(COMPLIANCE TIPurgently review your firm’s advice standards, seek advice where necessary and make necessary changes promptly)

In its thematic review into the subject the Financial Conduct Authority (FCA) described the advice standards of commercial debt management firms as “unacceptably low”.

Five of the eight firms that participated in the review are undertaking wide-ranging reviews of past business, overseen by a skilled person. Two further firms are conducting focussed reviews, and these reviews could lead to customers being offered compensation.

The failings identified at some firms included:

• Inadequate assessment of customers’ financial circumstances (e.g. income, expenditure, debts, expected changes in circumstances) before making a recommendation
• Selling additional products to customers, such as packaged bank accounts, but not assessing the impact the cost of these products would have on their ability to repay debts
• Failing to make customers aware that free debt advice is available (this must be done at the start of the business relationship), or discouraging customers from taking this option. The FCA found one example of a firm incorrectly telling a customer that the not-for-profit sector was “owned by the banks.”
• Failing to identify vulnerable customers, or to treat them fairly
• Recommending debt management plans when other alternatives would have been more suitable for certain customers. These alternatives might have included bankruptcy, or Scotland’s Debt Payment Programme, where creditors are required to freeze interest and charges
• Failing to be transparent as to the fees to be charged, or charging fees that are so high that they impair customers’ ability to repay their debts
• Insisting that complaints are put in writing before they can be looked at (which contravenes FCA rules), or informing dissatisfied complainants that they had the right to refer the matter to a trade association (rather than the Financial Ombudsman Service)
• Very low levels of sales quality monitoring, or monitoring that was primarily focussed on adherence to sales scripts rather than delivering good outcomes for customers
• In general, failing to provide adequate resource to their compliance function

FCA forces debt manager to stop accepting new business

In June 2015, after pressure from the FCA, Stockport-based debt management firm PDHL agreed to stop accepting new clients and arranging new debt repayment plans.

It is not explicitly stated why the FCA has taken this action against the firm, however when it published its thematic review of debt management advice in June 2015, the FCA did not name the one firm that participated in the review that has agreed to stop taking new business while it makes significant changes. It is therefore unclear whether this refers to PDHL.