Following a Financial Conduct Authority (FCA) review of debt packager firms, five companies have stopped providing regulated debt advice until further notice and the FCA has used formal powers to stop another firm from providing regulated advice.
The firms, which include, Assist UK Group, Two Financial Services, Consumer Money Worries, Faith Financial Solutions and Debt Help, all subsequently applied for voluntary requirements to be imposed.
This means that they can no longer provide regulated advice services until the FCA is satisfied that they can comply with the rules.
The FCA has also used its formal powers to remove Action On CIO’s permission to provide debt advice. This firm was using a script for contact with consumers that appeared to be weighted towards recommending a debt solution that would have generated a referral fee for the firm, whether or not that was suitable for individual consumers.
The FCA’s review identified concerns that some debt packager firms appear to have manipulated consumers’ income and expenditure to meet the criteria for an individual voluntary arrangement or a protected trust deed.
It also found that some used persuasive language to promote these products to consumers without fully explaining the risks involved and provided advice that did not accurately reflect their conversations with consumers or information that people had given.
In some cases, the FCA’s view is that firms failed to sufficiently take into account consumers’ circumstances and vulnerabilities, including mental health issues and economic abuse.
However, the regulator said it is not attributing any of the specific practices found in its review of the debt packager market to any of the individual firms that have stopped providing regulated debt advice.
The FCA has also published correspondence between Sheldon Mills, executive director, consumers and competition at the FCA and Insolvency Service chief executive Dean Beale setting out how the two organisations are working together to protect consumers who need debt advice.
Read more: FCA outlines progress of LCF recommendations
“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,” said Mills.
“We will not allow firms to profit from debt advice which puts their customers at risk of harm.”
As part of its work on consumer credit markets, set out in its the FCA’s 2021/2022 business plan, the regulator is also considering policy changes to address the significant potential for harm through poor advice that the debt packager business model poses.
If it concludes that changes are needed, the FCA said it will consult on proposals later this year.