Between them, the Whitehursts ran First Step Finance, a debt management company licensed by the Office of Fair Trading (OFT) from 2007 to 2013, until its license was revoked in 2013.
The OFT found that First Step had ‘deceitful, oppressive, improper and unfair business practices.’
The FCA took over the regulation of consumer credit in April 2014 and has banned the Whitehursts from any involvement in regulated financial services activity. The FCA has also referred the Whitehursts to the City of London Police, who are considering the matter.
First Step’s clients were largely vulnerable individuals who sent monthly repayments to the firm, which told clients it would build a pot of money and use this pot to make a full and final settlement of their debts with the customer’s creditors. Instead of ringfencing the cash, the Whitehursts used clients’ money to fund their businesses and a luxurious lifestyle, spending over £500,000 on holidays, bars and restaurants and over £200,000 on luxury motor vehicles, including a Bentley, a Range Rover and a Ducati.
Over £1m of cash was transferred to Mr Whitehurst for his personal use. In addition, over £1m of client money was used for the benefit of firms associated with the Whitehursts and over £2.2m of client money was used to fund First Step’s expenses.
The firm’s customers are unable to recover their money as these losses are not covered by the Financial Services Compensation Scheme, and as such were left with continuing debts.
Abuse of trust
Mark Steward, executive director of enforcement and market Oversight, said: “The Whitehursts were trusted by their customers, who were extremely vulnerable, to help them with their debt problems. They abused this trust, living a luxury lifestyle at the expense of people who could not afford to lose their money.
“They showed complete disregard for the consequences of their actions and we have taken the strongest action possible in preventing them from operating in financial services again.”
The ban imposed by the FCA is the strongest sanction available in this case, as the Whitehursts’ conduct took place before the responsibility for regulation of consumer credit was transferred to the FCA.
The FCA said since it stepped in to regulate the debt management sector in 2014, a large number of firms have raised standards or left the market.
The Financial Conduct Authority (FCA) is reviewing the debt management sector as concerns about poor practice posing high risk to consumers remain one of its stated priorities.
The latest review is looking to understand how providers are meeting consumer needs following a preceding thematic review in 2015, which found “significant concerns with the quality of advice being given by commercial providers” and accused debt management firms of “failing Britain’s most vulnerable consumers.”