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UK debt: IVAs require regulation

18th October 2006
By Paul Marsh

While IVAs are appealing to consumers, they may only really be of benefit to debt management firms.

Debt management companies have been accused of giving bad advice to vulnerable consumers, advising some people to take out IVAs when this may not be the best option for them. Lenders also have concerns about IVAs and want the market to be regulated. While the UK government has rejected this idea, it may need to rethink its stance as the lack of regulation is affecting the vulnerable.

'Content The number of IVAs being taken out is on the rise, as are bad debts in the retail banking market. Bad debts are of increasing concern to lenders, having hit profits over the last year or so, and so it comes as no surprise that IVAs are causing lenders some discomfort.

To make matters worse, credit referencing firm Experian has found that some companies are directing consumers towards IVAs when this option is not actually suitable for their circumstances. These companies earn a fee for their advice and are accused of telling some consumers that an IVA will not appear on their credit report and therefore not affect them later in life - which is untrue.

With some 28,000 applications for IVAs last year, the IVA market has been growing rapidly. There has been a corresponding rise in the level of bad debts that banks have been experiencing. Indeed, banks wrote off GBP3.3 billion of bad debts in the first half of 2006. This has led banks to campaign for regulation to control the unscrupulous marketing of IVAs. However, the UK government has rejected these calls, stating that the banks are partly to blame due to irresponsible lending practices.

The debt management market needs to become fully regulated as soon as possible. The poor advice that disreputable companies are giving to vulnerable people clearly needs to be acted upon. Furthermore, more and more consumers are expected to get into financial difficulty as economic pressures and interest rate rises take their toll. There will be more people looking to IVAs as a way of removing their burden of debt, making the need for regulation to be implemented as soon as possible even more important.
'End Intelliext

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