A single rejected IVA can cost creditors £400 each
Client banks of the Insolvency Exchange (TIX), which include HSBC, Halifax / Bank of Scotland, Royal Bank of Scotland, Marks & Spencer Money and First Direct, should immediately set aside upwards of £400,000 a month to pay the case fees for complaints that will be lodged with the Financial Ombudsman Service.

Consumers that are now subject to unfair treatment, as of 1 Sept, under the “TIX Compliant IVA” policy are eligible to file formal complaints with the Financial Ombudsman Service. This also includes consumers that have banks and lenders where an Insolvency Practitioner (IP) has not been able to put forward an IVA that does not meet the creditor’s arbitrary minimum dividend policy.

The Financial Ombudsman Service is tasked with helping to settle disputes between businesses providing financial services and their customers. The service is FREE, that’s right, NO CHARGE, to consumers but banks will have to pay a case fee of £400 per complaint case sent to the Financial Ombudsman Service. The case fee must be paid by the bank, regardless of the outcome.

This little known service of the Financial Ombudsman is a perfect opportunity for consumers who feel their IVA proposal rejection or exclusion from being able to enter an IVA was unfair. The Financial Ombudsman Service (FOS) was established by parliament, but serves as a fair and impartial expert to help resolve complaints. Consumers that make complaints do not have to accept the decision of the FOS and can proceed to court with their claim. However, if a consumer accepts the ruling of the FOS then that decision becomes binding on the debtor and creditor.

Potentially consumers will be able to recover tens of thousands of pounds from creditors for complaints made to the FOS. The Financial Ombudsman Service has the authority, if they determine the bank has acted wrongly, to instruct the bank to compensate the consumer for losses of up to £100,000. Let’s look at a few example where the bank and lenders can be exposed for these large fines and penalties.

Complaint Example 1. A consumer goes to an Insolvency Practitioner and attempts to put forward a fair, reasonable and sustainable IVA proposal. The creditor either rejects the proposal without individual consideration or because the proposal does not meet the arbitraty criteria as determined “unilaterally” by the creditors. This might be in the form of hurdle rates for minimum dividend returns or an objection to fair and reasonable IP fees.

If that debtor then goes bankrupt as a result of not having access to the IVA to resolve their debt then they could make a complaint showing the cost of the damage they will suffer as the result of bankruptcy. This claim could include the cost of exclusion from future credit and the higher cost of credit because they were unecessarily made bankrupt.

Complaint Example 2. A debtor’s IVA proposal is rejected and the debtor then enters an informal debt management plan or token payment program. The debtor should be able to demonstrate how the unreasonable rejection of the IVA has now placed the debtor in a position where they will be damaged by repaying much, much more through a non-binding debt repayment plan when their reasonable IVA proposal was rejected. The consumer should be able to make a case for compensation based on the difference of the amount of financial harm they will suffer as a result of the IVA being rejected and being forced into a less reasonable repayment plan.

Complaint Example 3. If a debtor puts forward an IVA and the lender does not treat that IVA according to the Banking Code, which the lender has subscribed to, a case for damages from those actions could be made. Under the Banking Code, lenders are supposed to treat consumer proposals to repay debts both with sympathy and to review the proposal individually. If it can be demonstrated that the lender did neither with the submitted IVA proposal, then it should be academic to calculate damages from that action.

Regardless of the outcome of these complaints to the FOS, which may take up to 9 months to complete. Creditors will be subject to a case fee of £400 per complaint submitted. This means that if a rejected IVA consumer puts forward a complaint against his five creditors in the IVA, that creditors may have to collectively pay as much as £2000 per rejected or supressed IVA.

And while one might argue that a creditor should not have to pay a £400 case fee if they did not vote, that in itself is a vote. Failure to ratify a fair, reasonable and asustainable IVA proposal by ommission does not appear to make a creditor any less culpable for financial damages subsequently incurred by the debtor.

It is suggested that credit card companies, banks and other lenders make themselves very familiar with the Funding and Case Fee publication from the Financial Ombudsman Service. A case fee becomes chargeable when the customer contact division of the FOS passes a complaint on for further work to one of the casework teams of adjudicators. I guess the good news for the baks is that the fee does not actually become payable until the case is settled and closed. The FOS finance team will then send out an invoice for the case fee to the business concerned at the end of the month in which the case is closed.

Banks and lenders are also prohibited from recovering the cost of the consumer filing a complaint with the FOS. Consumers have a statutory right to refer disputes to the FOS, free of charge, if they are unhappy with the way a business has dealt with them.

For assistance in putting forward a complaint to the FOS, you can refer to the complaints procedure on the site or get hands-on assistance from the Debt Mediation Service by calling 01446 711780 or visiting their Website.

If an Insolvency Practitioner feels the consumer has not been treated fairly by creditors in the IVA process, they probably have a duty to inform the debtor about their rights, or assist them, to put forward a formal complaint to the FOS.


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