In 2018, the Financial Conduct Authority’s (FCA) review found that some firms appeared to manipulate customer income and expenditure, so they met the requirements for an individual voluntary arrangement (IVA) or protected trust deed (PTD) in Scotland.
Following the review, the regulator wrote to five firms highlighting its concerns with their practices as they continued to offer advice with these issues unresolved.
The firms agreed to stop providing advice until the regulator is satisfied they can be compliant.
The companies that applied for voluntary requirements include Assist UK Group, Two Financial Services, Consumer Money Worries, Faith Financial Solutions and Debt Help.
When debt packagers refer customers to insolvency practitioners or debt management firms, they receive fees. These fees are often higher when customers enter an IVA or PTD than for other solutions.
The letter said the FCA was worried the incentive to increase revenue was resulting in poor conduct and asked for communication with customers to be clear and fair.
It said it expected firms to manage the conflict of interest and advise on what is best for customers.
The review found persuasive language was used on customers to promote IVAs and PTDs without the risks being fully explained. It also found that advice given did not always reflect the conversations that were had with customers or the information customers had been given.
The FCA has also taken the view that some firms failed to consider customer circumstances and vulnerability, including mental health issues and economic abuse.
Furthermore, the FCA removed another firm’s permission to provide debt advice. It found Action On CIO was using a script for conversations with consumers that seemed weighted towards recommending a debt solution that would have generated a referral fee for the firm, regardless of whether it was suitable.
Additionally, the regulator has published correspondence between Sheldon Mills, executive director, consumers and competition at the FCA and Dean Beale, CEO of the Insolvency Service. This set out how the two organisations are working together to protect consumers and ensure co-ordinated regulation in the sector.
Mills said: “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. We will not allow firms to profit from debt advice which puts their customers at risk of harm.”