City watchdog clamps down on debt firms over quality of advice

The City regulator has clamped down on debt firms after finding some were potentially profiting from poor advice that was putting financially vulnerable people at risk.

The Financial Conduct Authority said some firms appeared to have “manipulated” people’s income and spending to ensure they were eligible for debt solutions that were more profitable for the firms.

As a result of the review, the FCA wrote to five firms identifying “significant concerns over their practices”. These five companies have now stopped providing regulated debt advice until further notice, and the watchdog used its formal powers to remove another company’s permission to give advice.

The clampdown involves so-called “debt packager” firms – otherwise known as IVA (individual voluntary arrangement) lead generators. These firms identify debtors, offer advice on solutions and refer them on to an insolvency practitioner or debt management company, for which they receive referral fees. An IVA is an agreement with creditors where the individual makes regular payments to an insolvency practitioner, who then divides this money between the creditors.

But the FCA has for some time been concerned about the fees that the debt packager firms receive can be many times higher for an IVA than for other debt solutions.

The regulator said it expected firms to manage this “conflict of interest” relating to the higher fees to ensure their advice was “right for consumers, not just firms’ financial interests”.

The latest review uncovered concerns that some debt packager firms “appear to have manipulated” people’s income and spending to meet the criteria for an IVA or its Scottish equivalent, a protected trust deed (PTD); used “persuasive language” to push these products without fully explaining the risks; and provided advice that did not accurately reflect their conversations with consumers or information that the individuals had given.

In some cases, the FCA’s view was that firms failed to sufficiently take into account people’s circumstances and vulnerabilities, including mental health issues and “economic abuse” that they had suffered – which can include putting debts in someone else’s name.

Sheldon Mills, the executive director of consumers and competition at the FCA, gesê: “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.”

Individuals wrongly advised to sign up to an IVA or PTD may end up struggling to keep up repayments, and some could ultimately be made bankrupt.

The five firms that applied for voluntary requirements to be imposed are: Assist UK Group, Two Financial Services, Consumer Money Worries, Faith Financial Solutions, and Debt Help. The firm whose permission to provide advice was removed is Action On CIO.





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