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What has happened?

Following an FCA review of the practices of debt packager firms, it was announced in July 2021 that five such firms have stopped providing regulated debt advice until further notice and that the FCA has used formal powers to stop another firm from providing regulated advice.

The FCA has also published correspondence between FCA director Sheldon Mills and Dean Beale, CEO of the Insolvency Service, setting out how the two organisations are approaching these issues and working together to protect consumers who need debt advice and ensuring coordinated regulation across the two organisations.

What do you need to do?

Debt packager firms advise consumers on how to deal with their debts, often referring them to an Insolvency Practitioner or debt management firm, for which they receive referral fees, which can be many times higher when the firms refer consumers to an Insolvency Practitioner to potentially enter into an Individual Voluntary Arrangement (IVA), or Protected Trust Deed (PTD) in Scotland, than for other debt solutions. The FCA has made it very clear to firms that it expects them to manage this conflict of interest to ensure that their advice is right for consumers.

The FCA has identified concerns that some debt packager firms appear to have manipulated consumers’ income and expenditure to meet the criteria for an IVA or PTD, used persuasive language to promote these products to consumers without fully explaining the risks involved, and provided advice that did not accurately reflect their conversations with consumers or information that consumers had given. In some cases, the FCA’s view is that firms failed to sufficiently take into account consumers’ circumstances and vulnerabilities, including mental health issues and economic abuse.

Following the review, the FCA wrote to five firms identifying significant concerns over their practices and making clear its concern that the firms were continuing to offer advice to consumers while those issues remained unresolved. The firms subsequently applied for voluntary requirements to be imposed, which means that they can no longer provide regulated advice services until the FCA is satisfied that they can comply with the rules.

The FCA has also used its formal powers to remove another firm’s permission to provide debt advice. This firm was using a script for contact with consumers that appeared weighted towards recommending a debt solution that would have generated a referral fee for the firm, whether or not that was suitable for individual consumers.

The FCA is also considering policy changes to address the significant potential for harm through poor advice that the debt packager business model poses. If it concludes that changes are needed, it will consult on proposals later this year.

How can we help you?

If you’d like to know more about how we can help you with your debt packaging or debt counselling arrangements, or with any other regulatory compliance issues, our expert team is here to help.

Contact us today on 0207 436 0630 or email info@thistleinitiatives.co.uk.