The Financial Conduct Authority (FCA) has announced that it has commenced a further thematic review of the debt management sector.
The regulator comments that:
“Debt management remains a priority for us as poor practice by debt management firms poses a high risk to consumers, particularly those in vulnerable circumstances. It is important that we have the best possible understanding of how the market as a whole is working for consumers. We want to understand how providers across this sector are meeting the needs of their customers.”
During the review, the FCA will assess both commercial and free-to-customer debt management organisations. By reviewing customer files, and visiting firms to interview staff and see their processes in action, the FCA aims to gain an understanding of:
- The effectiveness of the advice processes firms are using
- The outcomes to customers from the service they receive
The FCA says it wants “to understand where there is good practice that is helping consumers to achieve positive results in dealing with their debts, as well as identifying areas for improvement.”
Although the regulator says that the main purpose of the review is to carry out a broader assessment of how the sector is functioning, it warns that action could still be taken against individual firms who are found to be failing to comply with their obligations.
The review will not be completed until the first quarter of 2019.
Alongside its announcement that the review has commenced, the FCA has also taken the opportunity to remind debt management firms of the work it has previously carried out in this sector. This includes:
- Its initial warning to firms on taking over as consumer credit regulator in 2014. Victoria Raffe, director of authorisations at the FCA, commented at the time that “many firms are falling well short of our expectations and they will need to raise their game if they want to continue operating.” The FCA also set out its expectations of debt management firms at this initial stage, which included their obligations to explain their fee structure clearly and transparently, to provide suitable advice, to have sufficiently well-trained staff, and to act in customers’ interests regardless of any financial incentives on offer
- The first thematic review in 2015, which showed that some firms were failing to adequately assess customers’ financial circumstances before recommending a debt management solution, were not fully considering all alternatives to debt management plans, were not setting out the scope of their service and were encouraging vulnerable customers to purchase products which were not suitable and which made their debt position worse
- The November 2015 Dear CEO letter regarding the FCA’s expectations of debt management firms when customers and/or customers’ personal information are being transferred
- The December 2016 Dear CEO letter, which highlighted the need to carry out an annual review of each customer’s debt management plan, to assess whether they remained suitable for the customer’s circumstances
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.