IVAs and secured loans – how to complain

The IVA protocol, which applies to most new IVAs, says that in the last year of your IVA, if you have a house with equity, you may have to release equity by either remortgaging or getting a secured loan.

Some of the proposed secured loans mentioned by Debt Camel readers and on other debt advice forums have been at very high interest rates – 16%, 19% or even 22%. And have been for terms ranging from 7 to 15 years. These have understandably horrified people who were not adequately warned that this could happen when they took out their IVA.

I have written a general article on complaining about IVAs. But there are some important additional ones relating to a secured loan complaint, which is why I have written this post. For example, some of these are complaints to your IP, some are to the secured loan provider.

Before you complain

Find out what is being proposed

Do not refuse to talk to the secured loan company. Instead explain how unaffordable this loan will be and find out the details of what is being proposed.

This will enable you to make a more effective complaint.

Also tell the lender if either of these situations apply:

• you have a shared ownership mortgage. Here the Housing Association will generally refuse to let you get a secured loan. If you aren’t sure about this, ask the housing Association to confirm it;
• you have a Government Help To Buy mortgage. Here you need to get permission from the Homes England Mortgage Administrator (currently a company called Lenvi) to take out any further loans. They’ll decide on a case by case basis but they’re likely to decline if they think that the new loan will put you in an ‘unsustainable financial position’.

Consider if your current IVA payments are too high

You may be desperate to get to the end of your IVA so you are just putting up with monthly payments that are really unmanageable. In 2023 with the rising cost of living and increasing mortgage rates this is becoming common.

But this is the point where you should be asking your IVA firm to reduce those payments.

This is because the secured loan cannot cost more a month than half of your IVA payments. So if you can get the payments reduced from £400 a month to £250 a month, then the secured loan cannot cost more than £125 a month.

If the amount is too low, it will become uneconomic for a secured loan to be proposed,  so sometimes this may simply make the option go away.

So even though you would rather just get the secured loan stopped, getting your IVA payments reduced can often be simpler way of proceeding. And of course if in the end you do have to get a secured loan it reduces the cost to you.

If your IVA payments would have to be reduced to a very small amount and the IVA firm says it isn’t possible, ask if your IVA can be completed now “on the basis of funds paid to date” – if that is agreed by your creditors it will mean no more payments and no secured loan.

The three cases for making a complaint

The following flowchart indicates which ones are most likely to be appropriate for you:

Case (A) IVA terms mention a re-mortgage, not a secured loan

NB This case is now rare. The “secured loan” clause was brought in for most new IVAs from 2014. Check your paperwork anyway, as if you do not have this clause, your case is very rimple.

Here your simplest and best line of complaint is that there is nothing in your IVA which obliges you to take out a secured loan. This is a very strong position. Read the story of a Debt Camel reader who did this and his IP did back down

The term”re-mortgage” does not generally include “taking out a secure loan”. If it did, there would have been no need for the 2014 IVA Protocol to add in the new clauses relating to secured loans, as the IP could have just relied on the clauses in previous versions which referred to a re-mortgage.

How to take this forward  – put in a formal complaint to your IP (see Step 4 in previous article), asking for the loan proposal to be withdrawn. At the end of this formal complaint you should also mention the affordability issue (see Case B) if you feel this applies to you, but make it clear that this is not your main concern.

Case (B) the proposed loan is not affordable

I have seen it asserted that a secured loan at the end of an IVA is affordable because the initial monthly cost of the loan is capped at half your IVA payment.

However the secured loan provider should carry out a full assessment of your ability to afford this loan by discussing it with you. Factors which may be relevant include:

• your current income and family size, which may be very different from your situation five years ago;
• if either you or your partner will reach retirement age before the end of the proposed loan;
• any health problems you or your partner have;
• how your finances will be affected if your mortgage fix ends in the next few years and your mortgage rate rises to a much higher level;
• if your mortgage is currently interest-only and you need to start repaying it;
• if you have children who will be going to college during the proposed loan who you will have to support because they will not receive the full maintenance loan;
• whether you have urgent needs to be met – many people stagger through to the end of an IVA with a house badly in need of maintenance, a boiler that is on its last legs or a car which is likely to fail its next MOT.

That list is not exhaustive. You need to consider how your life is likely to change over the term of the proposed loan.

You might think this “affordable” test sounds rather weak and subjective. However the Financial Conduct Authority (FCA) goes into detail in its rules about what a lender must do. This includes assessing if the commitments under the loan would adversely impact the customer’s financial situation and considering any future changes in circumstances which could be reasonably expected to have a significant financial adverse impact on the customer. The lender should also take reasonable steps to ensure its advice is in the best interests of the customer and consider if the loan can be afforded if the customer’s circumstances change. There are some extracts from the FCA’s CONC rules here.

The secured loan is being provided by a company that is not your IVA firm and it is this company you will be complaining to.  If your complaint to the lender does not succeed, you can complain to the Financial Ombudsman (FOS) who has powers to order compensation (NB if you are also complaining about mis-selling (see next case), you should consider making two separate complaints as they relate to different firms and different issues).

Although the activities of an Insolvency Practitioner are excluded from FCA regulation, this exclusion will not cover the firm providing the secured loan. You can report your issue with the affordability of the loan to the FCA as a concern about the behaviour of the loan company, using the FCA’s Consumer Help Line email address.   The FCA doesn’t investigate individual complaints so it will not adjudicate on your concern nor order compensation so you also need to complain to the FOS who can help you directly. However the FCA can take action against the firm and reporting your concern to the FCA will be simple as it will be much the same as your complaint to the FO so you should definitely do this.

How to take this forward:  put in a formal complaint to the lender offering the secured loan (similar to Step 4 in the previous post but this is not a complaint to your IP) detailing:

• why the proposed loan is unaffordable
• state that you want them to withdraw the proposal;
• state that if they do not do this, you intend to complain to the Financial Ombudsman and inform the FCA of your concern about affordability; and
• send a copy of your complaint to your IP.

Case (C) secured loan provision not properly explained to you

If your original IVA referred to a secured loan you can complain about mis-selling to the Financial Ombudsman (see Step 5(c) in my previous post) if you consider that the implications of the secured loan clause were not clearly explained to you before you agreed to the IVA and if the IVA firm is FCA regulated (unfortunately in 2023 not many of them are FCA regulated so this will not apply to many people).

You can also complain to the IP’s regulator using the Insolvency Service gateway.

For example, you may have reasonably assumed that a “secured loan” meant a short-term loan at a normal, fixed rate of interest, not a long loan at a very high and variable rate of interest. You should ask the FO to propose compensation for you if your complaint is upheld which would put you back in the position you thought you had agreed to in the IVA.

How to take this forward – put in a formal complaint to your IP (Step 4 in the previous post) detailing:

• why you think the IVA was mis-sold
• state that you want them to agree to you paying an extra year’s IVA payments instead; and
• say that if they do not do this, you intend to complain to the IP’s authorising body and (if the IVA firm is FCA authorised) the Financial Ombudsman about the apparent mis-selling.

What is your IP likely to do?

Broadly, your IP will have four options – to withdraw the proposal and agree your IVA will complete after 5 years (or be extended for a further 12 months if that is an option stated in your IVA terms); to try to modify the proposed secure loan so that it is more acceptable to you; to say that unless you agree to the secured loan they will not propose to creditors that your IVA has completed; or to petition for your bankruptcy.

The response your IP and/or the secured lender makes to your formal complaint should make it clear what they intend to do.

This may all sound very scary – particularly if you are close to the end of your IVA the idea of bankruptcy is likely to horrify you.

In practice in 2023, with the cost of living crisis and rising mortgage rates, in the cases I have seen the IVA firm has eventually backed down.

If they do not you should get help to determine what to do next, see my previous article,  for example whether it would be better to agree to the secured loan and then pursue complaints to the IP’s authorising body/Financial Ombudsman/FCA; or whether you should wait for the IP to take action and then challenge that in court.