Capital One, one of Britain’s biggest credit card providers, is refusing to pay “excessive” fees charged by companies that encourage people to go bankrupt.

The bank has written to debt management companies to tell them that from June 4 it will not agree to individual voluntary arrangements (IVAs) with attached fees of more than £4,500.

Capital One wrote: “We believe that current IP [insolvency practitioner] fees are in most cases excessive and not proportionate to the amount of work involved.” The bank said that it was likely to reduce the £4,500 threshold over time, as IVA companies became more efficient.

It is the latest move in a fight-back by banks against a deluge of IVAs during the past 18 months, as Britons, hit by rising interest rates and household bills, defaulted on a record amount of personal debt.

Lenders wrote off £6.6 billion in personal debts last year and the figure could hit £7.2 billion for 2007, according to analysts at Citigroup.

At the end of this month, the British Bankers’ Association (BBA) is expected to unveil a code of conduct covering the banks’ dealings with IVA companies. Lenders are likely to take a harder stance on the level of fees they will accept.

IVAs are an agreement between a debtor and their bank, brokered by the debt management company, in which the bank agrees to write off a portion of the debt in return for the rest being repaid over a set period.

For their service, the IVA company takes a fee of as much as £8,000 from the sum to be repaid. Banks are concerned that these fees are usually front-loaded, which means that a debtor can make repayments for years without reducing their debt, and are out of proportion to the level of debt being repaid or the work involved.

Capital One said that it would not pay a fee of more than £1,500 for setting up the initial IVA agreement. Debt management companies that charged more than 15 per cent of the total amount being repaid in return for overseeing the repayments would also be turned down, the bank said.

In its letter, Capital One said: “We believe that the above thresholds remain very significantly higher than the costs that would be incurred by efficient IVA providers.”

A BBA spokeswoman said yesterday that the industry working group developing the code of conduct would meet next on May 31. She said, however, that there was no guarantee that an agreement would be reached on the appropriate level of fees.

To control their IVA costs, some banks, including HSBC, have begun to deal with their IVA cases in bulk through the Debt Exchange, a system that allows them to negotiate fees with debt management firms.

Leading debt management companies have told investors in recent months that business conditions were becoming increasingly tough, as lenders bargained more aggressively on the level of cash repaid to them by debtors. Three top IVA companies – Debtmatters Group, Debt Free Direct and Accuma – have also blamed greater competition in the sector for their difficulties.

Ben Archer, an analyst with Charles Stanley, said: “The code of conduct should be a real catalyst for the industry. It’ll remove the uncertainty.”

ClearDebt, a debt management company that runs a low-fee model, said that it was glad that IVA fees were finally going to be knocked down. David Mond, chief executive of ClearDebt, said: “This situation was allowed to continue until the gravy train hit the buffers.”

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