FCA ban debt packager firms from receiving referral fees

The ban applies to all new debt from today and will come into play for existing firms in October 2023. It follows a review that found “evidence of debt packagers appearing to manipulate customers’ details, meaning they meet the criteria for Individual Voluntary Arrangements (IVAs) or Protected Trust Deeds (PTDs) and using persuasive language to promote products without explaining the risks involved”.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Good quality debt advice is vital in helping people out of financial difficulty and poor advice can have a devastating impact on those who are already struggling. 

“This ban will put a stop to the business model that incentivises bad advice and reduce harm for consumers. We are giving existing firms four months to help them adapt.

Anyone struggling with debt can get free and impartial advice from MoneyHelper or other services.” 

 
Debt packagers are providers of debt advice, who refer customers to other providers of debt solutions and typically rely on income from referral fees, with these typically higher when consumers are referred to a insolvency practitioner for an IVA or PTD.  

In response to the news of the ban, the Money Advice Trust’s chief executive Joanna Elson said: “The FCA’s ban on referral fees for debt packager firms is welcome and marks an important step in tackling the harm caused by this practice.   

“Our advisers have seen the impact of this activity, with people saddled with high fees and a debt solution that simply isn’t right for them - all of which can set back their route out of debt by many years. 
“With budgets under ever increasing strain, ensuring anyone in financial difficulty can access free, and independent debt advice is more important than ever.   

“The Insolvency Service need to now match this action, by ending the practice of Insolvency Practitioners paying lead generator firms to direct people in financial difficulty toward potentially unsuitable debt solutions.   
“You should never have to pay for debt advice. I would urge anyone worried about their finances to contact a free debt service like National Debtline as soon as possible.”   

StepChange’s director of external affairs Richard Lane added: “After campaigning for several years to raise the alarm about these poor debt advice practices, we’re pleased to see the FCA take firm action in this area.  

“With more people falling into financial difficulty amidst high inflation and interest rates, it’s essential that consumers receive free and independent debt advice to determine the most appropriate solution for their needs. We expect this move to benefit thousands of consumers and reduce much of the misleading advertising for debt services online.”