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Important Individual Voluntary Arrangement (IVA) News
The newsletter this week will be a bit different than the others in the past. Rather than just links of news from around the world of debt, events unfolding in the UK at the moment are so intense and crucial to consumers in debt that I need to send you a personal update.
My wife Pam and I were waiting for our friend Hillary to fly to our home in the UK Thursday night. Her flight left Washington, DC with Delta airlines and connected at JFK airport in New York before heading to the UK on another Delta flight. For some reason her connecting flight was delayed getting into New York and she ran from her gate to her connecting flight, but she was too late. It had left 15 minutes before. Okay I admit, not much remarkable about that but when she went to the Delta Airlines customer service desk she was told that there was nothing they could do because the in-flight delay was caused by air traffic control and that they had no obligation to give her any compensation or put her up at a hotel, even though the next flight they could put her on was more than 24 hours away.
Maybe that approach might be their current policy but I think you can recognise behavior that is wrong and mean spirited when you see it. How can an airline expect to win and keep customers when the ball gets dropped mid flight and the best they can do is leave you stranded?
So yesterday Sean and I snuck to McDonalds in the afternoon for a snack. Hey, give me a break, I missed lunch. On the way Sean told me this story about how he was walking behind a father and two young children. The father was cursing at the twin 4 year olds and then slapped one of them. That's just wrong.
So while it is hard to exactly define what bad behavior and actions that are wrong are, you know it when you see it. And that's what is unfolding in the UK at the moment, bad creditor behavior that is just wrong.
Now I completely understand the need for companies to make a profit and I support capitalism but at what point is it acceptable to put profits solely in front of treating consumers fairly or to make it socially acceptable to treat people as economic prisoners just because they believed the credit marketing messages and bought the credit card offer or inducement to sign on the dotted line.
In the United Kingdom, debtors have had access to a debt solution called an Individual Voluntary Arrangement (IVA) since 1986. An IVA is put together by a licensed and regulated Insolvency Practitioner, typically a lawyer or accountant with additional training, experience and certification exams. Insolvency Practitioners attempt to fairly balance the needs of the debtor and the creditor with these proposals.
These debt repayment agreements strive to create a fair, balanced and sustainable pro-rata distribution of available debtor funds. Creditors are given an opportunity to vote for acceptance and when the majority formula is reached, the agreement is binding, under law, on all creditors.
That system worked well, until now. Today, creditors in the UK have tilted the playing field much like they did in the United States and those changes have eroded consumer representation and protection. In the UK at the moment you have a group of creditors and a single unregulated commercial company that feels it is just fine to block large groups of consumers from this solution (upwards of 50%) by setting minimum dividend repayment rates (hurdle rates), or by essentially having a policy of never accepting any professionally prepared repayment offers. Worse yet, banks and creditors in the UK have taken an attitude that the Banking Code, and their duties under the voluntary code they subscribe to are discretionary. The concept of treating customers fairly, or reviewing their situations individually, has become not much more than empty words on a page.
Despite the fact that UK Insolvency Practitioners and the government don't feel these unilateral creditor policies are fair, they are being crammed down the throats of debtors anyway.
Rather than give you a bunch of links in this newsletter, I'm going to refer you over to our entire category of recent Individual Voluntary Arrangement articles on the Myvesta UK website. Events in the past week have lawyers scurrying around the UK talking about creditor cartels, as a group of creditors released recent marching orders that dictate the characteristics of the IVA proposals they will now accept. Unfortunately these new self-serving wishes of the creditors create a process of social exclusion from IVAs for those members of society that can't afford payments larger than £300 per month.
This policy instantly excludes about 50% of the people that would have been able to enter into a fair, reasonable and binding repayment arrangement until now and leaves then in limbo, ready to be sued or to enter a non-binding debt management plan where they will sit for years and years without ever repaying their debt.
This unilateral creditor policy also sets limits on what creditors feel is an "acceptable" level of professional compensation for Insolvency Practitioners. And while the corporate insolvency guys are not paying much attention to all of this, they will when maybe this same group of creditors in the UK starts limiting their fees. It happened in the US with debt advisors, it is happening in the UK at the moment and who knows when professionals in other parts of the insolvency world, lawyers and accountants alike, will be forced to accept lower levels of professional compensation for work.
Many of the tactics that are being attempted to be implemented in the UK right now during the peak holiday season when most professionals are out of the country, create a gross imbalance in the healthy equal tension that should exist between the creditor, debtor and the debt resolution professional.
This bad behavior seems to be primarily driven by the collection/recovery departments of banks like HSBC, who seem hell bent on unfairly and aggressively punishing or just making examples of that small number of overall customers that have fallen behind on their debts, no matter what the reason.
I admit that if I only looked at the world from collection colored glasses that my view would be different but from an outside point of view or maybe a perch in the ivory tower I can't imagine how leaders of these banks and lenders can foster a policy of painful punishment and social exclusion that makes banks appear to be bad corporate citizens or disingenuous institutions. You all aren't so smart you know, can you say "U.S. sub-prime mortgages"?
I invite you to look through the unfolding series of events and make your own decisions about how this unilateral power and self-centred policy creates an unacceptable and dangerous imbalance between lenders and borrowers.
Lend all you want, extend all the credit you can, sell all the loan products possible but don't do it at the sacrifice and cost of the emotional and real lives of your customers when they fall onto hard times. Call it what you want but I know that leaving your passengers stranded, slapping your young kids and not giving consumers a fair and reasonable chance to repay their debts is bad, mean spirited and it should be unacceptable behavior.
If you agree or disagree I encourage you to post your feedback, comments or debates to the bottom of the recent articles in our UK section on Individual Voluntary Arrangements (IVA).
Sincerely,
Steve Rhode
President
Myvesta Foundation
A Global Social Enterprise
P.S. New MasterCard commercial, "How does it feel to be listened to and treated fairly by your bank?" I'll go with priceless.
Today's Top Stories:
Why the US Credit Counselling Lessons Are Important to Protect the IVA
Creditors in the US gutted the effectiveness of credit counselling and are now moving forward with similar tactics in the UK that leave disadvantaged consumers in harms way.
Mike Reeves, Insolvency Practitioner, Expresses Concerns Over IVA Consumer Exclusion
Mike Reeves, expresses concerns over his license if he agrees to the TIX Compliant IVA format put forward by the Insolvency Exchange.
Co-Founder of TDX now on the Board and Part Owner of IVA Firm Debt Free Direct
Someone brought this interesting piece of information to my attention today and I'm passing it on to you for you to make of it what you will.
Insolvency Practitioners Speak Out In IVA Survey About TIX Demanded IVA Changes
A national poll of Insolvency Practitioners uncovered that most IPs feel that the Insolvency Exchange demanded changes are bad for consumers, bad for Insolvency Practitioners, limit consumer access to legal debt solutions, and force more consumers into bankruptcy.
You Will Comply. Resistance is Futile. Comments About the Latest TIX Update on Individual Voluntary Arrangements (IVA)
Debtors left stranded again by creditors, even though they want to repay their debt in a fair, reasonable and sustainable way.