The Money Advice Trust and StepChange Debt Charity say that changes proposed by the insolvency industry do not go far enough to protect financially vulnerable people from harm.

The charities were responding to a consultation by the Joint Insolvency Committee on amendments to professional standards.

The pair of charities say they are particularly concerned about the practices of lead generation companies that Individual Voluntary Arrangements (IVA) providers pay for referrals and are calling for the Insolvency Service to develop stronger rules for insolvency practitioners (IP) who accept referrals from lead generation companies.

The charities say there are still too many examples of misleading online adverts for IVAs by lead generators on search engines, including Google despite its tightening up of advertising for debt management services, and social media platforms. These adverts often impersonate advice charities and can mislead people seeking help and use their data.

Lead generator ads and websites often make misleading claims about IVAs, the charities say. These harmful online adverts are incentivised by the referral fees which lead generators receive from IVA providers.

The charities are concerned that poor advertising practice is leading financially vulnerable people into unsuitable advice and debt solutions that are not appropriate for their circumstances, which can cause more financial harm and result in people paying unnecessary fees for the advice they are given.

The Insolvency Service’s 2018 review raised questions about how the commercial relationship between lead generators and IPs was incentivising inappropriate advice. Since then, the proportion of IVAs failing to deliver people the help they need has continued to rise. Figures showing increasing ‘break rates’ in the early years of IVAs are a particular concern – as is the disparity between the performance of IVAs arranged by different firms.

The insolvency industry response through revisions to its Code of Ethics and the statement of insolvency practice consultation are welcome and demonstrate awareness of problems in the IVA market, according to the two charities, but more needs to be done.

The charities say firms must be required to ensure that any leads they pay for are not the result of misleading or illegal online promotions by lead generators – an urgent first step in the much needed reform of the IVA sector.

Jane Tully, director of external affairs and partnerships at the Money Advice Trust, the charity that runs National Debtline and Business Debtline, said: “We see on a regular basis online adverts that make misleading claims about ‘debt write-offs’ and that impersonate free debt advice charities. These ads direct people to sites offering IVAs that can lead people in financial difficulty down a route unsuitable for their circumstances, causing further financial harm down the line.

“At a time when household budgets have been hit hard by Covid-19, it is crucial that people are protected and able to easily access the independent debt advice they need.”

Peter Tutton, StepChange head of policy, added: “We appreciate that efforts are underway to improve the current inadequacies in regulation, but the risk in the current market is that many people in problem debt following the pandemic may prove easy picking for predatory IVA lead generators. This absolutely must be addressed urgently if vulnerable people are to be protected from harm.”