Debt Management Firms “Disappoint” FCA
The Financial Conduct Authority (FCA) recently released the results of the thematic review of debt management firms. In the report, the FCA expressed intense frustration with firms surveyed, stating, “Our findings were very disappointing and have reaffirmed our view that poor debt management firms pose a high risk to consumers (particularly those in vulnerable circumstances) and, accordingly, to our objective to protect them.” The FCA review findings were particularly alarming regarding excessive fees charged to customers. The study found firms offering financial incentives to staff for cross-selling additional products, such as Payment Protection Insurance (PPI). Debt management firms were further cited for failure to properly assess foreseeable changes in customer circumstance, lack of clarity in disclosing services provided and associated fees, as well as encouraging customers to purchase services that could impair their ability to repay debt.
The FCA regulatory oversight was expanded to include consumer credit markets in April 2014. The new supervisory responsibilities mandate the FCA’s review of current and emerging risk in consumer credit markets. This is the second such review conducted since the agency took on these responsibilities, the first was on payday lending. The FCA conducted an in-depth evaluation of eight different firms, five of these firms are now required to have an independent party review past consumer advice, and one has agree not to bring on new business until first reviewing advice offered. Consumers that have a loss could be eligible to receive compensation. These firms may be subject to individual investigations and enforcement actions stemming from this review.
The FCA is also considering a broader investigation that would entail evaluating the authorization process for debt management firms. This further review would be conducted in collaboration with HM Treasury and the Insolvency Service, as well as the Money Advise Service (MAS), who plays a key role in improving quality, standards and access to debt advice services.