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The number of people with crippling debts who have entered into controversial formal agreements to repay the money has reached an all-time high, new figures reveal.

Individual voluntary agreements (IVAs) registered in England and Wales totaled 81,199 in 2021, more than double the number in 2015, according to the Insolvency Service.

The figures have raised fears that vulnerable Britons are increasingly being lured into unsuitable legally binding plans by private debt management firms.

IVAs are court-approved agreements that typically last for five or six years and involve monthly repayment accepted by the creditor. Supervised by a specialist adviser, they are considered a full-fledged bankruptcy alternative for people who have assets to protect and sufficient reserve income to pay the monthly amount.

But they are claimed to be widely mis-sold and marketed as an easy fix by companies earning thousands in commissions and fees, although other solutions are often more appropriate.

Last year the Financial Conduct Authority (FCA) said the market was ‘broken’, with charities and free debt advice being ‘crowded out’ by companies earning up to £1,000 £ commission for each person they refer to insolvency practitioners.

He said exploitative marketing tactics and ‘potentially dangerous business models’ often lead to ‘poor results’ for those entering into IVAs, who then faced fees of up to £5,000 on top of the money they owed.

The FCA, which regulates debt management companies, has proposed banning referral fees for lead generators and plans to release a policy statement later this year.

But charities and financial experts have warned that many more people will be trapped in IVAs amid the rising cost of living, with adverts from IVA lead generation companies appearing at the top of Google searches for phrases such as “debt relief”.

On Friday, the energy price cap was raised by 54%, meaning millions of people are facing steep increases in their gas and electricity energy bills. Prices for food, petrol, diesel, council tax, water, car tax and other expenses have also increased.

Joe Cox, senior policy officer at anti-debt charity Jubilee Debt Campaign, said intermediaries earn “big commissions by encouraging the mis-selling of IVAs”. He added: “This means people in debt end up paying unnecessary fees for the wrong solution, leaving them stuck in extreme poverty and debt for years.”

Ed McDonagh, public policy advocate at anti-debt charity StepChange, said it was concerning that the number of IVAs had risen so sharply while other solutions to debt, such as bankruptcy and debt relief orders, had not done so. “We can be pretty sure that given that IVAs are the only debt solution that’s growing, a lot of that is down to really aggressive customer acquisition practices,” he said.

His charity had seen evidence of “manipulated budgets” to make it look like an individual could afford an IVA when they couldn’t. Many people who are ‘falsely sold’ IVAs should instead be placed on Debt Relief Orders, which are aimed at people with less than £30,000 in debt, few assets and low disposable income, and cancel all debts, he said.

“Many IVAs fail, which is quite cataclysmic for these people. They find that most of their payments have been paid in fees and their level of debt has not changed much, which can send them into a new spiral debt and the resulting stress, anxiety and depression,” McDonagh said.

According to government figures, IVAs accounted for almost three-quarters of all individual insolvencies in 2021, up from less than 50% before 2014. About a third of IVAs fail, according to the Insolvency Service.

Charities have raised concerns about the misleading marketing of IVAs by some lead generation companies, whose advertisements are often hard to distinguish from services that offer free, unbiased advice.

An advert that appeared last week to those searching online for ‘debt help’ promised to cancel 90% of debt and said it provided ‘legislative by government’ solutions. Another said: “Get in touch. Live a happy life.”

Last year, the Advertising Standards Authority (ASA) banned posts by three Instagram influencers who claimed people in financial difficulty could erase 85% of their debt. The ASA said adverts for Debt Slayers, a lead generator that refers people to third parties offering IVAs, were “misleading” because they failed to highlight the risks. Ashteck Media, trading as Debt Slayers, said at the time that its future ads would highlight the risks and that it had stopped using influencers. A spokesperson added on Saturday evening that the company had not fully understood how IVAs worked at the time of the adverts and had now stopped all promotion.

In a separate case in December, the watchdog ruled that another company offering an “alternative to bankruptcy” had misled customers by suggesting it was affiliated with the government-approved National Debtline.

The FCA said it was “focused on making the credit market work well for borrowers” and had proposed banning insolvency practitioner referral fees. A spokesperson said: “Where we have had significant concerns with debt advice companies, we have removed their permission to provide advice, or restrictions have been placed on them.

“We will continue to work closely with the Insolvency Service to resolve this issue.”

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