FCA proposes ban on debt packager referral fees to protect consumers

Nov 22, 2021 12:00:00 AM

What has happened?

In November 2021, the FCA proposed, in its consultation paper CP 21/30, banning debt packager firms from being paid to refer customers on to other firms.

The consultation is open until 22 December. Subject to the consultation, the FCA expects that new rules could come into force in April 2022.

What do you need to do?

The FCA explains that debt packagers are regulated providers of debt advice that refer customers on to other providers of debt solutions. They rely on income from referral fees paid by these other firms, which can be many times higher when consumers are referred to an Insolvency Practitioner for an Individual Voluntary Arrangement (IVA) or a Protected Trust Deed (PTD). Debt packagers, therefore, have a conflict of interest between giving advice in the customer’s best interest and making a recommendation that makes them more money.

The FCA believes that this business model puts consumers at risk of considerable harm from unsuitable debt advice. It has seen evidence of debt packagers appearing to have manipulated customers’ details so that they meet the criteria for IVAs or PTDs and using persuasive language to promote products without explaining the risks involved.

The FCA had set out concerns in 2018 and 2020 around the quality of advice provided by debt packagers and its recent supervision work has identified further issues, noting that businesses often set up a sales process rather than an advice process. The proposals would protect consumers by banning debt packagers from accepting referral fees, thus eliminating the current business model for these firms.

How can we help you?

If you’d like to know more about how we can help you with your debt packaging arrangements, or with any other regulatory compliance issues, our expert team is here to help.

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