In October 2014, some people who had IVAs with PJG Recovery had their cases transferred to Creditfix. PJG are a medium-sized IVA firm, handling a few hundred new cases a year. Creditfix are one of the largest IVA firms. (Update – in 2016 Creditfix became the largest IVA firm with over 30% of the market.)
The people who have been transferred were told that nothing else would change in their IVA. Two months on in December 2014 however, they are being asked to agree to a variation in the terms of their IVA, including increasing the fees that Creditfix charge. Some people have expressed unhappiness with the transfer and are worried about what will happen if they agree to the proposed Creditfix IVA variation.
*** UPDATE June 2015
Some people have just received from Creditfix the Chairman’s report from the Variation Meeting several months ago. This is would be normal if you agreed to the Creditfix changes discussed in this article. However it is reported that some people who did not consent have also been included in this “mass variation”. There are more details about this on this iva.co.uk discussion.
I haven’t seen this letter, however if Creditfix have included people that didn’t consent, I am shocked. Your IVA cannot be varied without your consent. There are suggestions that Creditfix says it sent out a second mailing saying if you don’t reply you will have been assumed to consent. There are potential disadvantages to a debtor from agreeing to this change (see below) and so explicit consent should be obtained in my opinion. I don’t think assuming consent is reasonable, even if this had been sent recorded delivery so there was proof that it had been received – some people are saying they never received it.
If you feel that you have been included without your consent, I suggest you complain to Creditfix and put in a formal complaint to their regulator via the Insolvency Service gateway.
*** END OF UPDATE
The proposed Creditfix IVA variation
My standard IVA warning: this article discusses the proposed variation in general terms, it is not legal advice; I don’t know the terms of your IVA, your financial circumstances or how the variation would impact you; I have seen a copy of what one person has been asked to agree to, this may not be the same as you have received. If you need advice on whether you should agree to any IVA variation you should go to your local Citizens Advice Bureau.
The three most important points from the point of view of the debtors appear to me to be:
- changing Creditfix’s fees to 23%. For most IVAs this will be a significant increase as, anecdotally, 15% seem to be a typical level for the transferred IVAs. NB These fees are deducted from your IVA payments – your payments will not be increased.
- deleting any “minimum dividend” included in the IVA – it is needed because the proposed fee hike will reduce the dividend to the creditors. This won’t affect many people as most IVAs do not have a minimum dividend. If your IVA has a different term such as estimated/projected/available dividend, this is not a minimum.
- allowing debtors to retain 50% of any realised PPI – this is the major incentive being offered for you to sign.
Most of the other proposed changes appear to be minor or for clarification. Some things that PJG were already doing – investigating and realising PPI claims, conducting annual reviews etc – are spelled out.
The pros and cons of agreeing
So far as I can see, the only two advantages of agreeing to the variation are:
- you will be able to retain 50% of subsequent PPI reclaims. If your PPI reclaims have already be completed or you know there isn’t any PPI to reclaim, this may not seem much of an incentive;
- a suggestion that it may be quicker to close your IVA at the end. PJG had a good reputation for closing IVAs promptly after the last payment so there is no reason why this variation is essential for good administration, however if you are close to the end of your IVA so you know none of the disadvantages (see below) are relevant, you may decide that it’s worth doing everything possible to get a fast closure,
There could be disadvantages for some people because of the increase in fees:
- if you have a joint debt in your IVA and your partner doesn’t have an IVA, then the increase in fees will mean that less of this joint debt is repaid from your IVA payments, so your partner will be left with a larger debt at the end of your IVA. For most people this is irrelevant or would be a fairly small amount;
- if your IVA fails, then you will be left with a larger debt because of the increased fees;
- if you reach the “100p in the pound” point, perhaps because you have had a windfall such as an inheritance, then you will be paying the larger IVA fees;
- if you want to try to settle your IVA early because you are struggling, then it is possible that your creditors may be less likely to agree, or may want a larger “full and final” settlement because they will have received a lower dividend. This is less definite than the other points here, as the decision to accept an early settlement is based on each individual case.
In bulletin board discussions some other concerns have been mentioned:
- could there be any requirement to take out a secured loan? This isn’t mentioned and no changes to equity release are being proposed;
- what if a creditor accepted some of the proposals and rejected others? I think this is pretty unlikely – Creditfix are trying to simplify their administration, not multiply the numbers of unusual cases they have – however you may want to tell Creditfix that you are only prepared to agree to the variation if it is accepted in full by all your creditors.
What happens if you refuse to agree?
If you don’t feel you will benefit enough to outweigh any possible disadvantage, then there is no reason to agree. Your IVA will continue as it is at present – your IVA terms and conditions were fixed at the start and can’t be changed without your consent.
Why would the creditors agree?
I don’t know. It would be very interesting to know the arguments Creditfix are using to persuade the creditors to agree to this. The only financial gain for creditors would seem to be if Creditfix is more robust in pursuing PPI reclaims than PJG were, but this would have to be surprisingly large to outweigh both the 50% PPI rebate being offered to debtors and the increased fees.
Creditfix has adopted this “take over and then try to charge higher fees” approach before, when they took over Simple Debt Solutions in December 2013. I don’t know how successful they were then in getting creditors to agree. For many IVAs, getting “creditor approval” actually only requires getting a single approval, as TIX, the major IVA administration firm, votes on behalf of most creditors.
If Creditfix can push this change through, it raises some interesting questions: is there any reason why other IVA firms shouldn’t seek to get a variation to increase their existing fees? Or why TIX shouldn’t agree to 23% being the standard rate on new IVA cases?
Many medium-sized IVA firms pride themselves on offering a more personal service to debtors than the large firms can. The economics of these businesses may be under a lot of strain with IVA fees at 15%. If the original fees had been 23%, perhaps the transfer of PJG clients, which many of them disliked, would never have been needed.