Banks agree to new IVA guidelines

A new code of practice has been agreed which could make it easier for banks to approve individual voluntary arrangements for over-indebted consumers.

The British Bankers’ Association has been working with debt management companies and the Insolvency Service during the past year to hammer out a voluntary code of practice for IVAs.

IVAs are a type of insolvency under which a lender agrees to write off part of an individual’s debts in return for repayments over a set period.

Banks have become increasingly unhappy at approving IVAs because of concerns about the level of fees charged by debt management companies selling them and fears that they were inappropriate for many over-indebted consumers.

In some cases banks such as HSBC have taken an increasingly aggressive stance and have been rejecting more IVAs.

The new guidelines, which may come in as early as February, will help standardise IVA procedures, particularly the assessment of the income and expenditure of over-indebted consumers.

The BBA will also issue guidelines for the advertising of IVAs and set industry standards in areas such as documentation and advice as well as improving transparency.

The new regime will give banks more confidence about the IVA process and that debt management companies are adhering to set standards.

Angela Knight, chief executive of the BBA, said: “People in debt and their creditors need to know that when an IVA is proposed it is the most appropriate solution.

“The BBA, the Insolvency Service and the participating IVA providers are united in support for this agreement, which should provide customers with the reassurances they need.”

The code sets out the standards that will apply to creditors and IVA providers in most IVA cases.

The number of IVAs has risen sharply in the past year, reaching 44,000 in 2006 compared with 5,000 in 2002.