IVAs and secured loans – how to complain

In 2014 I wrote an article about IVA complaints, looking at when it is worthwhile complaining and how to go about it. This is a follow-up: what to do if your Insolvency Practitioner (IP) says you have to take out a secured loan.

This is a key issue at present as some firms have been asking clients with existing IVAs to include a secured loan clause as part of a larger variation agreement. Other companies have suggested that clients who cannot remortgage should take out a secured loan even though this is not mentioned in the terms of their IVA.

Of course, a secured loan might not always be a bad option: in some cases a loan would be better than a re-mortgage. If you could re-mortgage but would prefer a secured loan, then obviously you shouldn’t be complaining about it.

However, some of the examples of proposed secured loans mentioned by Debt Camel readers and on other debt advice forums include loans at 16, 17 and even 22% over terms ranging from 7 to 15 years and these have understandably horrified people.

Warning – I don’t know what your specific problem is, I don’t know the terms of your IVA and I am not a lawyer! Some of this article may not be relevant to you and there may be other avenues that you can explore. You may decide you need help to complain and advice about what else to do  – see my previous article for where to go to get assistance.

If your IP is telling you to agree to a secured loan read my previous article first as all the points there apply, but there are some important additional ones relating to the secured loan, which is why I have written this post; some of these are complaints to your IP, some are to the secured loan provider.

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

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, not rely on information from your IP. 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 mortgage rates rise in the next few years, say to 7%;
• if your mortgage is currently interest-only and you need to start repaying it, or you have an under-performing endowment policy;
• 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 which is on its last legs and 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 relevant handbook here.

The secured loan is being provided by a company which 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 (FO) 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 FO 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 you think 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 2018 not many of them are FCA regulated).

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 that would put you back in the position you thought you had agreed to in the IVA.

(NB few people will be in this situation in 2014, but it is likely to become increasingly common in the future with the adoption of the 2014 IVA protocol for most new IVAs)

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 or modify the terms of the secured loan to a level which is acceptable; 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.

If you have agreed to vary the original terms of your IVA to include reference to a secured loan, you may have a different version of the ‘mis-selling’ argument if you feel that the significance of the secured loan clause was not clearly explained to you when you were asked to agree to the variation. It can be reasonably argued that your IP should have told you explicitly that if you agree to the changes a secured loan would be highly likely, instead of there just being the odd reference to it in a mass of paperwork that you may have found confusing and difficult to understand.

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

• why you think your IP should have been clearer about what you were asked to agree to;
• state that you want them to withdraw the proposal; and
• state that if they do not do this, you intend to complain to the IP’s authorising body.

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.  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.

What if you have already agreed to the secured loan?

You can still complain! It is better to complain before agreeing, because it is often easier to reach an agreement with your IP at that point, but you still have various ways of progressing your complaint, including going to the Financial Ombudsman and going to court. Before you do any of these, you should still put in a formal complaint to your IP and/or the secured lender if you have not already done so because the FO will not look at a case which you have not tried to resolve this way. I would suggest that you get help to put in this formal complaint because with a secured loan already in place, you need to know what your likely further steps are.

Has this covered your situation?

I’ve had to make some very broad brush assumptions to reduce this article to a readable length. I hope that most people reading it will feel better informed about what they can reasonably complain about and how to do this. But, as I said at the start, your situation may be rather different because of terms of your original IVA or the variation you agreed to or the interaction with your IP. I would be interested to know if you feel your situation isn’t covered here – you can comment anonymously below – but the more complicated your case, the more urgent it is that you seek outside help.