I once work for a debt management company who bought leads from other companies that did not offer IVA’s. The company is question was without doubt one of the worst debt management companies I have ever known, but even more questionable were the companies who provided them with leads.
In order for a company to propose an IVA it must have an insolvency practitioner. Many only offer debt management and will pass possible IVA leads over to companies that do, who in return will pay them a referral fee normally in the region of about one thousand pounds. This is an extremely grey area and is one that in my opinion needs urgent regulation in order to stop the unethical treatment of people in financial difficulties.
One example I came across whilst working at this company was a couple that had paid £900 (their disposable income) to a debt management company. The company had then forwarded their details to our company (who had an IP) and received a further payment of £1,000 as a referral fee and had in total received £1,900. Before the clients IVA was proposed our company operated a policy of taking an initial payment that was not used towards the clients IVA. As such the client had paid a total of £1,800 in the space six weeks of which none would be used to pay anything towards their debts.
The couple in question had called the first debt management company who had taken their details and ascertained they were eligible for an IVA. They had told them they needed to make a payment (which was calculated on their disposable income meaning that other people could be charged a substantially lower amount for exactly the same service) in order to proceed to the ‘next stage’. This ‘next stage’ consisted of giving their details to our company, who would propose the IVA. A good debt advisor will be able to identify that you are eligible for an IVA in minutes which begs the question how can these companies charge so much? The simple answer is that they are exploiting naïve people into paying for something that they don’t need to.
Companies that do this counter my argument by saying they are helping people get on the right track. However, there is also a darker side to this which I have seen in action also. Some debt management companies will ask clients to go on a debt management plan to ‘prove’ they can manage their funds after which they will be refereed for an IVA. In effect the company can take a first payment (which goes straight into the companies pocket) six months worth of management fees and then another last payment to be referred for an IVA. After which they can take another fee from the company they refer the case onto. Easy money.
When the couple who had paid the £900 to be referred to our company told me that had two young children and they had to forgo Christmas that year I felt ill. They were resigned to the fact they had been conned and told me that it was just one of those things and they would get on with it and move on. I could not get on with it and felt compelled to ask my manager if she thought it was ethical. ‘No’ came her response, ‘make sure you get their standing order back as we are down on fees this month’. For the record, the director of the company I worked for had a private number plate on his car, the last four digits of which were ‘IVA5’.
In order to avoid thieves like this make sure you doing the following:
Contact an insolvency firm directly (check IVA.com for a good list), don’t use a middle man, they will just screw you.
Ask if your first payment is going to be used toward your IVA payments. It is common to make a payment before you IVA is proposed as there is a lot of work involved in getting your IVA together. (for more information please check the next post which will be about first payments)
Don’t pay anything on your first phone call.
By bearing these in mind you might just save yourself some money and avoid the referral fee rip offs!
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