The Financial Conduct Authority (FCA) is to push ahead with
proposals to ban debt packager firms from receiving referral fees
from debt solution providers, following further analysis of the
market.
The FCA initially consulted on a ban in November 2021 after
identifying a lack of adequate management of the conflict of
interest between giving advice in the customer’s best interests
and recommending an option that makes the firms more money.
Following analysis of the feedback the FCA received to that
consultation, it decided to gather some additional evidence from
the debt packager market to supplement its existing evidence
base.
A further short consultation will allow the FCA to update its
analysis of the market, by giving stakeholders the opportunity to
comment on the proposed ban of referral fees and provide insight
on any new developments in the market. If the proposals are
implemented, the measures would end the current debt packager
business model and may come in after a short implementation
period.
Firms representing two thirds of the market in customer numbers
have either left or suspended their activities, since the FCA
first raised concerns in July 2021.
Sheldon Mills, Executive Director of Consumers and
Competition at the FCA, said:
'Many people are facing pressures on their finances due to the
rising the cost of living, so it’s crucial they get good quality
debt advice.
'Unsuitable or poor advice can really harm people’s financial
lives. We want to stop this harm by removing the conflict of
interest between firms giving advice in the customer’s best
interest and recommending an option that makes firms more money.'
Consumers who enter a debt solution which is not right for them,
such as an Individual Voluntary Arrangement or Protected Trust
Deed, can face dire consequences. For example, if a consumer is
accepted onto an IVA following poor advice from a debt packager
when a Debt Relief Order would have been more suitable, this
could cost them an extra £4,710 and take them five years longer
to become debt free.
The FCA also proposes to clarify how unauthorised businesses, who
source potential customers and recommend a particular debt
solution provider to them for advice, may need to be authorised
by the FCA.
The FCA continues to prioritise its work to make sure
that credit markets work well for
borrowers and firms. It wants debt advice firms to provide a
high-quality debt advice service to consumers, helping them to
manage their debts and to access a suitable debt solution where
appropriate.
Notes to editors
-
The consultation is
open until 2 March.
-
Debt packagers are regulated providers of debt advice, who
refer indebted customers to debt solution providers. The debt
packager firms earn money from referral fees paid by these
solution providers which can be far higher when consumers are
referred to an Insolvency Practitioner for an Individual
Voluntary Arrangement (IVA) or Protected Trust Deed (PTD),
than a government scheme such as a Debt Relief Order. This
means that debt packagers have a conflict of interest between
giving advice in the customer’s best interest and
recommending an option that makes them more
money.
-
FCA proposes ban on debt
packager referral fees to protect consumers
-
Consumers who need help with their debts can get free and
impartial advice from the MoneyHelper
website provided by the Money and Pensions
Service.
-
To support consumers struggling with the cost of living, the
FCA has also:
- reminded lenders of how they should be supporting
borrowers in financial difficulty, including telling 32
lenders to make changes to the way they treat customers,
which led to seven firms paying £12m in compensation to
customers
- urged insurers to support struggling customers and to
make sure customers are protected from unnecessary products
and unfair penalties
- warned firms about unsuitable credit promotions. As a
result of the FCA’s work over 8,000 adverts were amended or
withdrawn last year, helping to protect consumers from being
misled.
-
See more on the FCA’s work to
help consumers struggling with the cost of living
rises.
- Find out more information about the FCA.
