FCA action taken against debt packagers

The regulator took this action after it identified concerns that some debt packagers appear to have manipulated consumers’ income and expenditure to meet the criteria for an individual voluntary arrangement (IVA) or a payable-through-draft (PTD). Additionally, it found some used persuasive language to promote these products to consumers without fully explaining the risks involved.

In some cases, the FCA’s view is that firms failed to sufficiently take into account customers’ circumstances and vulnerabilities, including mental health issues and economic abuse.

The FCA’s executive director of consumers and competition Sheldon Mills 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.”

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

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

As part of its priority work to ensure that consumer credit markets work well for consumers, the FCA is considering policy changes to address the 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.

In addition to this, the FCA has published correspondence between Mills and the Insolvency Service’s chief executive Dean Beale. This sets out how the two organisations are approaching these issues and working together to protect consumers who need debt advice.

Commenting on this news, StepChange Debt Charity’s head of policy Peter Tutton said: “Action by the FCA and Insolvency Service to reform the IVA market can’t come soon enough. For too long, consumers have faced significant barriers to getting the help they need - instead of free, impartial debt advice, many are falling prey to IVA lead generators.

“In 2018, the Insolvency Service highlighted how the commercial relationship between lead generators and insolvency practitioners was incentivising inappropriate advice. Since then, bad practice by lead generators has continued.

“If IVAs are to work for everyone, lead generators and IVA providers must be properly regulated, while firms should be required to guarantee that any leads they pay for are not the result of misleading or illegal online promotions by lead generators at any point in the client acquisition chain.

“Dealing with problems such as these will help ensure high quality, free debt advice is available to the financially vulnerable people who need it.”