The Financial Conduct Authority (FCA) is to move forward with plans to ban debt packager firms from receiving referral fees from debt solution providers.

A consultation is now open until 2 March, following analysis of the debt packager market by the regulator.

The FCA initially consulted on a ban in November 2021 after identifying a lack of adequate management of the conflict of interest between giving advice in the customer’s best interests, and recommending an option that makes the firms more money.

After analysing the feedback the FCA received to that consultation, the regulator decided to gather more evidence from the debt packager market. Firms representing two thirds of the market in customer numbers have either left or suspended their activities, since the FCA first raised concerns in July 2021.

Consumers who enter a debt solution which is not right for them, such as an Individual Voluntary Arrangement (IVA) or Protected Trust Deed, can face “dire consequences”, the FCA warned. For example, if a consumer is accepted onto an IVA following poor advice from a debt packager, when a Debt Relief Order would have been more suitable, it could cost them an extra £4,710 and take them five years longer to become debt free.

Executive director of consumers and competition at the FCA, Sheldon Mills, commented: “Many people are facing pressures on their finances due to the rising the cost of living, so it’s crucial they get good quality debt advice.

“Unsuitable or poor advice can really harm people’s financial lives. We want to stop this harm by removing the conflict of interest between firms giving advice in the customer’s best interest and recommending an option that makes firms more money.”

Share Story: