IPs urged to clarify payment protocols for customers

Explaining to a scared and confused debtor the ins and outs of the myriad of debt repayment options is no easy task. But questions have been raised by the Insolvency Service into practitioners’ record of outlining to their clients how they are paid.

An Insolvency Service review of the protocols surrounding the IVA process found more than a fifth of debtors were unclear whether they had paid the nominee fee to the supervisor of the IVA – the insolvency practitioner.

The agreement by the debtor to make monthly repayments to creditors – a key part of this insolvency process – must be signed off by a licensed insolvency practitioner. In the majority of IVAs, an IP’s fee is recovered within the first five payments made.

The Insolvency Service devised for IPs and creditors the IVA Protocol, a set of principles-based guidance on conducting an IVA. This was designed to make the process quicker, cost effective and easier to manage for both the IP and the consumer. Almost two years in it seems there are still kinks to be ironed out, with some IPs failing to follow its guidelines and be more transparent to debtors on how they charge.

The results were described as “amazing” by John Alexander, partner at CBW and head of corporate recovery and insolvency. “IPs should be doing more to explain to debtors the details of the IVA,” he said.

It has become commonplace that the majority of IVAs are undertaken through IVA factories where, Alexander claims, “low-level clerks” explain the IVA to a debtor and an IP will end up signing off on “thousands” of IVAs.

“There is not the individual counselling you would like to see happening and debtors are not given the opportunity to ask questions,” he added.

Mark Sands, head of bankruptcy at RSM Tenon, which runs one of the biggest IVA factories in the UK, said: “Talking a debtor through how an IVA can help them, and getting the facts through to a scared consumer wanting to know the consequences of how an IVA will affect them, is difficult to do.”

The first payments by the debtor often go to the IVA provider and not the creditor, but Sands believes debtors are only interested in making their monthly payments. They are not concerned with where the money is going.

An Insolvency Service spokesman said: “We recognise that there are still a substantial number [of debtors] who found [an IVA] difficult to understand.

This is disappointing, and we hope that those in the industry will work hard to help the debtor understand the process.”

He confirmed the Insolvency Service has no plans to introduce further regulation on IVAs. Instead they would like to give the protocol more time to work, although it remains a live issue. “We can reconsider this at a later date, if circumstances indicated we should.”

IN OUR VIEW
Explaining the IVA to consumers in difficult circumstances is tricky, but practitioners must ensure debtors fully understand where their payments are being allocated. The last thing IPs need is another consumer backlash and mounting complaints that they are not transparent enough about their fees.

Further reading:
Analysis: Insolvency profession under the spotlight