Hidden debt scandal – how profit-making firms and unsuitable ‘solutions’ leave people in deeper financial trouble.
Citizens Advice advisers at the frontline are sounding the alarm, as a sector-wide survey of more than 560 of our national debt advisors found that 84% said they have spoken to clients in failed or unsuitable Individual Voluntary Arrangements (IVAs).
People being misled
People in deep financial trouble are being misled by profit-making firms into unsuitable debt solutions which are often leaving them worse off. According to a new report from Citizens Advice it found worrying numbers of people in Individual Voluntary Arrangements (IVAs) unable to keep up with repayments – often because of poor pre-IVA advice from profit-making IVA firms
An IVA is a legally binding plan that writes off debts after 5-6 years of agreed monthly repayments. If people can’t keep up with repayments, the IVA will fail, leaving them unable to write-off their debts. In addition, because IVA firms charge high front-loaded fees, people may find they’ve paid thousands in fees but very little towards their actual debts.
Selling harmful promises
In its report, Citizens Advice analysed how IVA adverts targeted people in vulnerable situations on social media.
The charity found many adverts shared harmful practices – appearing to offer impartial advice, failing to mention risks and fees, making unverifiable claims, and using demographic targeting.
Matthew Upton, Director of Policy at Citizens Advice, said:
“The soaring cost of living is brewing a debt crisis and we’re seeing profit-driven vultures in the IVA industry ready to prey off people, encouraging them into debt solutions which could leave them worse off”
Chantelle’s Story
“The IVA company chased me for months which really affected my mental health.”
Chantelle(*) was working until a recent accident left her disabled and unable to work. She had previously been managing repayments on a few credit cards and long-term loans totalling £23,000. With her husband now her full-time carer, their sole income is a private pension and benefits.
To repay her debts, Chantelle sought advice from an insolvency firm who manipulated her income and expenditure to ensure she was accepted for an IVA. She also wasn’t told about other options that could have cleared her debts more quickly.
Chantelle said “My monthly IVA repayments were around £100pm which was a push. But with each year the repayment amount was increasing, but our income was not, so this made repayments unaffordable.”
“Early last year I had to make the decision to stop making repayments as I could not afford them. The IVA company chased me for months which really affected my mental health. I was really stressed by the situation.”
“My debt had not reduced over the years as the money I had paid seems to have only covered the IVA fees.”
Due to an IVA being legally-binding, Chantelle wasn’t able to cancel it even though she could no longer afford to make payments. Chantelle then decided to contact her local Citizens Advice for help. The IVA firm eventually terminated her IVA, but only after advisers at Citizens Advice intervened. The debt remained with Chantelle, but Citizens Advice advisers worked with her to find a more suitable solution.
(*) Name changed to protect client confidentiality.
If you need help with an IVA or to find out about alternative debt solutions, please contact your local Citizens Advice. We can help. Find our online information about IVAs at out national website here.
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