In a recent release of operating instructions to Insolvency Practitioners regarding IVAs, The Insolvency Exchange has notified the world of yet new changes to the specifications of the Individual Voluntary Arrangement (IVA).

This new release of information, attached to this article, raises some interesting questions, or if you are an Insolvency Practitioner, maybe some disturbing realities about why you are slowly being phased out of business.

Initially what struck me about this release is the issue of price fixing. Why does The Insolvency Exchange get to communicate prices for professional services on the behalf of the small number of banks, limiting services for the large number of consumers in trouble?

Just yesterday as I was driving down the road, breaking news on the radio was reporting that the OFT slapped a £121.5 million pound fine on British Airways over price-fixing fuel surcharges. This is reported to have stemmed from conversations between British Airways and Virgin Atlantic over coordinating fuel surcharges. “The charges against BA relate to two instances of price fixing. In the first, BA and Virgin Atlantic discussed the amount they would charge customers to cover increases in the price of fuel. These “fuel surcharges” were introduced in 2004 and, over a period of 18 months until early last year, the two airlines colluded on the level and timing of increases to their surcharges.”, reports the Timesonline.

Even ex-BA executives are facing criminal charges and potential jail time for this price-fixing scandal.

So I’ll have to admit that I don’t understand how, out of discussions conducted in cooperation with the Insolvency Service, British Banker’s Association and others that it could result in a printed policy that essentially fixes the price of the work offered by professional, licensed and regulated insolvency practitioners. Maybe I’m missing something here but why does BA get massive fines for whispering a fuel surcharge price in the ear of Virgin Atlantic while TIX, HSBC, HBOS, RBS Group, M&S Money and First Direct, cited in the new Insolvency Exchange policies, get to send marching orders out that fix the price that Insolvency Practitioners can charge?

So I went to Wikipedia for a definition of what price fixing is and I found that price-fixing is “an agreement between business competitors to sell the same product or service at the same price.” And goes on to say that methods of price fixing can include selling at a common target price; setting a common "minimum" price; buying the product from a supplier at a specified "maximum" price; adhering list price; engagement in cooperative price advertising; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; purposefully reducing output or sales; or purposefully sharing or "pooling" markets, territories, or customers.” According to other sources, price fixing can also occur when competitors adopt a standard formula for computing prices.

But the same information suggested that in fact this current activity by UK banks, creditors and promoted by The Insolvency Exchange might instead be a form of collusion. Again from Wikipedia, “In the study of economics and market competition, "collusion" takes place within an industry when rival companies cooperate for their mutual benefit. Collusion most often takes place…where the decision of a few firms to collude can significantly impact the market as a whole.”

Does the UK Realise They Are Part of the EU?

Sometimes I wonder if the UK remembers it is part of the European Union. European Community treaties provide guidance and direction on matters like this. The directives appear to be clear when they state that all agreements and decisions by associations of undertakings and concerted practices which have as their object or effect the prevention, restriction or distortion of competition, and in particular those policies which directly or indirectly fix purchase or selling prices or any other trading conditions, are bad.

It is also frowned upon to abuse by one or more undertakings of a dominant position and shall be prohibited if such abuse consists in directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions, or limiting production, markets or technical development to the prejudice of consumers.

It seems that in essence here we have TIX, acting as a puppet, catalyst or agent of the creditors to implement a price-fixing or collision policy to impose unfair prices and limit the services that consumers should receive from Insolvency Practitioners.

Price-fixing or collusion, it doesn’t matter since the effect of these policies is that instead of consumers being able to seek the assistance of independent professionals for assistance with financial problems, creditors are fixing the price these professionals can charge or colluding to limit services to consumers by limiting the professional fees and acceptance rates.

The final result of these price controlling rules is that creditors like HSBC, RBS Group, M&S Money and First Direct get to control the services consumers can receive for help against the practices and operations of these same creditors.

It is much like a car manufacturer being allowed to dictate to legal professionals the fee they can charge to represent consumers in actions against the car makers. Is that the way it is supposed to work? Do we really want creditors to be able to limit the help and amount of assistance consumers can get when facing financial problems?

Even in the TIX release it says that “The launch of the TIX Compliant IVA allows Creditors to adopt a significant level of commonality…” Sure sounds like the formation of a cartel to me. I’ll have to go back to Wikipedia to look up cartel now.
 
Is the Creditor Message: Why Do We Even Need Insolvency Practitioners?

As creditors like HSBC, HBOS, RBS Group, M&S Money and First Direct are allowed to put in print through TIX and dictate the terms that debtors must suffer under to get help for debt problems from licensed professionals, it makes me wonder if creditors would rather get rid of Insolvency Practitioners completely.

The terms creditors are offering through TIX sound more and more like a debt management plan since they have similar percentage of distributions and the demand for monthly payments.

If this is the case why do debtors even need an Insolvency Practitioner? At this rate, all that is really needed is a binding debt management plan that would limit the length of time in the plan and agree to discharge the debt at the end of that fixed term. If creditors agreed to do that then the debt management companies around could handle the repayment plans of debtors and cut the Insolvency Practitioners out of the loop completely. In fact, one could argue that debt management companies are already better suited to handle the demands of the creditors for monthly disbursements and electronic payments.

With the current demands and practice standards imposed on Insolvency Practitioners, the creditors are turning this regulated and respected profession into nothing more than fee-capped debt collectors that must march to the drum of the creditors or be put out of business.

From the creditor point of view I would imagine that they would love to get rid of the Insolvency Practitioners. They would then set about working with debt management groups and drive down fees to the ridiculous point they are at in the United States.

This is all déjà vu all over again. In the U.S., creditors used the very same tactics and demanded that debt management companies employ new technology solutions and disbursements to make the creditors lives better. The promise was that if debt management companies did that creditors would reward them by keeping compensation at current levels. They lied. Disbursements started out at 15% and are now as low as 5%. Many companies have been driven out of business but the biggest loser has been the consumer.

What creditors view as fat, is in fact the surplus that companies use to reinvest in helping consumers. It's the money spent writing publications for people in trouble, conducting classes, doing research to help people. It's the money used to provide people in money trouble with more help than "Here is a brochure. Go away." It is the difference between calling the suicide hotline and being put on hold rather than talking to a caring counselor who can spend all the time needed with you.

The very same creditors that object to paying a professional fee for services to consumers, claim that too much is spent on marketing IVAs, but they are the same industry that is recording record profits each year, paying huge executive salaries, fighting the refund of unfair bank charges to consumers and trying to trim costs to pay for even more impressive boardrooms.

You would think that these fee limitations create a conflict for the Insolvency Practitioner about who they serve? Do they serve the creditor or the consumer? Aren't the needs of the consumer being pushed aside in order for the IP to try to serve the creditor for the crumbs they are being promised?

It clearly appears that these new IVA policies, which are being crammed down the throats of Insolvency Practitioners and inflict harm to consumers, do not allow Insolvency Practitioners to treat consumers fairly and place them in a position of professional conflict at times. Even the TIX IVA change notice states, “TIX Clients recognise that some current fee structures do not incentivise the Insolvency Practitioner to balance Debtor and Creditor interests over the term of the IVA due to the application of fee caps.”

Beating a Dead Horse Yet Again: Hurdle Rates

Admittedly I struggle with hurdle rates because I just can't see how they are fair. These are rates that are fixed by creditors that consumers must be able to jump over to be considered for an Individual Voluntary Arrangement. (IVA). For example, a creditor might say that over the life of the IVA the consumer must repay 40 per cent of the debt and if they can’t, they should go away or go bankrupt because the IVA will be refused.

Creditors are part of the British Banking Association, the same group cited in the TIX instructions that needs thanking for their participation in moving these issues forward. So why do the BBA Banking Regulations say that members will “…consider cases of financial difficulty sympathetically and positively” and that members will “…do all we can to help you to overcome your difficulties. With your cooperation, we will develop a plan with you for dealing with your financial difficulties and we will tell you in writing what we have agreed.” But yet the marching orders from TIX state “HSBC Bank plc currently operates a minimum dividend hurdle rate for IVAs.” How is that sympathetic or positive?

Moreover, creditors that refuse IVAs do not provide information in writing why they do not agree to the IVA. It is all very secretive and I guess, intended to limit their liability. They'll proudly tell you in writing what they agree to, but not why they don't agree to it.

My puzzlement here is that HSBC is stating in writing, through TIX, that they are absolutely not treating customers fairly or independently in considering the consumers plight but has, as a matter of policy, imposed hard and fast hurdle rates. The TIX release goes on to say that HSBC will evaluate Insolvency Practitioner (IP) firms for their compliance with the TIX rules of presenting IVAs in the required format and with the TIX client fee structure. Dance monkey, dance.

At Any Time. At This Time.

More and more good UK citizens are finding themselves in terrible financial trouble. It doesn’t really matter if consumers were overfed credit by banks or over-consumed credit offers, the net result is the same, a rising number of people facing financial worries and concerns.

At the very same time, policies like these outlined in the IP marching orders from TIX, choke the supposedly independent insolvency practitioners at a time when many people need professional and independent advice and help.

I feel a storm brewing and it might just be the “perfect storm” that leaves creditors in control and happy and consumers, disadvantaged and harmed.

Is This the World We Want?

Almost the most I can do is be vocal and write about my observations, fears and concerns over these issues. But what needs to happen is for Insolvency Practitioner, IP groups, or trade bodies to either take these entities to court and ask for a court to review these policies or file an official complaint with the FSA, OFT or Financial Ombudsman and ask for an impartial third party opinion. And while you're at it, would someone please ask the government to require the BBA Banking Code to be statutory rather than a set of worthless voluntary wink and nod banking rules?

No doubt the idea of price-fixing, collusion or cartels will be argued by people that will make more money per hour than I ever will. They'll look for very technical reasons why these policies and changes are not this or that. But the issue here isn't if the T is crossed, the real issue here is spirit and intent that creditors, with the support of the British Banking Association and the telegraph service of TIX, have agreed to limit the fees of IPs which limits the help and independent advice consumers can expect when facing financial trouble. The bottom line here is that these policies are motivated by profit, mean spirited, wrong and hurt consumers in trouble and need.