Debt management firms must raise their game
The Financial Conduct Authority (FCA) says debt management firms must demonstrate they provide appropriate advice, do not charge unfair fees, and have adequate processes for handling client money when assessments for consumer credit authorisation start next month.
Firms that provide services which pose a higher risk to consumers will be assessed first, including debt management firms, payday lenders and credit brokers.
Victoria Raffe, director of authorisations at the FCA, said: “These firms are advising consumers who have often reached rock bottom, so it’s important that firms get it right. Many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.”
The process for authorisation will be more rigorous than the previous Office of Fair Trading licensing regime. The emphasis is on creating a sector that works well for both firms and consumers. The FCA expects all debt management firms to meet required standards, including:
a business model where customers benefit fully from the service offered, and fees are fair and transparent
providing suitable advice that takes into account a client’s circumstances and for debt solutions to be appropriate, affordable and sustainable
advice to be provided by trained staff whose interests are in getting the best outcomes for the customer, rather than driven by incentives
appropriate systems and controls that will protect client money
notifying the FCA if they have obtained a book of customers from a firm or a legal entity undertaking debt management
telling customers about free debt services and signposting them to the Money Advice Service for more information in their first communication with the customer.
The FCA has conducted targeted firm visits and has found that many debt management firms are failing to adequately follow the consumer credit rules brought in to provide additional protection for consumers in April. Since April:
we have issued final notices against two firms who have had their applications refused
seven firms’ bank accounts have been frozen to protect client money
two firms have entered administration
one firm is closed to all business
fourteen firms have agreed to stop taking on new business
seven firms have been directed to appoint a “skilled person” to report on the firm’s compliance with FCA rules
a further firm has cancelled its interim permission and will no longer provide debt management services
the FCA is also investigating a number of other debt management firms and individuals.
The application periods for firms with interim permission start in October 2014.