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IVA Early Settlement Loans – an option for those who are ready for their brighter future now?

Posted: 12th Apr 2017

Aperture has just concluded its annual spring seminar presentations with the free advice sector and – not unsurprisingly – the content pertaining to early settlement loans attracted most comment across all 14 venues.

The concept of early settlement itself is nothing new – IVAs are regularly brought to an early conclusion by way of a gift or loan from a third-party benefactor. However, the notion of an insolvent individual availing of unsecured borrowing to facilitate an early exit from the IVA has given rise to some concerns about the concept and the safe-guarding of individuals who – by virtue of their insolvency – may well be considered vulnerable.

To that end, it should be stressed that Aperture anticipated those concerns and very much understands them. However, comfort should be taken from the fact that the practice secured authorisation from the Financial Conduct Authority on 31 January 2017 and is the only volume personal insolvency practice (so far) to have achieved that status without previously having held any authorisation. Its permissions now facilitate the provision of a more holistic advice service in relation to the various debt options (the firm typically directs approximately 40% of individuals to seek a solution other than an IVA) and enables it to undertake credit broking activities in the context of early settlement loans.

In its application for authorisation from the Financial Conduct Authority, Aperture’s intentions were explicit and transparent because we believe that the option to avail of such a loan is wholly in keeping with our culture and ethos, namely, providing people with a brighter future post-insolvency.

Fundamentally, this is all about choice and affording those clients who demonstrate that they can manage their payments to the IVA an opportunity to move forward with their lives. It should be very clearly understood that not every client will meet the eligibility criteria to apply for a loan. Currently, clients need to be able to demonstrate that they have been subject to the IVA for greater than three years and that they have not missed two or more monthly payments in a rolling 24 month period up until that point. Furthermore – and crucially – even if a client meets the eligibility criteria, the decision to apply for an early settlement loan is entirely down to the individual and Aperture cannot guarantee loan acceptance; Sprout Loans will complete their own assessment of any loan application and the decision to approve will rest solely with them.

Where a client wishes to progress an application for an early settlement loan, Aperture will direct them to Sprout Loans – a business authorised by the Financial Conduct Authority which is 90% owned by Mark Allen (a former Partner at Grant Thornton UK LLP and one of the founders of the Grant Thornton IVA practice) and which seeks to provide a loan product to individuals who historically had no options due to their history.

In simple terms, the Sprout Loans’ offering and Aperture’s role in the process is borne from an excellent understanding of the IVA market and also the financial and emotional impact that an IVA can have on an individual. Aperture does not receive any referral fee or commission but believes that individuals who are committed to their IVA, who can evidence that they have learnt from their experience through an excellent payment record and who can manage their monthly budget, should be able to draw on that learning to find a way out of the IVA if that is what they wish to do. It is our belief that the existence of the early settlement loan option will serve to encourage individuals to better manage their IVA payments and – very importantly – that the settlement process is an empowering one as it is only possible because of the client’s hard work through the IVA.

From the client’s perspective, the IVA will complete much earlier than originally envisaged but with all the same benefits – the balance of their debts will be written off, their details will be removed from the Insolvency Register earlier than originally anticipated and the maintenance of regular repayments to Sprout Loans should be a positive contributory factor to the individual’s credit profile.

From a creditor perspective, they receive a return wholly in keeping with that originally envisaged under the IVA – only considerably earlier – and so the risk of a drastic change in circumstances impacting the viability of an IVA in years 4, 5 (or 6) is mitigated.

Ultimately, this is a new venture for all involved and time will tell how much of a role it has to play in the long term. However, the initial feedback from clients has been very positive and Aperture are proud to be at the forefront of an offering which – we think – has the potential to change the IVA landscape for the better for all.

It should be remembered that the bankruptcy regime has been relaxed in recent years through the enactment of the Enterprise Act, the introduction of the Debt Relief Order process and the considerable increase in the indebtedness level associated with that solution last October. And yet, there has been no substantive change to the IVA mechanism with arrangements continuing to have a five or six year duration.

The Early Settlement Loan represents a potential evolution to the current IVA model that would facilitate a relaxing of the time-burden of the arrangement without prejudicing creditor return and – whilst the option will not suit or even be available to all clients – we believe it can deliver a real benefit to those who meet the criteria and are ready to return to solvency and begin building the future that they had all but abandoned prior to undertaking their IVA journey.

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