The Financial Conduct Authority has taken action against debt packager firms after it found that some were prioritising fees over the needs of customers.
After a review of the sector, five firms have stopped providing regulated debt advice and the FCA has blocked another outfit from offering such advice.
Debt packagers advise consumers on how to deal with their borrowings. They often refer people to an insolvency practitioner and a debt management firm for which they receive referral fees. The fees can be much higher when the customer is referred for an individual voluntary agreement (IVA) or its Scottish equivalent.
The FCA said it found evidence that some firms manipulated customers’ income and spending to meet IVA criteria; persuaded customers to choose this option without explaining the risks; and gave advice that did not reflect the information consumers had provided.
After the FCA contacted five firms they asked for “voluntary requirements” to be imposed until the FCA is satisfied they can comply with rules. The regulator also forced a sixth firm to stop giving advice.
Consumers who are wrongly advised to sign up to an IVA may struggle to keep up repayments leading to them incurring further charges and potentially going bankrupt, the FCA said. It said it was considering policy changes to deal with potential harm from bad advice given by packager firms.
Sheldon Mills, the FCA’s head of consumers and competition, said: “The practices we’ve seen in this sector fall far short of the standards we expect from firms, let alone those claiming to offer help to people in need. We will not allow firms to profit from debt advice which puts their customers at risk of harm.”
