IVA firm Vanguard abuse £9m of customer payments

Vanguard charged customers a fee for facilitating their IVAs, supervised by Vanguard’s licensed insolvency practitioner. The company received complaints, which uncovered "serial abuse of the payments made" of almost £9 million under the guise of disbursements to connected entities.

Despite the number of Bankruptcy Orders and Debt Relief Orders decreasing in recent years, IVA numbers have risen in the same period, with the continuing presence of high volume “IVA factories”. There is much commentary about IVAs being inappropriately implemented by firms who do not offer debt management solutions that may be more suitable.

The FCA are clamping down on debt advice firms, with Insolvency Practitioners (IPs) being warned that they need to tighten controls on those with whom they partner to receive new business. In recent times, IVA providers have been obtaining customers from debt packager firms who refer customers onto other providers of debt solutions for a referral fee. It appears that inadequate regulation of this sector has led to some firms selling IVAs in ways that put profit before the needs of the client.

The FCA has proposed banning debt packager firms from being paid such referral fees in order to reduce the risk of unsuitable debt advice. In some instances, these firms have also manipulated customer income and expenditure to meet the criteria for an IVA.

Marketing and advertising is being carefully watched by the Insolvency Service, and IPs with no real connection, who put their names on packagers’ websites, face sanctions and disciplinary action should they breach the fundamental principles and code of ethics.  

The IS has issued guidance to IPs on monitoring their marketing. IPs should ensure that any marketing which leads to an insolvency appointment is fair, not misleading, and has complied with relevant codes of practice.

Until there is meaningful regulatory reform, current measures must result in a stronger requirement for individuals to have received appropriate advice. An IP should be satisfied that an IVA is achievable, and that a fair balance is struck between the interests of the individual and the creditors. The IP should have ensured that alternative debt solutions have been considered and making the individual aware of the consequences if the IVA fails.

The charity sector offers IVAs, supporting clients with a debt solution suitable for their needs, and they have made their performance data public. The termination rates of IVAs outside of this sector are almost double those within, suggesting that some IVAs may not be appropriate from the outset, and that others may not be adequately managed. There is similar contrasting trend in completion rates because the charity sector’s attitude to failure is more focussed, with more stringent checks.

Ensuring stricter criteria, more robust compliance processes, and tougher sanctions on individual IPs should reduce the volume of current IVAs. In the immediate future, a spike of IVA failures could be seen with many consumers’ circumstances changed during the pandemic, but in the longer term, with better procedures in place, failure rates should reduce.

For information and guidance, for creditors and those struggling with debt, please contact Emma Kinsella in our Creditor Services team or Ed Thomas in our National Bankruptcy Centre.