Money News: Debt write-off claims land IVA companies in trouble with watchdog
Sunday 15 April 2007
A trio of companies that offer individual voluntary arrangements (IVAs) to people heavily in debt have come under fire for misleading claims in their adverts.
The Advertising Standards Authority (ASA) has ruled against radio and television adverts for the Accuma Group, Money Debt & Credit and W3 Debt Solutions. In each case, the firms claimed that customers could write off the majority of their debts by taking out an IVA.
A television advert for Money Debt & Credit, for example, claimed: "Write off up to 75 per cent of what you can't afford to pay." A radio advert for Accuma invited listeners to "get up to 80 per cent of your debts written off".
IVAs are plans that, with the agreement of the majority of creditors, allow borrowers to pay back a proportion of the debt they owe over a set period, usually five years. Rising numbers of people in debt are taking out IVAs as an alternative to bankruptcy, and the popularity of the plans - together with the high fees paid to companies setting them up - has raised concern among consumer groups and banks.
The ads were challenged by a rival IVA provider, Debt Free Direct, which alleged that the Accuma advert, for example, was misleading "because it did not make clear the fees payable under the terms of an IVA".
The ASA upheld the complaint in each of the three cases and said that, in reality, very few customers would be able to write off as much of their debts as the advertisers claimed. It concluded that, with all three firms, the adverts were misleading and should not be repeated.
The move was welcomed by Citizens Advice, whose spokesman, Peter Tutton, said: "We have seen cases of people being persuaded to take out an IVA when it is not appropriate, often with disastrous results."
Earlier this year, the Office of Fair Trading warned 17 firms promoting IVAs not to mislead customers in their advertising - or face formal action.
Unclaimed assets: 'One-stop shop' for forgotten funds
A dedicated "lost and found" service should be set up to let savers trace money in dormant accounts, the Commission on Unclaimed Assets (CUA) and the National Consumer Council (NCC) said last week.
The two independent bodies also called for the new service, which would offer help through a single point of contact, to be tightly regulated.
The recommendations were made as part of a review looking at ways of investing unclaimed funds.
Dormant bank and building society accounts are defined as those that have not been touched by a customer for 15 years; there is estimated to be around several hundred million pounds in them.
The Government said last month that it was aiming to introduce legislation as soon as possible to allow assets in dormant accounts to be reinvested, via charities, for social improvement - without taking away the owners' right to reclaim the money.
A report from the CUA and NCC recommends the creation of a "one-stop shop" to reunite people with their financial assets. It also calls for an overhaul of banking regulation to ensure that dormant funds are properly identified as such by financial institutions, and that more proactive means are used to locate customers who cannot be contacted at their last known address.
"The idea that there may be money not under the mattress but in lost accounts is one that appeals to people," said Ed Mayo, chief executive of the NCC. "This ought to be good news for banks and the Government, who are driving things. But we are warning that any feelgood factor could fast turn into a new consumer backlash if the right protection is not there to make it easy and certain for people with legitimate claims to get their money back."
Mortgages: FSA probe to focus on high-risk loans
The Financial Services Authority (FSA) is to investigate whether "sub-prime" borrowers with patchy credit histories are being treated fairly by banks.
As part of an ongoing investigation into mortgages, the City regulator announced its intention to focus on parts of the market where customers are at greater risk of defaulting.
Areas of concern include sub-prime mortgages, which carry high rates of interest, and also lifetime mortgages, which are aimed at older homeowners who want to withdraw equity from their homes to fund their retirement.
There are mounting concerns over the UK's £15bn sub-prime lending market, which has seen tremendous growth in recent years. In the United States, thousands of borrowers in this sector are struggling to meet their repayments, triggering a rise in defaults and repossessions.
Mortgage sales in the UK are more tightly controlled than in the US, and sub-prime represents a smaller proportion of the market, reducing the risk of a similar crisis here. However, the industry was rocked last week by news that the specialist lender Kensington had issued a long-term profit warning.
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