The Financial Conduct Authority (FCA) has proposed banning debt packager firms from being paid to refer customers on to other firms.
The FCA is working closely with the regulators responsible for Insolvency Practitioners, who set up and administer Protected Trust Deeds in Scotland and the rest of UK equivalent solution known as an Individual Voluntary Arrangement (IVA) to address issues of mutual concern in these markets and share intelligence.
Increased regulation of the debt advice market should help protect people in debt, many of who are regarded as vulnerable. The consultation is open until 22 December. Subject to the consultation, the Financial Conduct Authority expects that new rules could come into force in April 2022.
What is a Debt Packager?
Debt packagers are regulated providers of debt advice, who refer people experiencing financial difficulties to other providers of debt solutions.
Income from referral fees are paid to debt packagers by the firms who ultimately administer the solution.
The debt packagers’ fees can be many times higher when consumers are referred to an Insolvency Practitioner for a Protected Trust Deed or an IVA than if they were referred for another debt management product such as DAS or a DMP.
This means that debt packagers have a conflict of interest between giving debt advice in the customer’s best interest, and making a recommendation that makes the debt packager more money.
Indeed, the FCA has already taken action in recent years against debt packagers who used persuasive language to promote debt relief products without appropriately explaining the risks involved. In July 2021, the FCA took action against debt packagers that breached their rules.
The FCA’s Response…
Sheldon Mills, who is the FCA’s Executive Director of Consumers and Competition said:
“Debt advice needs to be good quality and meet the needs of consumers. Too often people who contact debt packagers for help are being given advice that could cause them harm. This is unacceptable, especially as people seeking debt advice are often in vulnerable circumstances.
Our proposals will address the inherent conflict of interest present in the debt packager business models. This will help protect consumers who need support managing their debts.”
If you need help with your unaffordable debt, you can get free and impartial advice from MoneyHelper, through their website or by telephone on 0800 138 7777.
Trust Deed Scotland Response…
Thomas Fox, Managing Director and Insolvency Practitioner at Trust Deed Scotland said:
“This is a welcome move from the FCA, however, the FCA should be aware of the potential for debt packagers to try and find loopholes that will defeat the FCA’s intended outcome.
For example, will the fee per case become a general marketing fee or will packagers merge with or be acquired by IP firms and continue to trade, whilst providing the same poor quality advice?
Debt packagers may claim to be ‘lead generators’ who are not supposed to provide advice, in an attempt to stay outside of the FCA’s remit – unless this area is covered by this action too?
In general, any action that will improve the quality of debt advice and, therefore, protect consumers is to be welcomed and if this proposal is implemented it is likely to be a good starting point in substantially reducing the effect of harmful advice being provided by debt packagers.
It should also be noted, however, that not all debt packagers provide harmful advice and if the country loses the services of all debt packagers (harmful or not) then these services will need to be replaced.
That will not be easy at a time when demand for advice is likely to increase and the Government funded free advice sector is unable to meet that demand.”
Help with problem debt in Scotland
Trust Deed Scotland® provide tailored debt advice on all available debt solutions in Scotland. We make sure that our customers get personalised debt advice based on their affordability, lifestyle and needs.
Call us today on 0141 221 0999 for advice, or contact Trust Deed Scotland to find out more about the advantages and disadvantages of formal Scottish debt solutions.