A Statement By Steve Rhode, Chairman of Myvesta UK, On Current Bank Policy And Practice Surrounding The Individual Voluntary Arrangement (IVA) And The Organisations Providing IVA Services

RUNCORN, England — The climate of credit and debt is changing rapidly in the UK as personal debt levels have increased along with the amount of individuals entering into Individual Voluntary Arrangements, or IVAs. IVAs offer those who have fallen on hard times a chance to fairly and equitably repay creditors what they can, while avoiding bankruptcy, yet creditors and banks are now challenging the numbers of consumers seeking to repay their problem debt with an IVA and attacking the consumer advice organisations that provide IVA services.

Banks have recently been acting as schoolyard bullies, threatening to reduce lending, based solely on the number of people seeking to repay their debts by entering into an IVA. This is a punitive and grossly unfair manoeuvre to consumers who seek the protections that an IVA can uniquely provide. The banks and creditors are the ones who are providing and pushing credit to the consumer, and in the end, they are the same companies who accept some of the IVA repayment offers put forward, thus increasing the number of IVAs that banks object to.

Currently it is reported that Brittan's big banks have warned the government that they will stop lending to poorer families in the face of the rise of personal insolvencies. Banks attribute this rise in insolvencies to companies that advertise the IVA solution. Yet numerically, the amount that debt management companies spend on advertising is a very small fraction of what the banks are spending pushing credit to consumers.

At the same time the latest stories in the press have attempted to paint the debt counselling organisations assisting consumers in a negative light to deflect the attention from the consumer unfriendly actions of the banks. The vast majority of debt counselling agencies provide a much needed consumer service and are keen to separate themselves from so called 'IVA factories' that advertise heavily on daytime television. Those types of organisations often claim to be able to write off a high percentage of your debt while a reputable and reliable organisation would never make such irresponsible promises.

Banks have also cried out for a super-regulator of debt counselling providers, which is entirely unnecessary. Banks and the country as a whole do not need more regulation of the debt counselling industry unless the ultimate goal of the banks is to control debt advisors and replace their impartial independence to serve consumers with restrictive banking controlled regulation, as they did in the United States to the detriment of consumers. If banks and others have an issue about debt management companies then those complaints can be placed with regulatory bodies that already exist.

Additionally the banks state that they believe that many consumers that have signed up for IVAs could have renegotiated their debts outside of the IVA. While we wish that could be the case, it is neither a reality, nor the safest option for many consumers. The IVA provides for a clear and binding agreement between the consumer and the creditors and it addresses the entire debt situation rather than forcing consumers to enter an informal debt repayment plan with each individual bank. Under those circumstances each bank is under no obligation to honour the repayment plan in the future and the consumer is virtually at the mercy of each individual creditor's desire. A single bank would not be willing to negotiate a total solution for their customer's situation when it involves other creditors, so the individual consumer is left in a disadvantaged position by this bank request. And let's be honest, banks just aren't willing or able to handle individual requests from consumers seeking help with complicated debt problems, an issue the total solution of an IVA overcomes.

Interestingly, members of the British Bankers Association, while painting the debt counselling industry with a broad dark brush for their own self-serving needs, appear to be in defiant violation of the very code they have agreed to as a standard of fair service to consumers.

Section 14.1 of the British Bankers Code states: "We will consider cases of financial difficulty sympathetically and positively."

In fact some large creditors have been very vocal about not wanting to be sympathetic nor positive regarding the situation of consumers in financial trouble. Banks are setting completely arbitrary high and unrealistic minimum dividend rates of return in IVAs regardless of the consumer's actual situation, forcing many people needlessly into bankruptcy despite their desire to repay their debts. Hardly an action that is sympathetic or positive.

Section 14.2 states: "If you find yourself in financial difficulties, you should let us know as soon as possible. We 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."

Apparently "We will do all we can" means that they will turn their back on consumers in trouble and would rather see people file bankruptcy instead of entering into an IVA in an attempt to repay what they can. By the code, creditors are agreeing to develop a written plan to deal with the financial difficulty but interestingly that is exactly what an IVA accomplishes.

Section 14.3 states: "The sooner we discuss your problems, the easier it will be for both of us to find a solution. The more you tell us about your full financial circumstances, the more we may be able to help."

Today, the more consumers try to workout repayment plans, when faced with financial hardships, the more restrictive and punitive banks appear to want to make them. In fact, banks are now threatening to stop lending to the poorer members of our society if debt repayment through IVAs increases.

The response by banks to lending huge amounts of credit to individuals is to call for a need to increase costs to debt advisors through senseless and unnecessary regulation. Banks also set arbitrary rates of return that force consumers into bankruptcy, even when consumers want to repay their debt, and fail to consider each person's situation individually. Banks are also upset that the number of people that want to repay something in an IVA rather than nothing in bankruptcy is increasing.

Section 14.4 states: "If you are in difficulties, you can also get help and advice from debt-counselling organisations. We will tell you where you can get free money advice."

It is nice that the banks recognise the value of debt counselling and agree that consumers should get help and advice from free debt counselling groups like Myvesta UK, but it is interesting that if the proposed solution to the consumers debt problems is a binding and equitable IVA repayment plan, creditors are objecting and instead hoping for a solution that provides less certainty and protection for the consumer.

Section 14.5 states: "If you have debts with many creditors, a debt-counselling organisation may complete a Common Financial Statement (or equivalent acceptable to us) on your behalf, which we will accept as the basis for negotiations with you in drawing up a debt-management plan."

An IVA contains a Comprehensive Financial Statement and allows creditors to accurately review the situation. In fact, in an IVA a licensed and heavily regulated Insolvency Practitioner has even provided a written review to court and opinion that the proposed IVA is a better return for the creditors than bankruptcy and yet banks still reject many consumers requests for an IVA.

So what are British banks really trying to do with their campaign of negative press about an industry of debt advice professionals that work hard every day to provide consumers, stricken with excessive debt, with solutions to their debt problems and help people avoid bankruptcy? What about the unfair treatment consumers are destined to receive by banks blatantly unwilling to provide appropriate solutions for unique problems?

It seems as if the banks are passing the blame for a national debt problem they had a hand in creating and attempting to slander and disrupt a fair system utilised to assist those who need it most. There is nothing broken here with the current IVA system except the unwillingness of banks to treat consumers fairly, sympathetically and individually when debt counselling groups attempt to best resolve consumer debt problems. In the end, consumers and banks need the same thing, a system that treats both parties fairly. This is precisely what the Insolvency Service has worked so hard to create.

The IVA is an almost uniquely British tool that we should all be proud of and if banks would let debt counselling groups just do their jobs of providing independent debt advice and solutions without interruption and the banks would fairly, sympathetically and individually review all IVA proposals put forth, consumers would be much better off.