Repayment plans pushing thousands into deeper debt

theguardian.com:

The number of people with crippling debts who have entered into controversial official agreements to repay the money has reached an all-time high, new figures reveal.

Individual voluntary arrangements (IVAs) registered in England and Wales totalled 81,199 in 2021, more than double the number in 2015, according to the Insolvency Service.

The figures have led to concern that vulnerable Britons are increasingly being lured into unsuitable legally-binding plans by private debt management companies.

IVAs are court-approved agreements that usually last for five or six years, and involve a monthly repayment agreed by the creditor. Overseen by a specialist adviser, they are seen as an alternative to full-blown bankruptcy for people who have assets to protect and enough spare income to afford the monthly amount.

But it is claimed that they are widely mis-sold, and marketed as an easy fix by companies that earn thousands in commission and fees, despite other solutions often being more suitable.

Last year, the Financial Conduct Authority (FCA) said the market was “broken”, with charities and free debt advice services being “crowded out” by firms that earn up to £1,000 in commission for every person they refer to insolvency practitioners.

It said exploitative marketing tactics and “potentially harmful business models” often led to “poor outcomes” for those entering into IVAs, who then faced charges of up to £5,000 on top of the money they owed.

The FCA, which regulates debt management companies, has proposed a ban on referral fees for lead generators and plans to publish a policy statement later this year.

But charities and finance experts warned that many more people would be trapped in IVAs amid the mounting cost of living, with adverts