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schemes deviating from Citizen’s Advice Bureau guidance ravage UK finances | Personal Finance | Finance
More Britons forced into debt repayment schemes with very high fees (Image: Getty)
More than two-thirds of suggested ‘IVA’ debt repayment schemes deviate from Citizens Advice guidance, with the average proposed fees for these schemes nearing £4,000, a new study shows.
Individual Voluntary Arrangements (IVAs) are formal and legally binding agreements between a borrower and their creditors to pay back debts over a set period.
The study by financial service Abound, which looked into 200 recently proposed IVAs, found 71 percent of the proposed schemes — those drafted by the IVA firms in agreement with the borrower and submitted to the lender for approval — were for debts of less than £10,000.
However, Citizens Advice does not recommend IVAs for people with total debts less than this figure because of the high fee and the acknowledgement that “better options are available.”
Gerald Chappell, CEO and co-founder of Abound and author of the study said: “Many proposed IVAs are of questionable benefit to customers. They trade short-term payment reductions for long-term financial consequences which customers frequently do not understand.
Britons struggling with debt are being urged to approach their lender before settling for an IVA (Image: Getty)
“In many cases, customers could have achieved superior financial relief by engaging directly with their lenders, or by arranging a Debt Management Plan via a free debt advice charity like StepChange that would not require an insolvency process.
“IVAs are often sold to vulnerable and indebted people in an unethical way, and it seems clear to me that this is motivated by the large fees involved.”
Alongside IVAs being proposed for individuals with smaller debts, concerns have been raised over the high fees that they charge. Of those IVAs proposed, Abound found fees currently average £3,854.
According to the study, around 47.7 percent of the proposed proceeds from the IVAs would have, if accepted, gone to the IVA provider as opposed to 52.3 percent to the creditors, to pay down the original debt.
Of those IVA schemes that were accepted, 54.4 percent of proceeds went to the creditor and 45.7 percent of proceeds went to the IVA firm.
A small number of the accepted IVAs appear to be unfavourable consumers, with two in the sample having a fee constituting 80 percent or more of the proposed IVA.
IVA fees are typically the first thing the customer pays back. If the customer defaults and exits the IVA, sometimes they will be left with the same debt, despite paying a significant amount to the IVA firm.
But with IVA firms increasingly using social media platforms such as Facebook and TikTok to advertise the option as an “easy way” for people to write off their debts, concerns are stirring that people may be unaware of the risks.
People may not realise until too late that IVAs can significantly affect their credit ratings and stay on file for six years.
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These revelations come as Ofcom consults on the enforcement of clauses in the Online Safety Act 2023, which can see social media firms fined up to 10 percent of their annual revenue for hosting misleading or harmful online ads.
Mr Chappell said: “The fact that such a high proportion of IVAs go against official advice indicates a serious problem and I would question whether consumers know the serious long-term impact that an IVA can have on their financial future.”
However, he noted: “It’s important to add that an IVA can be a suitable solution for someone with large debts or assets to protect.”
To avoid unnecessary fees, Abound suggested three checks borrowers should make first before turning to an IVA.
Firstly, those in financial difficulty and worried about paying back a debt should speak to their lender about their situation. Lenders will often be able to agree on an affordable payment plan directly.
According to Abound, lenders are regulated and are required to act to ensure good outcomes for retail customers, which includes treating them fairly and supporting customers in financial difficulties.
Secondly, the experts suggest speaking with a free debt advice charity like Step Change. They can help people assess their financial situation, put together a debt repayment plan, and negotiate with lenders on the person’s behalf. In many cases, Abound said this can be done without the need to go through an IVA.
Finally, Abound suggested remaining alert and cautious about promotions on social media, such as adverts for quick ways to get rid of debts with no consequences. The firm said if it sounds too good to be true, “it probably is.”
Mumbai:
The Indian equity benchmark indices opened higher on Friday amid positive global cues, as buying was seen in the IT, pharma and auto sectors in the early trade.
At around 9.27 am, Sensex was trading 265.3 points or 0.33 per cent up at 80,066.81 while the Nifty added 89.85 points or 0.37 per cent at 24,336.55.
Nifty Bank was down 222.85 points or 0.40 per cent at 54,978.55. The Nifty Midcap 100 index was trading at 54,980.80 after increasing 10.95 points or 0.02 per cent. Nifty Smallcap 100 index was at 16,903.30 after declining 60.20 points or 0.35 per cent.
According to market watchers, “after a positive opening, Nifty can find support at 24,200 followed by 24,100 and 24,000. On the higher side, 24,500 can be an immediate resistance, followed by 24,600 and 24,700.
“The charts of Bank Nifty indicate that it may get support at 55,000 followed by 54,700 and 54,500. If the index advances further, 55,500 would be the initial key resistance, followed by 55,800 and 56,200,” said Hardik Matalia, Derivative Analyst of Choice Broking.
Meanwhile, in the Sensex pack, TCS, Tata Steel, Maruti Suzuki, Eternal, ICICI Bank, SBI, HDFC Bank, Infosys, M&M and Tata Motors were the top gainers. Whereas, Axis Bank, Tech Mahindra, Nestle India and IndusInd Bank were the top losers.
In the last trading session, Dow Jones in the US added 1.23 per cent to close at 40,093.40. The S&P 500 climbed 2.03 per cent to 5,484.77 and the Nasdaq added 2.74 per cent to close at 17,166.04.
In the Asian markets, Jakarta, Bangkok, Seoul, Hong Kong, China and Japan were trading in green.
According to analysts, US markets extended their rally on Thursday as investors snapped up hard-hit technology stocks, helping boost the S&P 500 out of correction territory.
The foreign institutional investors (FIIs) bought equities worth Rs 8,250.53 crore on April 24. However, domestic institutional investors (DIIs) sold equities of Rs 534.54 crore on the same day.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
Mumbai:
Indian equity markets are trading in the red as tensions soar between India and Pakistan over the Pahalgam terror attack in Kashmir. Sensex, the 30-share BSE benchmark, has crashed over 1,000 points and is now trading below the 79,000-mark. Nifty, the NSE index of 50 shares, fell below 24,000 points.
The markets went up in early trade, driven by a global rally and fund inflows, but the momentum got lost thereafter, and it gave up the initial gains.
The markets are also upset by unimpressive March quarter earnings by Axis Bank, the third-largest private sector bank of the country. The bank’s shares have fallen 4.65% after reporting a decline in quarterly profit from Rs 7,130 crore in the year-ago period to Rs 7,117 crore.
Besides Axis Bank, major laggards include Bajaj Finance, Bajaj Finserv, Tata Motors, and Tech Mahindra. On the gaining side are TCS, Infosys, Reliance, HCL Tech, HDFC Bank, and ICICI Bank.
At least 26 civilians were massacred by terrorists in a tourist hotspot known as ‘Mini Switzerland’, leading to both countries pulling out their diplomatic staff and suspending visas issued to the other nation’s citizens. (Follow live updates here)
The latest flare-up at the Line of Control was speculative firing by Pakistani troops, which is being seen as an attempt to provoke the Indian side. Indian troops retaliated effectively against the firing from multiple Pakistani posts.
As Indian equities braced for the impact, global equities, including the Asian markets, were charting in the positive territory. South Korea’s Kospi index, Tokyo’s Nikkei 225, Hong Kong’s Hang Seng, and Shanghai SSE Composite were all in green.
Similar trends were seen in US equities, too. Last evening, Nasdaq Composite closed 2.74 per cent higher. S&P 500 jumped over 2 per cent and Dow Jones Industrial Average surged 1.23 per cent.
Mumbai:
Equity benchmark indices Sensex and Nifty declined in early trade on Thursday amid profit-taking after a seven-day rally and muted trend in Asian markets.
The 30-share BSE benchmark declined 242.01 points to 79,874.48 in early trade. The NSE Nifty went down by 72.3 points to 24,256.65.
In the past seven trading days, the BSE benchmark gauge zoomed 6,269.34 points or 8.48 per cent and the Nifty jumped 1,929.8 points or 8.61 per cent.
From the Sensex firms, Eternal, Bharti Airtel, ICICI Bank, Mahindra & Mahindra, HCL Technologies, Reliance Industries, and HDFC Bank were among the laggards.
IndusInd Bank, Tech Mahindra, Nestle, Bajaj Finance, Axis Bank, and Tata Motors were among the gainers.
In Asian markets, South Korea’s Kospi index, Shanghai SSE Composite, and Hong Kong’s Hang Seng were trading lower while Tokyo’s Nikkei 225 quoted in the positive territory.
US markets ended sharply higher on Wednesday. Nasdaq Composite jumped 2.50 per cent, S&P 500 surged 1.67 per cent and Dow Jones Industrial Average climbed 1.07 per cent.
Global oil benchmark Brent crude climbed 0.12 per cent to USD 66.20 a barrel.
Foreign Institutional Investors (FIIs) bought equities worth Rs 3,332.93 crore on Wednesday, according to exchange data.
The BSE benchmark jumped 520.90 points or 0.65 per cent to settle at 80,116.49, the highest closing level since December 18, on Wednesday. The Nifty rallied 161.70 points or 0.67 per cent to 24,328.95.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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