FCA: debt management firms are failing vulnerable consumers

The debt management sector remains one of the UK's highest risk consumer credit sectors, according to an FCA review into the advice provided by firms and whether customers are treated fairly.

Related topics:  Finance News
Rozi Jones
25th June 2015
FCA

The review found that the quality of the advice provided by some fee-charging debt management firms was unacceptably low, and while 'free-to-customer’ firms were generally of a higher standard, there is "still room for improvement".

Worryingly, the FCA found that vulnerable customers were being encouraged to purchase products and services which were not suitable and impeded their ability to repay their debts

Linda Woodall, acting director of Retail Supervision at the FCA, said:

“People who turn to debt management firms do so as a last resort. When they find themselves in this position it is vital that they are able to access suitable advice that allows them to make informed decisions about their future. Debt Management firms play a critical role in the consumer credit market, but far too many are not meeting the standards we expect and we will be looking for significant improvement."

All debt management firms are required to have clear and effective policies in place to identify and deal with vulnerable consumers. However, the FCA found that some firms even failed to identify those customers who had recently disclosed important information about themselves, for example, significant medical problems or difficulties understanding financial or legal issues.

The review also uncovered failures and inaccuracies in the information provided by advisers eager to sign people up to a debt management plan with their firm. One fee-charging firm misleadingly told a customer that the free sector was “owned by the banks” and that the customer should only use the free sector if “they were prepared to do all the work themselves”.

Firms also failed to properly consider alternative options to DMPs. One customer on a low income told an adviser that she had considered bankruptcy but did not want to lose her car. The adviser not only failed to tell her this assumption may have been incorrect, but recommended a debt management plan that would take 125 years to pay off.

Most debt management firms are now going through the assessment process for FCA authorisation. If firms wish to continue providing debt management services, they will have to demonstrate that they meet the consumer credit rules, including treating customers fairly. At this time the FCA will also assess the level of fees charged by fee-charging debt management firms.

Nicolas Frankcom, money expert at uSwitch.com, said:

“Unscrupulous debt management firms are now in the crosshairs of the FCA, and quite rightly so. The market is out of control and needs cleaning up, just as the payday loans sector was over the past few years. Far too often, vulnerable members of society are being placed on inappropriate repayment plans. The firms claim to offer debt management solutions, but in some cases are instead adding to the problem."

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.