For the past 12-18 months or so, various groups have grown up to help and support those who feel that they have been charged unfairly by their bank for items such as unauthorised overdraft use. This practise continues to be fuelled each time the banking sector announce  large profits. 

On the one hand, it does seem unfair for a bank to charge around £30 to an individual who is overdrawn by just £5 perhaps only for a single day. Most of us would be extremely unhappy about this and take it up with our bank. However, we would not go to Court over the issue. What we are talking about here is people how consistently and over a long period use unauthorised overdraft facilities thus generating charges of many £100s if not £1000s of pounds.

I can not help thinking that in these circumstances, some of the blame for this situation needs to lay on the shoulders of the individuals who are complaining. Surely if they had better manager their money, they would have realised that they were in danger of stepping over their overdraft limit and acted to do something about this. I have met many thousands of people over the past 10 years who simply never look at their monthly bank statements and really have very little idea of how much money they have in their current account at any one time. Given this, surely the blame for money mismanagement is lies on their shoulders not the banks.   

In July the banking sector announced that they are now challenging the claims of unfair charges in the High Court. As such, future unfair bank charge cases brought by individuals may be suspended until the outcome of the High Court case is known. They outcome of this case will be interesting. Taking personal responsibility for your own actions does not seem to run high on many people’s agenda’s today. However, if the Court rules in favour of the banks, perhaps people will have to start doing just that with their own money.

In September 2007, TIX who decide on whether to accept IVAs on behalf of HSBC and HBOS will demand that unless Insolvency Practitioner’s stick to stringent caps on the fees that they charge for putting an IVA in place and and then the ongoing management, the IVA application will not be considered. TIX say that they are acting upon the wishes of their clients – HSBC and HBOS.

Some Insolvency Practitioner’s are suggesting that this practice works against Government policy of allowing the IVA as a sensible and reasonable solution when used in the right circumstances. If banks act together in this way there is a suggestion that this must be viewed as price fixing.

There will be much written about the pros and cons of this practice but ultimately the worry must be that the best interests of the debtor are not being considered. If banks force fee reductions on Insolvency Practitioner’s then the only way for them to survive as organisations will be to streamline their operations into so called IVA factories. Such organisations are currently widely criticised by banks as not having the time to give a good service to the individual debtors.

If the smaller more professional IVA providers are forced out of the market because they can not afford to run their practices based on capped fee structures, then I worry that they will either wither and die or be swallowed up by larger operations. In the short term, this policy may return more cash for the banks. However, it looks to be a loose loose situation for the debtor who is surely going to end up with a poorer service all round.

The Insolvency Exchange (TIX) is an IVA broker making decisions as to whether or not an IVA should be accepted or rejected on behalf of creditors. At this point in time the key creditors that they vote for are HSBC and HBOS.

These are not new government rules; these are criteria that have been forced upon the industry by the banking sector.

The main criteria are that the nominee fee must not be any more than 6 months of disposable income inclusive of VAT and any other costs. and subsequently and ongoing supervisory fees must not be any more than 15% of the monies collected.

TIX suggest that if the Insolvency Practitioners follow these criteria then the IVAs proposed to their clients will be accepted.

HSBC currently have a hurdle rate of 40p in the pound. These new criteria may allow for a lower hurdle rates.

Conclusion

This means that the consumer will be able to get IVAs accepted now that they wouldnt of bean able to get accepted before. However, Insolvency Practitioners will be paid less for the same amount of work and this may result in a drop in standards.

This story ran on this Thisismoney.co.uk this week and took many by suprise. It further indicates that lenders are clamping down on IVA’s and the results of the summit on the 31st May will be very interesting

Lenders to slash IVA firm fees

Banks and other lenders are to halve the fees they will pay to firms providing individual voluntary arrangements for people unable to pay their debts.

The move will stun many in the industry and could prove a body blow for some IVA providers, which have grown rich on the back of heavy consumer debt.

It is thought creditors will cap the fee on an IVA - which can currently net a provider £8,000 or more upfront - at £4,500 and payments would be made in stages.

IVAs are an alternative to bankruptcy, where the borrower agrees to repay a proportion of the debt and the lender writes off the rest.

The new conditions - which do not amount to price fixing - are expected to be unveiled at a summit meeting in London on May 31 at which banks and other lenders will sit alongside IVA providers.

IVA fees have always been an issue featured in the press and when lenders and IVA providers come head to head at the summit meeting, it will be interesting to see the outcome. Although IVA providers have been criticised for excessive fees, they do still provide a service as does any other business so negotiations may prove tricky.