Credit Act creates extra burden for insolvency practitioners

Insolvency practitioners are already under pressure on their rates, with caps on their fees. Could the changes introduced with the Consumer Credit Act make that situation worse?

Due to changes in the way fees are drawn up for practitioners when organising an Individual Voluntary Arrangement, practitioners are capped on their fees and not able to add any extra costs incurred during the lifecycle of an IVA.

The IVA Protocol implemented earlier this year saw the fees of those who signed up being changed from a percentage of the debt owed to a cap of payments made by the debtor.

Previously a debtor would arrange how much they could pay back over a maximum period of five years with payment being made every month. The IP would then take a percentage of that debt with the remaining sum being given to the creditor.

But the protocol stipulates that IPs can only take a certain number of monthly payments regardless of the size of the IVA they have arranged, with some being as small as the first three installments.

That, combined with the changes introduced with the Act, is threatening to put IPs under enormous pressure. They will be left with enormous volumes of extra work, but will be unable to charge for the extra time taken to clear it up.

The Act amendments, implemented in October, have forced creditors to send updates on accounts to IVA holders as to how much they are outstanding.

Some statements have already begun to be circulated and have so far not been received well. Debtors have been panicking as to why they are being contacted directly and why it has not come via their IP.

There have been reports that consumers with IVAs are inundating their IPs, with more expected in the coming months. Consumers are concerned as to why they are being contacted ‘out of the blue’, what has happened with their IVA and why they are being ‘harassed’ by their creditors.

IPs are now having to reassure IVA holders that their agreement still stands, the statements are statutory and that it has not changed the situation at all.

As the statements do not seem to have any explanatory letter attached, IPs are fielding calls from concerned consumers and writing their own correspondence to ensure IVA holders understand what the changes mean and how they are affected.

One IP said that ‘it was always going to be a burden as we knew the creditors wouldn’t make it very clear what was going on’.

It has also further increased worries that as practitioners are capped they are more likely to turn away IVAs worth under £30,000.

Could updates on IVAs which, while surely welcome to many, also leave some indebted individuals unable to get one of the agreements at all? ‘The sooner it is stopped and looked by the government the better,’ said KPMG insolvency director Mark Sands.

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