Nearly £50 million lost on fees for failed and unsuitable debt solutions, warns Citizens Advice
Two thirds of people report not being told a key piece of information, such as details about frontloaded fees, before entering into an Individual Voluntary Arrangement (IVA).
Citizens Advice estimates people whose IVA failed over the last five years lost an average of £849 each on fees.
Almost one in four people in IVAs went without everyday essentials, such as food, energy use and toiletries, due to unaffordable agreements.
People in debt have lost £48.8 million on fees for failed Individual Voluntary Arrangements (IVA), with many steered into an inappropriate debt solution by unscrupulous firms offering bad advice.
Research from Citizens Advice has found two thirds of people were not told a key piece of information before entering into an IVA and more than one in five were not told they would have to pay fees as part of their monthly payments.
IVAs are a type of fee-paying debt solution which allow people to write off some of their debt through monthly payments. But the level of risk involved means IVAs are not the right solution for everyone, as if people cannot keep up with repayments, the agreement fails, leaving people worse off and deeper in the red.
Bad advice
A gap in regulation means advice before someone enters an IVA isn’t governed by the Financial Conduct Authority (FCA). Citizens Advice is warning that this is resulting in an IVA market rife with poor practice where consumers are pulled into unsuitable arrangements.
IVA fees can be in the region of £3,650 or more per agreement, which incentivises the firms providing them to promote IVAs over other, potentially more suitable, debt solutions.
Struggling to keep up with repayments often leaves people who are already in precarious situations even worse off. More than one in four people in an IVA reported borrowing money to try and keep up with repayments.
Poor, misleading debt advice is pushing people deeper into debt and hardship. Citizens Advice has found one in four people in IVAs went without everyday essentials, such as food, energy use, or toiletries.
“It’s really frustrating to see how some people are mistreated”
Simona Gecheva, a money advice caseworker for Citizens Advice Plymouth, said she'd seen situations where people had not been told information about fees before entering an IVA, fees increasing from £80 to £450 a month, and people whose health had declined due to the stress caused by being in an unsuitable IVA.
“People are affected in so many ways. Most people seeking help struggle with mental or physical health, which is already hard enough to live with. They believe that they’re approaching a company that is promising to help them with their financial difficulties, which also impacts health, but then they find themselves misled.
“We try to help people, but it is really frustrating to see how some people are mistreated. Debt is overwhelming to the point where people wait to feel like there is no way forward in order to take action and seek debt support. Then, when they’ve finally gathered the courage to seek help, they feel like they’re mistreated and fooled by these companies, it’s so frustrating.”
Need for regulation
Citizens Advice has found issues in the IVA market are not isolated incidents but evidence of systemic bad practice.
The charity is calling on the government and regulators to drive up the quality of advice people receive before signing up to an IVA, by bringing advice under FCA regulation, so it is in line with other debt advice.
This would ensure anyone who goes into an IVA receives full information from an FCA-regulated firm, giving them far greater protection than currently exists.
Tom MacInnes, Director of Policy at Citizens Advice, said:
“Anyone seeking help with debt should be able to trust the advice they’re given. But IVA firms are preying on people in debt, giving out bad advice and leading people into inappropriate debt solutions.
“Poor practice in the IVA industry is causing active harm. Too many people are being fed misleading information and encouraged down a path which leaves them deeper in the red.
“The government cannot let this continue, it must act by bringing all advice given before entering a debt solution under FCA regulation immediately.”
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Notes to editors:
Citizens Advice commissioned Yonder Data Solutions to survey 2,269 people in England and Wales who had taken action to deal with debt in the last five years, including 1,001 people who had been in an IVA in this period. Fieldwork took place in September 2024.
The amount of money lost on IVA fees has been calculated using published data from the Insolvency Service on IVA termination rates between 2019-2023, based on IVA fees of £3,650 for a five-year agreement. This is a conservative estimate, as some IVA providers charge higher fees and frontload their fees. To guard against overestimating financial loss, we also subtracted four months of payments from each terminated IVA, as IVA terminations follow a period of three months in breach, plus a one month notice period. Further detail on this methodology is available in the full report.
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