Debtadviseronline.co.uk

Q. When is it The National Debt Helpline ? i.e. The national debtline charity
.A. When it is Debt Advisor Online running a Google Ad sponsored link claiming to be a National Debt Helpline.

Misleading ?

clipped from www.google.co.uk

National Debt Helpline
National Debt Helpline
Reduce your debt now
Up to 75% debt written off

www.debtadvisoronline.co.uk

Fluffy Debt

Fluffy lifestyle, casual debt ? Google alert came up with this posting on My Live Journal which just about bears quoting here:

"Those who know me also know my friend Jordan. He's been is a spot of trouble financialy lately. He went on holiday using he credit cards and is now suffering it. He mentioned looking at getting an IVA from a company called Debtsolver. He wants to blog about about his problem but I'm a bit worried if something like that will affect his application from Debtsolver.

I've told him to do a bit of research but I've done some in the mean time too. So he's decided to go with Debtsolver because his uncle had a good experience with them."

Sounds cool ..... and Jordan reports in his equally minimalistic blog:

"I've got to start thinking of heading back home to the UK now. I'm having a blast but I've spent so much cash. Well the pound gets you plenty of rands, but the thing is I borrowed against my credit cards (yes that is a plural) to come here. Now I'm just about broke. In my spare time I did a little research and found that I can look at getting some financial help back home. I'm not entirely sure what an IVA is just yet or if I'm eligible to get one, but I'm reading up about it on this website I found... with (sic) me luck!"

When you're all cashed out, sounds as though an IVA might cover the cost of the trip.

Insolvency Service boosted IVA advertising

The Insolvency Service stakeholders working group which aimed to improve IVAs and their availability to debtors included in its membership major IVA providers Debt Free Direct and Accuma. Their initial report was published for consultation back in July 2005 and one section of the report dealt with the 'problem' of increasing debtor awareness.

The problem was identified following research - quoted in the report - and carried out by Debt Free Direct (not the most independent of sources) in 2004.

They concluded that:

The Working Group agrees that the existence and usefulness of the IVA needs to have a higher profile, possibly through advertising. However, both the funding of such advertising and where those responding to the advertisements would be directed are issues to be addressed, particularly as some nominees and supervisors are not members of R3 and have a variety of regulatory bodies.

They nonetheless asked respondents in Q.12 of their consultation to come up with practical suggestions to increase awareness of IVAs.

The response to the proposals for Improving IVAs were published in January 2006.

By then, they were able to report that the majority of respondents thought that "there is already adequate awareness among consumers of the IVA process, especially with the recent rapid rise in numbers".

The Insolvency Service report therefore drily noted that:

In the year ending 31 December 2005 there were 20,293 IVAs, this shows an 88.7% increase on the 2004 figures. We do not propose to take action to increase awareness of IVAs at this time.

It seems surprising that some of the stakeholders on the Working Group did not already know from their own sales figures that IVAs were being taken up at significantly inreasing rates when the original proposals were published.

It is perhaps less surprising that the IVA providers did not really need that much more encouragement from the government to boost its advertising and marketing spend to increase consumer awareness of IVAs and the take up of the arrangements.

Not surprising - to quote Jack London - "for they alone knew how to reap the whirlwind and make a profit out of it".

Strangling the golden goose

BBC News are reporting a claim from Price Waterhouse Coopers (PwC) that the numbers of people going into IVAs is now falling.

The report is interesting when read alongside the profit warnings issued by major IVA providers at the end of January. It is obviously in the best interests of the IVA providers to put the best possible spin on events so the PwC report comes from the other side of the counter. They act in IVAs for many of the major lenders including banks.

The PwC report may also reflect a blip in the figures rather than a trend but the BBC report says the reason for fewer IVAs seems to be that the total amount of personal debt was stabilising after booming in the first five years of this decade.

But the other reason given is worth quoting in full. It says:

"Another reason for a fall in IVA numbers is that some lenders are adopting a more hostile attitude to the IVA proposals that are made to them on behalf of their indebted customers. IVAs are entirely voluntary and a creditor is not obliged to accept one if it thinks the person can in fact pay more of their debts than is being suggested.

In the past year banks have becoming increasingly irritated by a minority of people trying to push through IVAs who, they believe, would be perfectly capable of paying off more of their debts without such an arrangement.

Government research has shown that typically IVAs involve men in their 40s with debts of between £40,000 and £43,000. In such a case, an IVA usually cuts that debt to about £24,000, which is then repaid over five years.

But of that, about a third can be taken by the IVA company which has arranged the deal, with the lender such as a bank being offered only £16,000. The new hard-nosed attitude by lenders has led some of the new IVA companies, which have sprung up in the past few years, to report a downturn in business recently."

Doesn't this also sound as though someone has been strangling the golden goose by overheating the market for IVAs ? The marketing of IVAs by the debt factories - and particularly the TV ads - often seemed to be creating a demand for IVAs that might not have existed before.

The OFT are belatedly acting on the mis-selling of IVAs but the mis-selling has occurred at both ends of the market and this is not really reflected in the report.

At one end of the market, IVAs have been sold when bankruptcy would be more appropriate and, at the other end, IVAs have been wrongly sold as a debt avoidance tool that is simply another option in a credit card lifestyle.

IVAs are supposed to be a solution to insolvency, not indebtedness. Many of the factories - and the insolvency practitioners hiding behind them - do not seem to apply this test as rigorously as they should.

When mis-selling is mixed with sizeable profits it is no surprise that major lenders now pool their resources and act through agents like PwC to squeeze some of the abuses out of the system but the problem here is that the people who are now beginning to suffer are the genuine cases who have made every effort to make the best possible IVA offer to their creditors.

It seems that both sides are strangling the golden goose.

The IVA factories have been churning the debt market to satisfy their shareholders and, in an attempt to cut out bad practices, some lenders are now voting down the proposals put forward by those same factories and, as a result, lenders may also reach the tipping point where they will start to see a lower return on their bad debts as more debtors are forced into bankruptcy.

This may all be a tactic designed to move the supervision of voluntary arrangements away from the counselling factories towards the less expensive and more thoroughly scrutinised FTVAs supervised by the Official Receiver - but that is probably too fanciful.

One thing is certain. Debtors whose IVAs might have been approved only twelve months ago are seeing them voted down as a crude means of regulating an unregulated market.

PVAs - The invisible voluntary arrangement

Partnership Voluntary Arrangements (PVAs) are the seldom mentioned and virtually invisible form of insolvency. They were introduced under the Insolvent Partnerships Order 1994 as an amendment to the 1986 Insolvency Act. Where the case raises issues relating to personal insolvency the law on IVAs applies and where the case raises issues of corporate insolvency the law on Company Voluntary Arrangements (CVAs) applies.

PVAs were intended to provide for insolvent partnerships so that they could continue trading after making the arrangement with their creditors. The technicalities of a PVA differ very little from those of an IVA except that they were intended to cover partnership debts and it was envisaged that individual partners who were also personally insolvent would take up linked IVAs but there is no requirement to do this. Partners can enter 'stand alone' PVAs.

There are however no figures on PVAs because there is an anomoly in the law which means that PVAs are not recorded anywhere despite the fact that IVAs are placed on public record with the Individual Insolvency Register and CVAs are recorded with Companies House.

The only 'place of record' for PVAs are in the filing cabinets of the County Courts which have jurisdiction in the case but these files are not listed and they are not available for public scrutiny.

You would need to know that a particular PVA existed before you could even ask the court if they had the file and, as there is no public record, this also means that a PVA would not appear on the individual partner's credit history.

Although PVAs can be more complex than IVAs because they were intended to keep partnerships afloat they also have the advantage for traditional professional partnerships - solicitors, accountants, insolvency practitioners - that they do not effect the professional's ability to practice.

All forms of insolvency are serious matters but it should come as no surprise that - either deliberately or by default - the voluntary arrangement available to professional partnerships is based on principles of confidentiality that do not apply to either personal debtors or insolvent companies.

Who knows, the insolvency practice dealing with your insolvency might itself be insolvent and you would have no way of finding out unless they told you. No surprise then that no one seems to be complaining about the mis-selling of PVAs.

ASA investigate IVA advertising

The Advertising Standards Authority (ASA) have confirmed to us that they are currently investigating several advertisements for IVAs and similar 'products'. One of the issues being investigated relates to advertised claims about the percentage of debt that can be written off in an IVA.

This will undoubtedly tie in with the recent warnings from the Office of Fair Trading to IVA providers who were falsely claiming that 'up to 90 per cent of your debt may be written off' when the maximum would be in the region of 60 – 70 per cent.

The OFT were wrong on the last point because, until quite recently, it was not uncommon for 75% of debts to be written off in an IVA but adverts which claim to 'write off' 90% or - in three cases which we have reported - 95% of debts are clearly false and must amount to mis-selling of IVAs.

The ASA say that their investigation is wider than the question of 'percentages' and we have also complained about major IVA providers falsely claiming to provide 'no fee' IVAs both on their web sites and in online adverts which link to their sites.

Google ads are often used to make questionable claims and as they can be hard to pin down they can also provide a neatly deniable moving target that nonethless sucks in the punters.

For now, all complaints against individual IVA providers are on hold while the ASA carry out their investigation and they are looking to make precedent decisions by which all advertisers selling IVAs will be obliged to follow.

The ASA have explained that, because their investigation could have wide ramifications for the way all IVAs are advertised, they will not be investigating new complaints or current complaints against individual advertisers and, once the precedents have been set, they will then be able take appropriate action on future complaints.

The ASA investigation is overdue and has to be welcomed but their position on advertising currently used by IVA providers to make significant profits raises serious concerns.

The ASA's powers are limited but it is too easily forgotten that somewhere behind every incidence of mis-selling or false and misleading advertising for IVAs there is a licensed Insolvency Practitioner. The recognised professional bodies (RPBs) have been remarkably silent on this but advertising complaints upheld by the ASA would lend significant support to complaints to the RPBs about the conduct of the IPs they are supposed to regulate.

As the OFT have already carried out their own investigation - without naming the IVA providers - it should not require new 'precedents' to decide that some IVA adverts are patently false but it seems that the ASA investigation might let past and current offenders off the hook without actually naming them.

Someone somewhere has to start naming, shaming and regulating !

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Tip from The Mole : Make a pdf copy of any web pages carrying offending google ads and use the copy to support your online complaints to the ASA.

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IVA debtors owe more than bankrupts

The Lancashire Evening Post came up with an interesting figure. Quoting from an interview with the head of personal insolvency at KPMG, they say that the average debtor taking out an IVA owes an average of £52,000 while the Insolvency Service estimates the average bankrupt has debts of nearer £46,587.

This seems to be counter-intuitive because we would have expected bankrupts to go down with more debts than people trying to repay at least some proportion of their debt through an IVA.

However, as the differences between the two sums are not significant and given that the numbers for IVAs are now pushing towards those for personal bankruptcies, this seems to support the view that choices between IVAs and bankruptcy are based on something more than straightforward financial factors.

Aggressive advertising and marketing by the IVA factories must now be a more significant factor in the huge surge in the numbers of people taking up IVAs - up 81.9% in the last quarter of 2006 - and it's tempting to ask if all those debtors who were sold IVAs would otherwise have opted for bankruptcy - or would they have simply struggled and carried on servicing their debts ?