Abacus Daily Debt News

Government reject calls for more regulation of IVA companies.

The government has rejected calls for more regulation of IVA companies from the banks and lenders.

Banks have been lobbying for tight controls, claiming their own losses from bad debts have been due partly to unscrupulous marketing of IVAs.

But Department of Trade and Industry minister Jim Fitzpatrick has said banks should lend money more carefully.

Speaking to the Financial Times, Mr Fitzpatrick said: “If we’ve got a rise in indebtedness, if we’ve got a rise in people having difficulty in servicing that debt… then maybe the banks are lending too much money or maybe they’re not being as careful as they used to be in scrutinising the applications.”

He added: “If they’d not lent it in the first place then they wouldn’t be in the difficulty of trying to recover it.”

Bad debts and insolvencies

UK Banks wrote off £3.3bn in bad debts in the first half of 2007.

But they fear that part of this rise was due to people using IVAs as an easy escape route from repaying their debts in full.

They have pointed to a big rise in the popularity of IVAs, widely advertised on TV and in newspapers, as one reason for the general surge in personal insolvencies.

In England and Wales, 26,000 people became insolvent during the second quarter of 2006 - 66% more than during the same period last year.

Although two-thirds of those people declared themselves bankrupt, the rest took out IVAs, which let them come to a voluntary agreement with their lenders.

However, the government does not accept there is a problem it should tackle.

Its own Insolvency Service says that only about 5% of the clients of debt management companies actually end up in an IVA.

See also IVA Advice from 60Second Advice