Insolvency Service call for evidence on Insolvency Practitioner regulation
Citizens Advice welcomes the opportunity to respond to this call for evidence on on Insolvency Practitioner regulation.
Over the past 12 months we’ve seen a 6% rise in the amount of clients approaching us for help with Individual Voluntary Arrangements. Within that figure we’ve seen significant rises in the amount of issues we’re seeing around the IVA process (up 25%), the role of Insolvency Practitioners (up 35%) and complaints and redress (up 28%). When coupled with anecdotal evidence from our advisers it gives rise to some serious concerns about aspects of the IVA market and the existing regulatory model.
The lack of regulation around lead generating firms and money advice provided by Insolvency Practitioners, the mis-selling of IVAs as a solution, the increasing early failure rate and linked profit making activities that firms are making are all causing detriment to our clients. This is in addition to the inconsistencies around fees and the existing complaints mechanism.
We have particular concerns about unsuitable advice being given to people. In 2017-18 51% of the people we spoke to about IVAs stated that they were receiving benefits.
Based on the cases we see the regulatory model for IPs is insufficient. Where practice is demonstrably poor, there doesn't appear to be proportionate repercussions. Adding to the problem is that many of the IPs at larger firms have poor oversight of what is happening at the ground level, with administrators managing the majority of cases. Having a number of membership bodies results in an inconsistent and patchy approach to regulation and complaints management. Having a single regulatory body, which has powers of redress, would provide a more consistent and customer focused oversight.
As a result of this review Citizens Advice would like to see the following:
The establishment of a single regulatory body for insolvency practitioners (IPs), which has powers of redress.
IPs should only be able to accept leads from Financial Conduct Authority (FCA) regulated money advice providers.
The exemption on IPs for debt counselling should be removed. This additional regulation could be funded by a new levy on IP firms.
IP firms should be restricted from selling clients that are in an Individual Voluntary Arrangement (IVA) further products, such as loans or claims management services, that could directly impact the outcome or suitability of that IVA.
A clear, easily recognisable and independent complaints body should be established.
Unless there are exceptional circumstances, people on benefits only income should not be able to enter into an IVA.
After receiving advice on an IVA, customers should be signposted to free and independent money advice.
Once an IVA application has been made customers should be allowed a 14-day ‘cooling off’ period, to allow the customer to reflect on the decision and, if required, seek advice.
The introduction of a mandatory standardised declaration that must be signed of part of an IVA application, where a customer is not a homeowner and owes less than £20,000. Clients who are not eligible for a DRO would need to sign a statement that explained why they were not eligible.