IVAs march on. But is all as it should be?

The Individual Voluntary Arrangement (IVA) marches ever upward, it seems. But is all as it should be?

Here at TIP (The Insolvency Panel) we think that there is still loads of room for IVA numbers to grow. And that this debt solution is under-advised by the free-to-client sector. But, we also think that mis-selling issues with major providers still need to be addressed: We absolutely understand free sector advisors reluctance to recommend this solution.

Statistics released today by the Insolvency Service show that in the last quarter of 2018, IVAs accounted for two-thirds (67%) of all personal insolvencies.

More people taking action on debt

Clearly, personal debt is becoming more of a problem. The number of people entering personal insolvency has risen from one in 466 to one in 401 over the year. Across 2018 as a whole, bankruptcies rose by 9.8 per cent and Debt Relief Orders (DROs) by 11.2%. But, in the same period, IVAs rose by nearly double that (19.8%).

There were more than 71,000 IVAs in 2018 – up from just over 59,000 the previous year and, whilst the astonishing 34,000 IVAs put in place in the last quarter looks like a spike, we believe the trend will continue upward.

There is loads of room for IVA numbers to grow. But, we also think mis-selling issues need to be addressed.

Why the spike?

What struck TIP as odd was the dip in IVA numbers in Q3 last year, compared with the dramatic rise (way above the trend) in the final three months. It’s almost as if something happened to delay IVAs, or at least their recruitment, in July, August and September. Coincidentally (perhaps) it was September when the Insolvency Service published its report on the monitoring of IVA providers by insolvency professional bodies and also when the FCA published, in what almost seemed a coordinated initiative, their “Dear CEO letter” on “Debt Packagers” – clearly aimed at IVA lead-introducers. Was Q4, 2018 the last hurrah for the system that has drawn so much criticism in the last few years. Maybe,

Is it taking too long?

Back in October 2016, I predicted long term growth for the IVA sector – but also pointed out that it was time for regulators to grasp the mis-selling nettle (and thus eliminate the perception of mis-selling). Most insolvency practitioners do the right thing – it’s not an industry-wide issue. We are particularly proud of the low IVA early termination rate TIP’s insolvency practitioner panel achieves. But, we hear from free sector debt advice colleagues that they increasingly see people in IVAs that are unaffordable and which should have been debt relief orders, for example. The Insolvency Service and the FCA have identified these issues and, following a detailed review by the Insolvency Service of the effectiveness of IVA regulation, the largest regulator in the space, the Insolvency Practitioners Association, has announced plans to massively overhaul the monitoring of large IVA providers.

Will it be enough to stop the Insolvency Service using its (time-limited) power to impose a new single regulator? Time will tell.

 

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PennySmart*, the Chester-based money, debt and benefits advice organisation, is partnering with TIP (The Insolvency