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FCA bans referral fees for debt packages

What has happened?

In June 2023, the FCA announced that it is banning, through its Policy Statement 23/5, certain providers of debt advice from receiving referral fees from debt solution providers.

The ban is intended to save consumers thousands of pounds in unnecessary fees and ensure they receive better quality debt advice. It is expected that it will put a stop to the business model which incentivises debt packagers to recommend certain options that make them more money rather than what is in the customer’s best interest.

What are the key points of the Policy Statement?

Debt packager firms earn money from fees paid when consumers are referred to solution providers such as an Insolvency Practitioner, for an Individual Voluntary Arrangement (IVA) in England, Wales and Northern Ireland or, in Scotland, a Protected Trust Deed (PTD). By contrast, some other solutions may be more suitable for some consumers, such as Debt Relief Orders (DRO) in England, Wales and Northern Ireland, or the Minimal Asset Process (MAP) in Scotland which do not earn debt packagers any fees.

Based on the FCA’s evidence, the median referral fee to debt packagers for IVAs in 2019-2020 was £940 and £1,340 for Scottish PTDs. IVA or PTD fees can cost consumers £3,650 or more over their lifetime whereas DROs cost £90 upfront in fees and MAPs cost £50, subject to eligibility.

The FCA has referred to evidence of debt packagers appearing to manipulate customers’ details so that they meet the criteria for IVAs/PTDs and using persuasive language to promote products without explaining the risks involved. In some of the worst cases identified, the FCA found evidence of customers in financial hardship who were recommended solutions which caused greater harm.

Existing debt packager firms will need to develop a new way of doing business by 2nd October 2023 or face regulatory action. The ban came into effect on 2nd June 2023 for new entrants to 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 this area in July 2021.

The FCA has also issued guidance about how unauthorised businesses that source potential customers and recommend them to debt solution providers that only offer one debt solution may need to be FCA authorised.

How can we help you?

Thistle Initiatives has supported debt firms for over 10 years as a trusted compliance and regulatory advisor. In addition to assisting you as-and-when, its team of specialists can serve as your right hand in meeting and complying with regulations. We understand the importance of staying up-to-date and compliant and are dedicated to providing the guidance and support needed to do so.

Are you looking for help with your debt packaging or debt advice arrangements, becoming FCA authorised, or more general regulatory questions? Contact our specialist team now to schedule a free consultation. Get in touch with us by calling 020 7436 0630 or sending an email to