The Financial Conduct Authority (FCA) has published the results of its second thematic review of the debt management sector. In this review, the regulator examined the practices of both commercial firms and not-for-profit organisations that provide debt advice and administer debt management plans.

On a positive note, the FCA says that “most customers are getting better advice and outcomes today than was previously the case” when it compared its findings to those of the first thematic review. The corporate culture in most firms is now more focused on customer outcomes.

However, the study also found that two firms had “unacceptably poor standards and practices”, and one of these firms is now subject to additional supervisory action, and the other is now the subject of a formal investigation by the FCA’s Enforcement function.

Examples of the poor conduct exhibited by these two firms included:

  • Failing to identify an 87-year-old woman who was on a 95-year debt management plan as being vulnerable, even though she had told the firm she was uncomfortable with technology, figures and paperwork. The FCA also noted that the firm’s advisers talked over her rather than letting her speak freely, pressured her into signing documents and refused to offer assistance on occasions when she was showing clear signs of distress
  • Collecting payments from a customer for six months even though these payments were well beyond the customer’s means. Furthermore, the customer had been diagnosed with cancer

More generally, the FCA says that:

  • Eight of the 12 firms who participated in the study need to do more to improve their identification and treatment of vulnerable customers
  • There is a general need for firms to provide better advice to couples, or others seeking help together, noting that firms need to consider what debt solutions are suitable for each individual customer
  • Firms could do more to explain to customers how their recommended debt solutions work, and why their advice is suitable
  • Some firms failed to proactively identify or act on material information provided by customers, meaning that advice may not have been suitable for customers’ individual circumstances. Others failed to identify when customers’ circumstances had changed, and when the debt management plan payments may have become unaffordable
  • Improvement is needed in identifying the need to review a customer’s circumstances; and in recognising when it may be appropriate to adapt or consider the suitability of the customers’ debt management plans
  • Some firms were not responding to unrealistically low expenditure figures provided by customers, and the FCA cites the example of a customer who claimed to spend just £10 a week on food, toiletries and cleaning
  • Some firms were making errors in their assessments of customers’ income levels. Examples included multiplying the weekly bills by four and therefore underestimating how much the customer was paying monthly; and failing to identify if income was from zero-hour contracts, fixed-term contracts and agency work, all of which may indicate that the current level of income will not continue in the longer term
  • Some firms were not complying with the rule that requires firms to refer customers to an appropriate not-for-profit debt advice body if they are unable to afford the firm’s fees, or if they have other debt problems for which the firm is unable to assist

Jonathan Davidson, Executive Director of Supervision, Retail and Authorisation at the FCA, said:

“It is vital that consumers who need help with their debts get quality advice and, if they enter into a debt management plan, that they can afford the payments. We are pleased to see the progress that debt management firms have made in becoming compliant. Those who have focused their culture on what is best for their customers, and not just on compliance, have made the biggest strides.

“But many firms have more to do, particularly for more vulnerable consumers, and we have also found that a small number still have unacceptable standards and practices – so we are taking action to stop this.”

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