FCA slams ‘poor standards’ in debt packager firms with Dear CEO letter

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  • 16/10/2018
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FCA slams ‘poor standards’ in debt packager firms with Dear CEO letter
The Financial Conduct Authority (FCA) has sent a Dear CEO letter to the heads of debt packager firms warning it is “very concerned” about the sector’s “poor standards” which include prioritising referral fees over customer advice.

 

The regulator conducted an initial small sample survey of the industry and as a result said the poor standards may result in a further investigation by its enforcement division.

“This will continue to be an area of focus for us,” it added.

The regulator raised concerns that debt packager firms may be putting referral fees for individual voluntary agreements (IVAs) before providing the best solution to customers.

Its letter tells CEOs to review: the quality of debt advice given; the firm’s identification and treatment of vulnerable customers; financial promotions; and its systems and controls.

“We expect debt packager firms to ensure that their business model operates in a way that puts the fair treatment of customers at the heart of their business,” the FCA said.

It added: “We are concerned that the incentive to increase revenue streams could be a driver for a poor conduct culture in which firms may prioritise an IVA referral over a more appropriate solution. This may result in an inappropriate outcome for the customer.”

 

Most vulnerable customers

The regulator highlighted that in some circumstances, where a customer was incorrectly directed to an IVA and subsequently subject of a bankruptcy petition, much of their contributions could potentially have gone on fees and not repaid the debt.

It added that customers who were struggling to repay their debts could be among the most vulnerable in society.

“We expect your firm to have established policies and procedures that enable staff to appropriately identify and support vulnerable customers,” it said.

“This includes ensuring that timely referrals are made to free advice services, where appropriate.”

The FCA is already conducting a thematic review of the debt management industry but this letter was not a part of that work.

It concluded: “You must ensure customers receive appropriate debt advice that has regard to their best interests and that the debt solution they are advised on is suitable to their individual needs.”

 

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