Lenders tell debt advisers to slash fees
Britain's biggest banks will this week tell debt management companies to accept a 40 per cent cut in their fees or face the prospect of lenders refusing to agree individual voluntary arrangements (IVAs).
The British Bankers' Association (BBA) is to meet representatives of the debt management industry at a summit in London on Thursday after months of rising anger over the cost of IVAs. Banks, credit card companies and other lenders plan to mount a united front on the arrangements, which enable borrowers who fall behind with debt repayments to escape full-scale bankruptcy.
A spokesman for the BBA said: "We have held a series of working parties working on proposals for a code of conduct for IVA providers and we now want to pull this work together."
Under insolvency laws, 75 per cent of creditors must agree to an IVA before it can go ahead. The agreements, which enable borrowers to pay back what they owe with affordable monthly repayments over an extended term - often with a large chunk of the debt waived - must be brokered by a registered insolvency practitioner.
The huge growth in consumer debt over the past five years has spawned a small industry of IVA providers who charge creditors fixed fees for negotiating and administering the deals.
However, lenders have become increasingly angry about the cost of each IVA, which averages around £7,500. Many banks have complained they have to pay most of the fee at the outset of the IVA, even though a significant number of borrowers subsequently default on the agreements and end up becoming bankrupt.
While the BBA is prevented by competition laws from setting a maximum price for IVAs, its members will tell leading IVA providers that they are no longer prepared to pay fees of more than £4,500 for each deal brokered. In addition, lenders will demand a significant reduction in the portion of the fee levied upfront, with much more of the charge agreed to be spread over the lifetime of the IVA, which can be as long as five years.
Anxiety about the impact of this week's summit have hit debt management companies' shares, with the value of the country's three biggest IVA providers, Accuma, Debtmatters and Debtfreedirect all falling sharply over the past fortnight.
Individual lenders have also spoken out publicly against the IVA industry, with the most vocal critics including HSBC, Lloyds Bank and Northern Rock.
The number of IVAs agreed during the first quarter of 2007 reached 13,223, up from 8,964 in the same period last year, according to the Department of Trade and Industry. Some 44,000 borrowers entered into IVAs last year, a 450 per cent increase on the 8,000 deals brokered in 2002.
However, lenders have already begun flexing their muscles. Last week, Capital One, the US credit card lender which has built a significant business in the UK, wrote to leading IVA providers to warn them that, from 4 June, it will no longer pay more than £4,500 for each agreement. It also said it would refuse to agree to any IVA where the fees payable exceed more than 15 per cent of the debt being repaid by the lender.
Research from the accountancy firm KPMG suggests 18.6 per cent of proposals for IVAs were turned down by lenders during the first quarter of the year, up from 10.2 per cent in 2006.
Lenders have also become much more aggressive about how much of a debt they are prepared to write off. The typical IVA borrower now has to repay between 40p and 45p of each £1 owed, up from 18p to 20p only three years ago.
The IVA sector is also under pressure from regulators. Earlier this year, the Office of Fair Trading warned 17 IVA providers that their advertising was potentially misleading for borrowers.
- 1 What if 35 Palestinians had died, and 800 Israelis?
- 2 Disney heiress Abigail disowns her share of family profits in West Bank company
- 3 The secret report that helps Israel hide facts
- 4 'Women should not laugh in public,' says Turkey's Deputy Prime Minister in morality speech
- 5 Ross Burden dead: MasterChef and Ready Steady Cook star dies at age 45 after suffering from cancer
The secret report that helps Israel hide facts
Woman and two children killed by mob in riots over 'blasphemous' Facebook post in Pakistan
A day in the life of Vladimir Putin: The dictator in his labyrinth
Putin is 'thuggish, dishonest and reckless', says British ambassador to US
A new Russian revolution: The cracks are starting to appear in Putin’s Kremlin power bloc
Were 'Poor Doors' added to mixed developments so wealthy residents don't have to go in alongside social housing tenants?
- < Previous
- Next >
iJobs Money & Business
£350 - £400 per day + competitive: Orgtel: Senior Analyst, ALM Data, Halifax, ...
£500 - £600 per day: Orgtel: Java developer - Banking - London - Up to £600/d...
£400 per day + competitive: Orgtel: Liquidity Reporting - Basel III - LCR - Ba...
Up to £50,000 per annum + Bonus + Benefits : Sauce Recruitment: We are repre...
Day In a Page
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000