Millions of pounds a year are being lost to failed IVAs. How do we reform the market?

StepChange Debt Charity
StepChange Debt Charity
5 min readJan 23, 2025

By Sarah Cheetham, Head of StepChange Subsidiaries

Citizens Advice has published new data that estimates consumers lost a staggering £48.8m to failed Individual Voluntary Arrangements (IVAs) between 2019 and 2023.

On the one hand, this isn’t a great surprise. The period in question saw the rise of so-called ‘debt packagers’ — unscrupulous third parties who flooded the market, aggressively advertising and selling IVAs to vulnerable people seeking help with their debts. The FCA found evidence they would often manipulate customers’ details to meet the necessary criteria and promote products without explaining the risks involved.

The result? The number of registered IVAs hit record levels, but a shockingly high proportion failed within the first two years — one in seven in 2021 according to the Insolvency Service — leaving thousands of consumers no closer to paying off their debts due to the front-loaded fee structure.

While the FCA moved to ban debt packagers in 2023 — and the number of registered IVAs reduced as a result — there are still consumer protection problems in the IVA and broader debt solutions market.

IVAs contain inherent risks for vulnerable consumers that can turn into harm when people get poor advice and poor support. Consumer protection is poor in a market that has been dogged by patchwork regulation for years. At StepChange we know just how beneficial a well-administered IVA can be for certain people struggling with problem debt. What matters is avoiding harm from IVA product failure.

The key to a successful IVA

Anyone who enters into an IVA with StepChange has one thing in common — they’ve been through full, impartial, FCA-regulated debt advice which explores the full range of debt solutions. We will only ever recommend an IVA if we know it’s sustainable, affordable and the best option for our clients. What’s more, once our clients are on an IVA, we work hard both with them and their creditors to maintain it. This bears out in our termination rates — with our clients being up to 50% less likely to terminate than the IVA market average:

  • In 2017 StepChange had 15.5% terminations, 45.3% completed, 39% of IVAs still ongoing
  • In the wider market in 2017 there were 32.5% terminations, 24.9% completions, 42.7% ongoing

More recent years show a similar trend:

Table showing IVA termination rates for the industry and StepChange between 2019 and 2022.

Moreover, for clients who’ve started an IVA with StepChange, our research has found that 97% had an excellent experience, while 93% had seen some improvement in their situation within 3 months.

These statistics clearly show how effective well-administered IVAs can be, but if problems persist in the market, we will continue to see many more millions of pounds lost to failed IVAs in the coming years.

Here are four things we’d like to see to turn the tide on poor IVA outcomes.

1. Tighten regulations around advice

Consumer protection policy for the IVA and related debt solutions market is currently split between the FCA, the Insolvency Service and HM Treasury. There are different standards for advice, for redress and for supervision. There is no good reason for this. Policy makers need to close this gap, take action to improve online promotions, and quickly introduce tougher firm-level regulation of IVA firms with requirements, sanctions and redress more closely aligned with the FCA approach. Regulatory supervision needs to work better across the whole debt solutions market.

2. Rethink cost incentives

The way IVAs are currently structured means the administration costs — usually around £3,500 — are front-loaded and paid off by consumers well before their debts are. Not only does this leave the risk of IVA failure weighted heavily on consumers, but it also incentivises Insolvency Practitioners to sell IVAs that may not be suitable given their fees will be paid off well before the end of the 5–6-year term. This could be remedied by spreading IVA fees more evenly across the term of the agreement, thereby allowing more of the debt to be paid off quicker and increasing incentives for providers to work with their clients to stay on an IVA if they’re in danger of it failing.

3. Ban predatory advertising

Thousands of people each year find themselves drawn in by predatory advertising that promises to write off up to 80% write-off of debts. Transparency on fees and risks that would help consumers make informed decisions are always less than prominent on IVA and debt solution websites.

Meanwhile, we are still seeing firms impersonating charities to lure people in. These adverts are targeted at people seeking help and advice but give a narrow view of the debt advice eco-system, preying on people’s lack of knowledge to push them towards a potentially unsuitable solution. Tighter rules on online advertising to stop unsuitable solutions appearing when people search for debt help, alongside regulators better identifying and closing down harmful firms would go a long way to stop people being mis-sold solutions.

4. More vigilance from creditors

While the bulk of the administration of an IVA falls to Insolvency Practitioners, it is still up to each creditor to agree to a proposed IVA before it goes through. As part of the FCA’s Consumer Duty, it should be incumbent on all creditors and debt buyers to ensure the sustainability of an IVA before they agree to its proposal, to ensure good outcomes and to avoid unnecessary consumer harm.

In short, there’s much to be done to change a market that has the potential to work well but is being undone by too many regulatory shortcomings and unscrupulous actors. It will take root and branch reform and a willingness on behalf of IVA providers, including StepChange, to amend their practices to better serve consumers and protect them from failure.

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StepChange Debt Charity
StepChange Debt Charity

Written by StepChange Debt Charity

We provide free, impartial debt advice and solutions to anyone struggling with debt problems in the UK.

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