press release
Insolvency and debt advisers facing a ‘grim 2008’, says Browne Jacobson
1 February 2008
The next 12-18 months are likely to bring a raft of claims
against the debt advisory sector, according to Nik Carle,
specialist professional liability lawyer at Browne Jacobson. He is
warning that insured insolvency practitioners (IPs), the
established ‘professionals’ in this line of business, can expect to
find themselves dragged into the fray as members of the public who
were mis-sold debt solutions such as Individual Voluntary
Arrangements (IVAs) step up complaints.
For some time now, there has been growing unease about debt
‘factories’ failing to provide best advice to those in acute
financial difficulties. This adverse press has even spread recently
to the activities of well-respected 'not-for-profit' organisations
like the Consumer Credit Counselling Service ('CCCS'), which was
recently linked with the provision of inappropriate debt advice to
clients, for financial returns.
Nik Carle said: “Forecasts for the number of people declaring
themselves insolvent have shot up to 120,000 of late and the
recommending of IVAs is potentially another mis-selling scandal on
the brink of breaking through. Citizens Advice dealt with 60
serious such cases in the last quarter of 2007 alone”.
IVAs allow people with debts to agree a five year deal of fixed
repayments with their creditors. IVA companies, many of them
advertising on the television and the internet, promise to reduce
the level of debt to be repaid, sometimes by as much as 70 per
cent.
Insured IPs have needed to be careful, explains Carle. Some have
been looking to unregulated salesmen for a throughput of work.
There is an independent duty on IPs to check that IVAs are indeed
an appropriate option. “They are the safety net, if you like, for
the client and they should operate as a safeguard against
over-zealous selling of particular debt solutions without
sufficient regard to suitability.
“It will be interesting to see whether general damages awards
will increase in these cases, in line with Farley –v-
Skinner and Hamilton-Jones –v- David & Snape, for
failure to deliver ‘peace of mind.’ Peace of mind is the main
selling mantra for the industry. Despite assurances to the
contrary, many homeowners have lost their homes, in circumstances
where IVAs were supposed to protect them from repossession”.
IVAs, too, have been sold by many insolvency specialists as a
more attractive alternative to bankruptcy. Over their 5-year
lifetime, IVAs seem to have been a great money-spinner for some in
the debt advice industry, much to the chagrin of the
creditor-banks. Bankruptcy, on the other hand, yields little return
to advisers. For the unscrupulous in this sector, obvious
incentives are there.
The banks have very nearly signed up IVA advisers to a new Code
of Conduct, which is expected to be in force by March this year.
This is expected to clamp down on misleading advertising and at
last, introduce some measure of regulation.
Consumers are also unhappy with IVAs and the debt sector. The
consumer movement against bank and credit card charges, driven in
large part by forums on the internet, became enormously powerful in
2007 and won refunds of hundreds of millions of pounds for its DIY
cause. A high profile case brought by the OFT on this front is, of
course, currently being heard in the High Court.
There are already several IVA-focused forums on the internet,
which look sure to stoke up consumers in the same way. Many of
these prospective claimants have little to lose by ‘having a go’ at
advisers in the industry.
“The banks under-estimated these amateur groups to their cost.
PI insurers must be careful not to make the same mistake,” advises
Carle.
All of this comes with confirmation from the U.S. that the FBI
is investigating 14 finance companies over accounting fraud,
insider trading and sub-prime mortgage mis-selling issues. 2008
seems set to witness new depths of advisor failure and fraud in
these industries, warns Carle.
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