How can the debt advice sector navigate evolving financial landscapes?

December 2023 highlighted the nature of this shift, with the number of IVAs down 38% on the same month in 2022.

This decline in the number of registered IVAs isn’t surprising. We’ve seen the impact of not one, but two crises.

Firstly, the impact of Covid-19 and now the cost-of-living crisis. Household finances and attitudes across the country have been irreversibly changed.If anything, the figures simply confirm what many in the industry have felt for some time, the IVA market will never be the same.

While the number of registered IVAs have decreased, we’re seeing the rising importance of alternative debt solutions. Bankruptcy and Debt Relief Order (DRO) numbers were significantly higher compared to 2022.

This fluctuation shows the importance of debt help providers across the free and commercial sectors providing sustainable solutions for the tens of thousands of people in need of support.

Coincidentally, on the same day that the Insolvency Service published their figures, leading figures from the Money and Pensions Service and the not-for-profit debt advice sector presented evidence to the House of Commons’ Treasury Committee on debt advice provision.
 
In this session, many of the trends that are being seen across the sector were discussed. A rise in demand for debt advice generally, as well as concerning trends of rising costs for essentials like mortgages and rents pushing people into arrears and, alarmingly, a continued increase in the number of people who are falling into negative budgets because they cannot afford to live on their income.

Those present from the not-for-profit debt advice sector also outlined how they are struggling to cope with this rise in demand for their services.

The views of those across the not-for-profit and commercial debt support sectors have often been polarised, however we are in agreement regarding helping consumers deal with their debts. The current levels of demand for advice, alongside cuts to funding in the not-for-profit advice sector, highlight the clear need for the two groups to co-exist and work in tandem so that people can get the support they desperately need.

At Creditfix, for example, we successfully helped 24,037 people out of debt in 2023 and paid £140m to creditors in the process.

It’s important to point out that there isn’t a one size fits all debt solution, which is why we’ve moved away from solely providing IVAs so that we are able to ensure individuals not eligible for an IVA can find a sustainable solution.

In 2023 we arranged 12,826 IVAs but we also referred 4,230 people to the not-for-profit sector, were involved in placing 4,766 people into a Debt Management Plan (DMP) and 2,374 into a Debt Relief Order (DRO) We also transferred 2,497 other people to appropriate solution providers – that’s 13,867 people in total – more than the people that entered into IVAs.

The sector also saw the long-awaiting ban on third-party debt packager referral fees in 2023, which was a milestone moment. We saw the immediate impact of our self-imposed ban six months ahead of the FCA deadline in the fall in the number of IVAs we processed, as well as the number of Trust Deeds managed by our sister company Carrington Dean.

After many debt packagers exited the market due to the ban, we have seen an encouraging reduction in questionable advertising practices which will support a more ethical and transparent landscape for those seeking debt advice and assistance. At the same time, this will increase the demand for advice even further and require more regulatory overview into attempts by some to avoid the ban.

The industry is changing and it’s changing for the better. The current economic crisis is far reaching, and we need people searching for debt help to feel confident that they’ll receive not only quality advice but a solution that is sustainable.

Having stepped away from the day-to-day running of Creditfix in 2018, the changes we’ve seen in the insolvency landscape mean that I wanted to return to the helm to support our team to deliver the best possible solutions for those seeking help with debts.

With the ongoing cost of living crisis, the FCA’s ban on debt packager referral feeds and the importance of Consumer Duty, it’s clear the sector must continue to evolve to ensure the best outcomes for all.

Moving forward, we recognise the importance of collaboration within the industry to ensure that consumers are prioritised and protected. While we have made significant developments, we acknowledge that there is still work to be done both within our organisation and across the industry.