Capital’s fee cap doesn’t fit all

The bank’s move seems to have cooled relations a couple of degrees between
creditors and the IVA/debt management providers, after having thawed in recent

It announced plans to fix payments to IVA providers at £4,500 per client,
citing excessive fees disproportionate to the amount of work provided.

The proclamation follows efforts by creditors and the debt management
industry to create a more regulated market, while insolvency practitioner
providers, the Insolvency Practitioners Association and the ICAEW, want to offer
a lighter qualification as a means of encouraging people to work offering IVAs.

In a sign of frustration at Capital One, insolvency trade body R3 has moved
quickly to dismiss the bank’s move.

R3 vice president Nick O’Reilly said the fee cap ‘made a good headline, but
was shortsighted’.

Capping fees will force IVA providers out of the market and will mean less
choice for creditors and poorer IVA proposals. Debtors will end up bankrupt and
the bank will recoup fewer funds.

‘You get what you pay for,’ said O’Reilly. ‘You want a Rolls-Royce service,
but will only pay enough for a Mini-Metro.’

Of added concern to insolvency practitioners were reports that the British
Bankers’ Association was set to introduce a code of conduct to encourage banks
to push for lower fees from IVA providers.

Mark Allen, head of IVAs at Grant Thornton and an R3 council member, said his
own discussions with the banks suggested they were against following Capital One
into fixed fees.

While interested in paying lower fees, the banks were more inclined to
consider fees aligned with returns.

‘If you do what Capital One said it will do, a ceiling on fees doesn’t
incentivise practitioners to get more money for them. If fees were aligned to a
percentage it would benefit everyone,’ said Allen.

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