FCA begins review into debt management sector
A review of the debt management sector is underway, as the FCA is concerned that some firms' poor practices pose a high risk to customers.
The industry watchdog announced last week (October 19), that a thematic review of the debt management sector is expected to be complete at the start of 2019.
The FCA said this review is important because it needs to have the “best possible understanding” of how the market as a whole is working for consumers.
It wants to understand how providers are meeting the needs of customers, following its interventions in the market and other changes since its last thematic review.
In 2014, the FCA told debt management firms they needed to raise their game if they wanted to continue to operate. In 2015, it found significant concerns with the quality of advice being given by commercial providers.
Since then, the regulator has refused authorisation to a number of providers while others have left the market. Those that remain have had to show that they meet the FCA’s threshold conditions to get authorised.
This review will be based on a sample of both fee-charging and free-to-customer debt management providers. It will look at outcomes for customers from the service they get as well as the initial advice process.
The FCA wants to understand where there is good practice that helps consumers achieve positive results in dealing with their debts, as well as identifying areas for improvement.
It will also review customer case files and visit providers to interview staff and observe their processes and dealings with customers, as well as make full use of the information it already holds to minimise burdens on providers.
The FCA said it will take appropriate supervisory action if it finds firms are falling short of the standards it expects.
Mark Sands, chair of insolvency trade body R3’s Personal Insolvency Committee, said: “Debt management plans can be an effective way for individuals to come to an agreement with their creditors, while remaining outside a formal insolvency procedure.
“However, it can be difficult for vulnerable individuals to work out which is the most appropriate debt solution for their particular situation, and receiving misleading or incomplete advice can make individual debt problems much worse.”
He added that R3 supports the FCA’s efforts to highlight examples of bad practice and to remove unscrupulous firms from the market. Sands also said the body welcomes any move towards recording the number of existing debt management plans, in order to give a more accurate picture of the overall personal finance situation in the UK.