IVA adverts promoting unsuitable debt solutions

People in deep financial trouble are being misled by profit-making firms into unsuitable debt solutions which are often leaving them worse off according to a new report from Citizens Advice.

With the cost-of-living crisis pushing more people into debt, Citizens Advice has found worrying numbers of people in Individual Voluntary Arrangements (IVAs) unable to keep up with repayments – often because of poor pre-IVA advice from providers.

Citizens Advice found almost three quarters (73%) of people who are or have been in an IVA said they struggled to make repayments, while more than a third (39%) said their IVA has had a negative impact on their debt levels.

Advisers at the frontline are also sounding the alarm as a sector-wide survey of more than 560 debt advisors found that 84% said they have spoken to clients in failed or unsuitable IVAs.

An IVA is a legally-binding plan that writes off debts after 5-6 years of agreed monthly repayments. If people aren’t able to keep up with repayments, the IVA will fail, leaving them unable to write-off their debts. Additionally, because IVA firms charge high front-loaded fees, people may find they’ve paid thousands in fees but very little towards their actual debts.

In its report, Citizens Advice analysed how IVA adverts targeted people in vulnerable situations on social media.

The charity found many adverts shared harmful practices – appearing to offer impartial advice, failing to mention risks and fees, making unverifiable claims, and using demographic targeting:

• 64% did not explicitly mention IVAs, and those that did often hid it in the small print.
• 17% had ‘advice’ in the company name, but were not in fact authorised by the Financial Conduct Authority (FCA) to provide debt advice.
• 17% referenced government legislation or regulation, for example referring to an IVA as a ‘government legislation backed debt relief scheme’.
• 11% used names that emulate charities.

The market for IVAs has mushroomed in the last ten years and firms are incentivised to bring in as many potential customers as possible in order to generate a profit from fees. Before 2003, there were fewer than 10,000 IVAs annually but in 2022, there were nearly 88,000 IVAs registered in England and Wales.

But the advice given by the IVA industry isn’t held to the same robust standards as mainstream providers by the FCA.

Citizens Advice wants to see this loophole closed in order to ensure people are advised on the best solution for them.

The charity is urgently calling on the Treasury to bring pre-IVA advice under FCA regulation to bolster protections for consumers in the IVA market and ensure that anyone going into an IVA will have received debt advice that they can trust is in their best interest.

Matthew Upton, Director of Policy at Citizens Advice, said “The soaring cost of living is brewing a debt crisis and we’re seeing profit-driven vultures in the IVA industry ready to prey off people, encouraging them into debt solutions which could leave them worse off.”

“IVAs are meant to provide a solution to problem debt. But far too often, people are flooded with inaccurate or misleading advice, leading them to take out an option which pushes them further into debt and much further away from a lasting solution to their problems.”

“It’s not an option for the government to sit on the sidelines and allow this to continue. The ball is in their court to take action and bring the pre-advice IVA firms deliver under FCA regulation.”