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Debt management companies target struggling borrowers

According to recent reports a number of debt management companies are targeting consumers in the UK who are struggling to repay their loans and other debts by obtaining their details from lenders with the offer of a large commission.

One expert claims that some debt management firms are prepared to pay up to £1500 in commission to any lender that will provide the details of those that are struggling with repayment on their debts and could be suitable candidates for an Individual Voluntary Arrangement (IVA).

With an IVA those meeting certain criteria, such as being in full time employment and owing more than £15,000 in unsecured debt, can come to an arrangement with creditors to make set repayments over a five year period, after which the remainder of the balance on the loan is written off. Debt management firms have been claiming that they can reduce borrowers' debts by up to seventy five percent by doing this, but come officials are concerned that the companies are not providing information on the downside of this arrangement or the fact that creditors may reject the proposals.

Debt management firms are keen to try and get struggling borrowers onto an IVA scheme because they net thousands in profit for each IVA that is set up, including commission, set up fees, and other charges. According to recent data the number of people that have switched to an IVA over the past year has doubled, and debt management companies are making this idea seem all the more tempting and simple by contacting consumers out of the blue and suggesting that they consider an IVA as a solution.

One insolvency practitioner stated: 'Loan companies are farming out customers who can't afford to take on more debt by selling them on to IVA firms. This flies in the face of the industry's ethical guide.'

Tom Smith
24th May 2007


More Information:

  • General Loan Advice For Managing Debt
    Debt is a really easy thing to get stuck in. Even if you are not extravagant monthly costs can spiral out of control, especially if you take your eye off the ball. So what can you do to avoid getting too far into debt and if you are there already how can you get out of it?
  • Managing your debts
    It is easy for debt to get out of control. Student loans, losing your job, becoming ill or any number of other unforeseen events can easily cause debts to mount up.
  • What is the Role of Debt Consolidation Companies?
    There are many forms of lender on the market. Not all of them are banks. Debt consolidations companies play a specific role in the debt market.



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