consumer credit licence.

It is only by ferreting around in the Trapped terms and conditions that we can discover they are owned by a company called Net Basic Ltd who claim to simply act as an online information source.

They say that none of the financial information featured on the site or accessed as a result of a link displayed on the site is intended or considered to be financial advice offered by Net Basic.

As they are clearly providing debt advice and (according to their own terms) taking commissions from the sale of financial products, the OFT might disagree with this claim, Netbasic nonetheless admit that they are not authorised by the Financial Services Authority in relation to the supply of advice in relation to financial products.

Debtors seeking help are unlikely to dig this deeply into the site and are more likely to complete the online 'debt option' calculators which provide the valuable sales contact information that can earn potential commissions.

For debtors who may be seeking IVAs, the Trapped contact information shows that their IVA enquiries are referred to Your Clear Ltd and loan consolidation enquiries to Central Capital Ltd

The Your Clear site makes less extravagant claims about IVAs saying - in common with many providers - that debts can be reduced by up to 75% and they also clearly say on their site that they work with business referral partners.

The payment of commissions for referrals is not mentioned although these costs must inevitably be written into the final fees charged for setting up and supervising IVAs - but Your Clear are still only another agent in the process. They are not the end of the food chain.

They are not listed as an IVA provider on the IVA.com web site and they are not listed on the Insolvency Service database but this is not unusual.

Your Clear act as advisors and according to their information on IVAs they carry out the preparatory work before the proposal for an IVA is passed on to a licensed insolvency practitioner. They do not say who that might be.

This is also not unusual - although it is unusual for Your Clear to claim that they handle applications for interim orders and the filing of IVA proposals with the courts. Only licensed IPs can do this.

Debtors could enter at any point along the sales food chain and might, unknowingly and accidentally, even make direct contact with the IP who would end up supervising their IVA.

If this happened would the eventual nominee & supervisor's fees be reduced by a sum equivalent to any referral fees or commissions that would otherwise be paid along the way ?

Unless the IP is also a solicitor regulated by the SRA - see the previous blog entry on this issue - the answer to this question might not be straightforward because there is no general requirement for the IP to declare the payment of referral fees to either debtors or creditors.

There are also problems because the trail followed here is not exceptional.

False or misleading claims made online by agents or referral sources can lead debtors into the IVA process and misinformation is like a rolling snowball. Some will always stick.

Somewhere behind or at the end of this commission-based sales food chain there are also licensed IP who remain anonymous throughout and can also deny any responsibility for the claims that have persuaded debtors to engage them as supervisor in their IVAs.

How can anyone say that this a properly regulated process ? If corporate insolvencies were either sold or dealt with on this basis it is a safe bet that a statutory regulatory regime would have been put in place by now.

Regulations but no Controls.

The recent press release from the Office of Fair Trading on the mis-selling of IVAs was widely reported but the final paragraph of their press release passed by without mention.

The paragraph is worth quoting in full because it unintentionally underlines the lack of controls over the 1800 or so insolvency practitioners who are the only people entitled, by law, to supervise formal IVAs. The OFT say:

"The Insolvency Service is responsible for authorising and regulating the insolvency profession. An insolvency practitioner (IP) has to be appointed to 'supervise' an IVA. The IP must be authorised by the Secretary of State for Trade and Industry (SoS) directly, or by one of seven professional bodies recognised by the SoS as being competent to do so. IPs must comply with several statutory requirements and follow best practice guidance and ethical guidance. Complaints about IPs considered to be acting unprofessionally, improperly or unethically can be made to the appropriate authorising body. Neither the SoS nor the professional bodies can intervene directly in individual insolvencies or give directions in relation to the conduct of individual cases. The SoS has no power to impose any disciplinary sanction or penalty against an IP but if complaints are found to be justified, the SoS will take them into account when an IP seeks re-authorisation, together with other relevant issues."

So, complaints about insolvency practitioners can be made to the Secretary of State - this is done via the Insolvency Service IP Unit in Birmingham - or to an IP's professional body but neither of them have the power to intervene in individual cases. Not very helpful as debtors are only likely to complain about the conduct of their own cases and the majority will therefore see no point in complaining.

We then find that the OFT have the power to investigate companies mis-selling IVAs but it seems they cannot 'name and shame' those companies because, according to their own press release, that might damage their businesses. The continuing stress and misery they might have caused for debtors along the way is incidental. The fact that they continue to sell IVAs while they read the OFT's warning letter is immaterial.

But it seems the point is also missed that - by law - companies cannot set up IVAs. The companies - even the most incompetent and even those with the ethics of a loan shark - can only act as a front for the insolvency practitioners who are required - again by law - to exercise their independent professional judgement when they recommend an IVA to the courts in the form of their Nominee's Report.

The county courts are also supposed to act as the 'expert supervisory body' in IVAs. There is case law which emphasises this but - with some notable exceptions - the courts do not monitor Nominee's Reports. The IVAs are simply given a reference number and filed away in the court office and another link in the regulatory chain is broken. Unless an interim order is sought, the IVA will not be referred to a judge.

If even a sample percentage of the IVAs filed with the courts were referred to an experienced District Judge the risk of mis-sold IVAs slipping through would be reduced and the protection for debtors would probably improve overnight but the courts seem unable to act on their own initiative. They can only act on complaints made by debtors - and these are extremely rare.

The courts have the power to overturn any action or decision made by the supervisor of an IVA because technically the supervisor is only acting on behalf of the court. Debtors can apply to the County Court that has jurisdiction in their IVA under s.263 of the Insolvency Act but it seems that these applications are rare.

This should not be surprising. Debtors are in a vulnerable position because IPs are given extraordinary powers in personal insolvencies and complaining debtors are always open to abuses of that power and authority. Debtors can be intimidated.

Debtors are also unlikely to be able to afford legal representation. Public (CLS) funding is not normally available in insolvency matters and, if debtors try to represent themselves, they will inevitably be up against a legal team paid for by the insolvency practitioner's insurers.

Complaining through the courts can be a long-winded and expensive lottery that debtors in an IVA cannot afford to lose - but debtors have nowhere else to go.

And - despite all of this - insolvency practitioners continue to claim that are heavily regulated. The specialists in corporate insolvency may be regulated - but those dealing with personal insolvencies are not.

There is no doubt that there are volumes of regulations governing IVAs and IPs. There is the Insolvency Act; the Insolvency Rules; the Insolvency Practitioners Regulations; the Statements of Insolvency Practice and the Insolvency Service technical manuals and notices but, for regulations to work, there also has to be effective controls. Effective laws need both police and prosecutors.

If any insolvency practitioner is recommending 'mis-sold IVAs' then the OFT should also refer their complaints about the companies that employ them (or take kickbacks in the form of commission) to their regulatory body and they should be struck off for professional misconduct ....... and, if they really want to put their house in order, shouldn't the professional bodies be insisting that the OFT provide them with the evidence they need to initiate disciplinary action ?

Or do they really prefer to keep passing the buck ?

Are IPs targeting women ?

Is it a gender thing ? According to The Daily Telegraph it seems that two thirds of the people who opt for bankruptcy are men whereas women are more inclined to opt for IVAs.

The article doesn't give any precise figures but it does seem to highlight a trend that has been flagged up by a reputable debt advice charity. Seems a pity that the article didn't go that bit further and follow the logic of its own report.

The article refers to the fact that the Office of Fair Trading recently criticised seventeen firms for issuing misleading advertising which did not spell out the full implications of IVAs but it does not make the obvious connection with the TV advertising screened by IVA providers.

Most of the TV advertising for IVAs is screened during the day so we need to ask: Who is more likely to be watching daytime TV ? Are the IPs deliberately and succesfully targeting single women with a debt solution that may not appropriate for their needs ?

DebtFreeCoach recently recounted a familiar story of how an IVA went wrong for one woman and it is a cautionary tale. But one thing is certain - When it does go wrong it will happen regardless of gender.