LONDON (Reuters) - Major high street banks will settle for a 20 percent cut in fees for individual voluntary arrangements (IVA), says the firm representing them, to end a dispute with the companies that charge them for setting them up.

IVAs are alternatives to bankruptcy for consumers who owe banks a large amount of money -- often as much as 50,000 pounds. Consumers agree to pay back a portion of the debt over five years, with the rest written off, while IVA firms charge banks for setting up and administering the complex arrangements.

"The average amount that fees will come down by is around 20 percent," said Mark Onyett, chief executive of TDX Group, which runs the Insolvency Exchange.

The Insolvency Exchange represents major banks including HBOS , HSBC and Royal Bank of Scotland and decides whether to approve IVAs on their behalf.

"It's important to point out these proposals haven't been agreed by the IVA industry yet but if this is what the banks want we would be quite thrilled," said Michael Shirley, Operations Director at IVA firm Debtmatters .

"People had been saying they wanted to knock off 40 percent from the IVA fees... it appears a compromise has been reached."

The average fee will come down to around 5,200 pounds, before VAT, from 6,600 pounds, Onyett said.

The news was welcomed by investors who had feared the fees could be slashed even further.

IVA firms whose shares had been hit hard in recent months, partly because of worries over fees, saw an immediate uplift. Shares in Accuma rose 38 percent, Debtmatters 11 percent and largest industry player Debt Free Direct by 7 percent.

"I think people had been worried things could be worse," said Onyett.

The Mail on Sunday had previously reported in May the fees were to be capped at 4,500 pounds, which sent shares in IVA firms down by as much as 10 percent.

The proposals for fees and IVA structure will mean a decrease in the number of IVAs rejected by the Insolvency Exchange, possibly by half, according to Onyett. The Insolvency Exchange decides whether to approve around 60 to 70 percent of the IVAs proposed by the industry in total.

The new criteria are expected to bring an end to the feud between banks and IVA firms which has seen banks reject up to 20 percent of proposed IVA schemes in the last eight months.

"Under the new arrangement there's a shift away from a large upfront fee and a fixed supervisory fee to a smaller upfront fee and a performance-based fee on the back end," said Onyett.

IVA firms will get paid depending on the amount of debt they get back from consumers rather than a set "supervisory" fee for administering an IVA.

The IVA firms will have to distribute collected money to creditors within six months and on a monthly basis thereafter, whereas previously the payments were annual and the first often did not happen until the third year, according to the Insolvency Exchange.

IVA firms have also been working with the British Bankers' Association and an ad hoc forum called the Debt Resolution Forum on a consensus to stop disputes over IVA fees and structure.




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