A reader commented on one of my IVA articles: “If the larger [IVA] firms were doing a bad job, the number of complaints to regulators would be high but over the last few years it’s been a fraction of a percentage of appointments.”
In 2014, there were just 245 complaints about IVAs to the Insolvency Service’s Complaints gateway (see table 11 in Annual Review Of IP Regulation 2014.) As there must be about 200,000 people in an IVA, this is indeed a low number of complaints to the regulator, This article looks at the reasons why there may be so few complaints about IVAs.
Inevitably things go wrong in some IVAs – not all five year contracts can run smoothly. A problem in an IVA or even an IVA that fails doesn’t necessarily mean there should be a complaint. However any of the following types of problems should result in complaints:
- “mis-selling” This is where the debtor should never have entered an IVA in the first place, as an alternative – usually a Debt Relief Order or bankruptcy – would have been a better option. I’m not talking about the situation where a debtor has a finely-balanced decision to take between the different forms of insolvency, or where the debtor genuinely prefers an IVA. Mis-selling arises where the alternatives weren’t clearly explained in words the debtor understood at the start, so there was no informed choice;
- unreasonable decisions by the IVA firm These can take many forms, but one that crops up quite often is odd interpretations of the equity release provisions. Usually the firm backs down if the debtor perseveres, and the debtor then doesn’t go on to make a formal complaint. But my guess is that for every debtor that is knowledgeable enough or finds enough support on the internet to object to what they are told, there are probably five that assume their IVA firm is right and just pay up.
- unreasonable delays and poor communications Often this happens at the end of an IVA, with prolonged delays in getting completion certificates.
The IVA complaints framework needs to facilitate complaints about all sorts of problems – at the moment it doesn’t for three reasons:
1) An extreme imbalance of power
People are frequently panicked into insolvency by contact with debt collectors, or worries about CCJs and bailiffs. An IVA can look like a lifeline which the debtor grabs gratefully with no further research into other alternatives. In this situation there is an extreme imbalance of power – the IVA firm is seen as the expert who “rescues” the debtor by telling them what they have to do. To carry on the analogy, if you think you are drowning and are thrown a life-belt, do you grab it and hope it will work? Or struggle on, risking drowning whilst you ask questions about whether a bigger one, or one which is inflated more, is available?
The language of insolvency makes this problem worse. See the following details from IVA documentation given to a debtor:
- Estimated realisations:
- bankruptcy £2,160
- voluntary arrangement £7,200
- Estimated dividend to unsecured creditors:
- bankruptcy 0%
- voluntary arrangement 25%
“Estimated realisations” and “Estimated dividend to unsecured creditors” might as well be written in Japanese for all they mean to some people with a serious debt problem. It isn’t surprising that some debtors don’t read their large pile of IVA documentation closely before signing it.
As a result, if the IVA goes badly, the debtor will usually tend to assume that they have been unlucky or just unable to budget properly, not that they should never have been sold an IVA in the first place. And they tend to accept what their IVA firm tells them, even if they think it wasn’t what they were told at the start. So they don’t even think about complaining.
2) An unfamiliar complaints mechanism
If a debtor does think about complaining, most of them will assume that their complaint will go to the Financial Ombudsman. Instead of which they find that the complaint has to go via the Insolvency Service gateway to one of eight bodies such as the Insolvency Practitioners Association; the Institute of Chartered Accountants in England and Wales; the Association of Chartered Certified Accountants; or the Solicitors Regulation Authority.
These bodies may do an excellent job of upholding professional standards, and they may be perfect for investigating complaints about the non-IVA related areas of an IP’s work. But to a debtor who has a problem with their IVA and who often isn’t getting helpful and clear explanations from their IVA firm, these regulators sound like old-boys clubs, – very unappealing, organisations that work in secret, don’t publish outcomes and are likely to just support their member. Many possible complainants will decide it’s hopeless, the dice are loaded against them and give up at this stage.
3) No benefit from complaining about mis-selling
What if a debtor goes to a debt advisor who is familiar with IVA complaints – surely a complaint will always be put in then? Unfortunately not if the case relates to mis-selling.
The “estimated realisations” figures above came from an IVA case I saw last year. My client actually thought he had gone bankrupt and that a judge had set the amount he was paying each month – he had been struggling from the start, some 6 months before, and now his income was reduced as he was on sick pay. There is no way he would have agreed to pay £120 a month for 5 years instead of £60 a month for 3 years if the alternatives had been explained to him properly. He lived in social housing, his job would not have been affected by bankruptcy. It was a straightforward bankruptcy case.
Normally I encourage clients to complain because it helps drive up standards, but in a mis-selling case such as this, the debtor will gain absolutely nothing. If he complained to his IP’s regulator, no action could have got his failing IVA back on track – it was in the first year and he had developed a chronic illness.
I decided my client had enough on his plate with being unwell, trying to get the correct sick pay from his employer, coping on a reduced income; failing the IVA and going bankrupt. He would have had to spend probably an hour with me crafting a detailed letter of complaint, which would have left him feeling as though he had been stupid. So I just said “You should never have been sold this IVA, I could help you put in a complaint, but you won’t benefit from it.” and unsurprisingly he didn’t want to.
Many people who have been mis-sold IVAs or who have had an unreasonable decision from their IVA firm won’t think of complaining because they don’t realise what has happened. If they do look into complaining, they are likely to be put off by the complaints process. And if they think they have been mis-sold an IVA and investigate further, they will realise that they are likely to gain nothing from any complaint.
A lack of complaints therefore can’t be taken as meaning that everything is going well. If the Insolvency Service, the various Insolvency Practitioner regulators and the Financial Conduct Authority are being re-assured by the low level of complaints, they need to be looking harder at why there are so few.