Online loan sharks are posing as a charity to pocket fees

People struggling with debt during the pandemic are being “hoodwinked” by online loan firms claiming to help.

StepChange, which offers free debt advice, says it is being impersonated online by firms who earn commission to set up repayment plans.

The charity raised the alarm after the latest government figures indicate a large debt repayment failure rate on loans known as IVAs, which suggests many agreements are unsuitable and missold.

“It’s crucial, as we head out of the pandemic period, that people struggling with a Covid debt legacy aren’t inadvertently hoodwinked into taking out an IVA by unscrupulous sales practices,” said Stepchange’s head of insolvency services, Peter Wordsworth.

Stepchange said it is “calling for a review of the personal insolvency landscape, to improve how it works for consumers and ensure that the regulation of this important but often neglected sector is fit for purpose.”

The Insolvency Service, part of the Department for Business, has also flagged the issue as a suspicious number of loan agreements end early. Many Individual Voluntary Arrangements (IVAs), which usually last five years, are being terminated after two or three years, according to recent official data.

StepChange is calling for tighter regulation as more than a fifth of the IVAs taken out in 2018 have already been terminated. The organisation has urged people to be wary of debt agencies that make aggressive calls and pressure callers to take out expensive agreements. 

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StepChange said it’s telling that they arranged fewer IVAs over the past year mainly due to the pandemic, yet overall the number of IVAs sold in 2020 was almost unchanged from 2019, at over 78,000.

Peter Wordsworth, head of Insolvency Services at StepChange said that poor advertising was “the underlying driver for much online charity impersonation by lead generators”.

He said: “IVAs are absolutely right for some people, but not for all. We are highly doubtful whether everyone who is being sold an IVA should be getting one.

“Our own experience of having to deal with a large number of misleading advertisers pretending to be StepChange in order to generate leads for commercial IVA sales, underpins this view.”