IVAs are now the most common form of personal insolvency in England. Clear Debt has recently stated:
Individual Voluntary Arrangements) (IVAs) have become the procedure of choice for those people who have debts they can’t pay and a regular income to enable them to make contributions to their debts.
But how often is the choice of an IVA based on accurate information about the alternatives and good advice relating to the client’s particular situation? Meg van Rooyen in Why the FCA must regulate insolvency practitioners and lead generators and Peter Sargent in Rethinking Insolvency Practitioner regulation have both argued that IVA regulation needs to change and that lead generators should be regulated.
This article looks at lead generators in more detail.
What is a lead generator?
A lead generator is a company that finds people with debt problems and then sells their details to a firm that provides debt solutions such as DMPs and IVAs. The above example was an article (well an advert really) seen on LinkedIn.
If you have emails, texts or messages telling you about a little known government scheme to wipe out 80% of your debt, that is from an IVA lead generator.
Lead generators find the leads by cold calling, spam texting/emailing or through people contacting them via their websites.
Once they get hold of your number, it can be very hard to stop them contacting you. For example, this mobile screenshot shows four texts in less than an hour. They were sent to someone on holiday, who had previously told Debt Navigator and their partner Creditfix several times to stop contacting her.
But apart from the fact that cold callers are pests, there are major problems with this way of “selling” a debt solution.
People think they are getting good debt advice
Lead generators don’t have to be FCA authorised and many of them aren’t. But a lead generator that isn’t regulated shouldn’t be giving debt advice. This often isn’t being made clear to people and most are likely to assume they are being given proper, balanced, debt advice by an expert.
Take the example of Debt Navigator, which is unregulated but whose site states:
At Debt Navigator we will give you the help and advice to control your debts. Just fill in the form above and we will work with you to find a solution that is right for you. There is no commitment and it’s completely confidential. You will soon be speaking with a friendly advisor who will run through your options.
and who sends out unsolicited emails advertising a “Free Debt Advice Service”:
Another example is Consumer Money Worries, also unregulated, whose site says:
Your Money Worries advisor will educate you on solutions available.
I doubt many people would appreciate that this adviser isn’t allowed to give advice. Nor are they likely to read the extremely long legal disclaimer in small print, capital letters, in grey on black in the footer of the website which explains this.
(Update: I have been informed that Consumer Money Worries was actually authorised as an Appointed Representative at the time I write this article. However their website did not say this.)
It can be surprisingly hard to tell who is regulated and who isn’t. Take Debt Wise – there is no sign on their website that they are FCA authorised and no physical address is given. Searching for that name on the FCA register doesn’t produce anything. It looks a lot like an unregulated lead generator … but they are part of Life and General Ltd, who are FCA authorised for debt counselling. In this situation even the most clued-up consumer has little chance of knowing who they are talking too or understanding the regulatory environment.
Overly positive impression of IVAs
Many lead generator websites are littered with claims such as these:
Read these sites and you would have no idea that a significant number of IVAs last for 8, 9 or more years. Or that if your situation changes and you can no longer manage the “affordable monthly payment” your IVA may fail.
Overly negative impression of other debt options
Some lead generator websites only talk about IVAs. Others appear to talk about the full range of debt options but ignore Debt Relief Orders. In 2016, DROs are nearly twice as common as bankruptcy, but from the menus on these sites someone – who could be entirely suitable for a DRO – would never know they exist:
Here’s a scenario that could be common:
- during the first phone call, there is a run through of the caller’s income and expenditure (I&E) which result in a Disposable Income (DI) figure of say £75;
- the caller is told an IVA is the best option for them and that they wouldn’t qualify for a DRO because a DRO has a £50 maximum DI. As they may never have heard of a DRO, the caller will assume this is some unimportant option being ruled out and not question this;
- however the I&E may have been rough, with some items wrong or omitted, and the caller could easily be under the £50 a month limit if a full I&E is completed by an advisor who familiar with DROs and the Common Financial Statement. The result is a mis-sold IVA, to a client with a clearly superior debt choice available.
For bankruptcy, a lot of points tend not to be fully explained. The worst cases may be mentioned but not what normally happens, so people can’t assess their situation accurately. For instance:
- you would have to make monthly payments for three years (80%+ of people who go bankrupt don’t);
- your car would be taken in bankruptcy (may be misleading);
- the official receiver takes everything they can (scaremongering);
- bankruptcy is worse for your credit record than an IVA (wrong);
- bankruptcies are advertised in newspapers (misleading); etc
People in debt tend to take the first solution offered
People with problem debt are often desperate, scared and ashamed about their situation. Mullainathan and Shafir in Scarcity: Why Having Too Little Means So Much, which I have reviewed here, have described how lack of money results in tunnel vision, making people “less insightful, less forward-thinking, less controlled.”
For these people it is a huge step to talk about their debts to one person – they are very unlikely to seek alternative opinions. They are also vulnerable to a sales pitch saying there is a simple solution for them. It is therefore essential that the early information they get, from a website and from the first phone call, is accurate and unbiased. This is not happening with many lead generators.
A product that promises protection from their creditors and only having to pay what they can afford can sound ideal. When told they “qualify for an IVA”, there is huge sense of relief that they can have what they need. So if later the IVA firm does go into detail about IVAs, it may not be closely listened to, and very few people will read the pile of documentation they are sent.
As a result:
- vulnerable people may be being pressured into signing up for an IVA with unwanted calls and texts;
- low DI IVAs may be being mis-sold to people who would have qualified for a DRO;
- where someone has a choice between bankruptcy and an IVA they aren’t given good information to make the decision;
- people with complex problems (e.g. interest only mortgages ending within the next 10 years; children going to university during the IVA; insecure jobs etc) are starting an IVA without being aware of the problems that may result;
- many people for whom an IVA is a good option are entering a serious, long-term legal contract having little idea of what it entails;
- after a rejection for an IVA, people may be signposted to the Money Advice Service but may not follow through if they have received a negative opinion of the other debt options. One website says “If IVA is not the right option for you, it will be very upsetting for you as it will cost you more.” That is simply untrue, but this type of statement may discourage seeking more advice.
How large are these problems?
You would hope that regulators are looking out for these sorts of problems and are monitoring how large they are. But lead generators do not have to be regulated and many aren’t. No one regulates the IVA firms either. As Meg van Rooyen points out:
we are now seeing a worrying growth in lead generation companies solely passing on leads to IPs for IVAs, which is a course of action that neatly bypasses FCA scrutiny.
The Insolvency Practitioners are regulated by their professional bodies, such as the IPA and ICEAW. So far as I am aware the professional bodies visit the IPs but not lead generators. So in many cases no-one is looking at lead generators’ websites or listening to any random selection of calls. Without this there can’t be any real assessment of the scale of the problems resulting.
Expecting IVA firms to monitor and control the activities of their lead generators appears unrealistic. The monitoring would cost money in itself and lead to fewer leads and so lower profits. IVA firms looking for business in the low DI end of the market need those leads coming through and the IVA fee structure means that even if an IVA fails two or three years in, the firm will have had most of its fees by that point.
The backdrop to this is the increased regulatory focus on debt management firms in England. Over the last six to twelve months many commercial debt management firms have been getting out of the business. Some of their clients may have had unsuitable DMPs. The growth in IVA numbers suggests that many of these have been sold an IVA. For some this may be an excellent move, but how many clients now have an unsuitable IVA instead?
The way forward
IVAs are very important part of the debt alternatives in England as the increasing statistics show. It makes little sense to have the FCA oversee debt management in great detail whilst the oversight of IVAs – pushed by commercial providers as the main alternative to debt management – have a much lighter regulatory regime. And it makes no sense for lead generators, who are often the first point of contact with people in a vulnerable position, to be unregulated.
The first contact with someone in debt is key as it sets the tone for the future exploration of debt options. The person in debt is very likely to take this as “advice” so it is not right that this can be a sales pitch for one particular debt option.
I agree with the two articles, cited above, saying that lead generators need to be authorised and monitored. The FCA appears to be the obvious body to do this to ensure similar standards and a compatible approach with debt management regulation. I suggest that as part of regulating lead generators the following is desirable:
- lead generator firms have a similar level of regulatory oversight to debt management firms, including visits from the regulator and having call recordings checked;
- any potential IVAs with a monthly payment of less than £100 or where all the income comes from benefits and where the debtor is renting should have to go through a separate formal check by a suitably experienced adviser to see whether a DRO is a possible alternative;
- cold calling, unsolicited emails and spam texting by lead generators for IVAs (and indeed any debt solutions) should be prohibited; and
- lead generator websites should have accurate descriptions of all of the three insolvency options – IVAs, bankruptcy and DROs.
Should you take a loan to end your IVA early?
What happens if you inherit in an IVA?
Data would help people choose an IVA firm
Nick Pearson says
Spot on DC. IP regulatory bodies not up to the job. By allowing IVA firms to avoid FCA regulation HMTreasury have created a regulatory gap which is being exploited by some firms.
Michelle Butler says
I agree – spot on DC… but, Nick, you seem to have extrapolated the article into something it is not. Whether or not IPs are FCA or RPB regulated is not the issue here. As DC mentions, it is unrealistic to expect IPs effectively to regulate lead generators’ activities, despite the fact that RPBs and the FCA expect their regulated members to do so.
As long as lead generators are themselves unregulated, they will exploit their position. Prohibiting IPs from advising across the piste – unless either they are advising someone with the prospect of getting appointed on their IVA or they endure unnecessary dual regulation of both their RPB and the FCA – fuels the market for lead generators.
As you mention above, DC, it seems that many unregulated lead generators are crossing the Debt Counselling threshold. Surely this is clear FCA territory. Presumably, the FCA would welcome complaints about unregulated advisers or even regulated ones who do not meet the regulators’ – both the FCA’s and the RPBs’ – requirements as regards good quality advice and practices.
Bev Budsworth says
Michelle thanks for your comment. The FCA have set up a unit to investigate activity by unregulated lead generators – Intelligence.Team@fca.org.uk. However I do vehemently disagree that IP practices cannot be held responsible for ensuring that the leads sent to them are from either regulated affiliates or if the leads are from “generic” advisors – not regulated then it is very easy to make sure they are not giving advice on “liquidating debt”. I always carry out due dilligence on anyone that refers customers to us. This includes listening to calls and if appropriate mystery shopping. My view is that the unregulated lead generators who are “packaging IVA leads” without a doubt are falling foul of FCA regulation. They are talking to people about “liquidating their Debt” and as such should have FCA regulation for debt counselling.
Nick Pearson says
Take your point Michelle, I will try to expain. The lead generators you see are not selling to FCA reg firms, even those that provide IVAs, as far as I can tell. These firms know the FCA expect them to carry out full due diligence on where leads come from and are too nervous to buy off lead Gen firms who play fast and loose with perimeter etc. The IVA firms buying these leads are not FCA regulated and are subject to arguably lax reg by PBs. As a result you’ve seen major decline in IVA volumes by FCA reg firms. In short, if FCA are obliged by HMT to regulate all IVA providers then misleading adverts etc by lead Gen firms will disappear.
Mike Thomas says
Well said Nick, another good article by DC.
Michael Peoples says
Over the years I have seen many a good packager and many a poor one. The good ones often had their own debt management arm and only referred cases that were completely suitable and even then any decent IP firm would still interview the clients and only then proceed if the IVA was the way to go.
Unfortunately the FCAs assault on the commercial DM market has meant that many of these firms have been forced to leave the DM market and forward their caseloads to the so-called ‘free’ sector. They have then given up their licences and gone ‘non advice’ and now everything is potentially an IVA. I remember when there were criteria for IVAs and the voting houses such as KPMG and PWC made their decisions based on these criteria. Whether or not you agreed with their criteria at least you knew what was deemed appropriate by creditors but now it seems anything and everything is worth putting forward.
The debtors who had previously been receiving a DM service that they were happy with have been now shoved over to the bank funded sector which seems ironic when Payplan are considering redundancies for more than half their staff. Who is going to help these debtors now if the ‘free’ sector is contracting? We have potentially tens of thousands of desperate debtors with nowhere to go and at the mercy of unregulated lead generators offering unsuitable IVAs. The FCA closed down the commercial DM companies and now there is a danger that there will be no services out there to replace them.
I certainly do not want the FCA to have anything to do with the regulation of insolvency firms as the people currently doing that job are more than capable. Who wants another mess worse than what has happened in debt management?
Alan Parker says
Until the IPs regulators take this seriously, nothing will change. I recently had cause to complain about an IP who was clearly taking leads from unscrupulous lead generators to the point where one ‘lead generator’ had the first 2 payments (£1,400!) paid to him directly, then passed it to the IP. This chap had no ICO license, no office and apparently did not met the IP until the day the case was referred to her. No due diligence was performed, no introducer agreements, no ID.
After a lengthy investigation, they found no issue with the IP firms business practices.
Andrew Smith says
I’m nowhere near as worried about this as DC is (or Meg VR for that matter). I think the checks and balances in place will ensure people for whom an IVA is the right choice will get one those who should get other advice will be passed on appropriately and firms playing fast and loose with consumers will get their come-uppance.
Why? well, in most cases the lead generator will be FCA authorised (there are now 44 of them that are), in which case specific advice will be given and the IP will be able to advise specifically in anticipation of an IVA appointment. Or, less often, lead introducers will be legitimately unregulated because they don’t provide specific advice and the licensed and regulated insolvency practitioner (IP) who gets leads from them will be able to do a full fact find from a standing start. If an IVA isn’t the righ choicet, the IP will signpost elsewhere (if they don’t, then there is a very good chance that the FCA’s unregulated business unit is going to catch up with them – I gather it is getting additional resources as the level of consumer credit authorisation work declines.
Where an IP deals with a lead generator who is giving specific advice but who is not FCA authorised then s/he’ll need to take very great care. I think the IPs professional body would expect the IP to report that lead generator to FCA. And, of course, there is a good chance that, by dealing with that lead generator FCA would take the view that the IP is undertaking a regulated activity without authorisation. That carries tough penalties.
Most IP firms I know are aware of this take pains to make sure their lead generators do things right – the due diligence function in these firms tends to be well resourced and rigorous, because the risk to the business is well recognised.
Yes, there are cowboy lead generators out there, but I don’t think they’ll last – it’s clear that risk of dealing with them is too great. And, that risk is probably best dealt with through current regulation than by transferring things to FCA: Not only are insolvency professional body annual visits likely to be more frequent and deeper-diving than the supervision FCA supervision will dot
I think the culture and ethos of Insolvency Practitioners plays a large part in keeping the IVA market safe for consumers. IPs are professionally qualified and jealous of their professionalism. They are proud of what they do. And, if they get it wrong regulators take action.
Storm in a teacup really.
Andrew Smith says
… And another thing: I’ve been reading the new IVA Protocol today and it says:
“5.1 Where an IVA provider advertises for work via a third party, the IVA provider is responsible for ensuring that the third party observes all applicable advertising codes and the FCA Consumer Credit Sourcebook chapter 3. Similarly, where an IVA provider accepts from or makes referrals to others, they should also comply with the advertising codes. Third-party advertisements should declare any links to IVA providers. The IP has a responsibility to ensure that any lead generators that they use follow the rules and codes.”
I think this should help too.
Beverley Budsworth says
Further to your comments Andrew, there are IP practices who cannot be carrying out due diligence into how leads are generated by unregulated “IVA” packagers, If they were they would be horrified by breaches of data protection and the way in which debtors are “shoe horned” into IVA’s. Mystery shopping is being carried out and being reported to the FCA. Also it is impossible to “package IVA’s” if the lead providers are unregulated. Based on the calls I have listened to – IVA’s are being sold actually mis-sold, the lead generators are straying into discussions regarding dissolving their debt which then requires these lead generators to be authorised and regulated by the FCA. IP’s taking packaged IVA cases from unregulated lead generators are very daft!!
Andrew Smith says
Bev – I’m sure you are right about this happening and that you are taking the right action in reporting it where you find it. I think that will solve the problem – the message will get through fairly quickly if the FCA act effectively.
If that does happen, there is no need to change the insolvency profession’s regulator. I think it will.
As to shoe-horning? If the debtor is appropriately advised and an IVA is suitable, then that can’t be shoe-horning, can it? If the debtor’s situation means an IVA is inappropriate then I reckon the RPB inspection should look pretty hard at that. An IP firm not doing rigorous and extensive due diligence probably shouldn’t take packaged cases but should re-advise every client.
Beverley Budsworth says
“Trust me mate this is a government scheme, trust me mate calls are recorded”. I would say this is “shoe horning”. Having recently spoken to an individual that has dealt with both regulated and non-regulated IVA “packagers” – his comments were that their practices were “eye-watering”.
As a profession we need to take steps and prevent further poor poor practice. IP’s taking leads from these practices need to be hit with FCA style fines. This is my personal view.
Andrew Smith says
I take your point Bev, it sounds trashy. But it’s not what I’d call shoe-horning (more’s the pity). That’d be manipulating DI figures to fit IVA criteria.
I reckon tomorrow’s updated IVA Protocol ought to help regulators to crack down on this. And I’m going to be interested in whether lead generators like those DC has screen-shorted above change their sites in the morning!
Adam B says
Hi – I have just stumbled across this post. This post mentions Consumer Money Worries as not being a regulated company?
Whilst their website is full of “Write debt off” etc They’re an appointed representative under Focus Insolvency Group.
There’s definitely something that needs to be done about lead generators as its a numbers game for them and sell on the customer information multiple times. Pestering for customers therefore even if the customer got in touch with a fully regulated company to get genuine help they’d get a bad impression of the industry.
Sara (Debt Camel) says
I see their current website does say that they are an appointed representative. That statement was not there when this article was written.
Bev Budsworth says
A great blog by Debt Camel. Entering into any debt solution needs careful and serious consideration. The journey for the customer is crucial. If their expectations are properly managed and they utterly understand the process, the risks and benefits, there is a strong chance the solution will be right and work successfully.
Adam B says
Yes absolutely Bev although I still dont understand how firms are allowed to advertise under “Write your debt off” “Government help” “85% Debt written off today” etc.
These websites are plastered full of non compliant content and unfortunately are profiting.
Also there are many firms without an FCA license providing advice and then packaging the case and providing to an IP. Some of the bigger firms are even accepting this due to volume.