A debt management director has received a 15 month jail sentence, suspended for two years, and been ordered to carry out 200 hours of community service. David Hall – a director of Debts Reduced Limited, Linked Finance Limited and an additional firm in his own name – was found guilty at Cardiff Crown Court of fraud by abuse of position.

The regulator, the Financial Conduct Authority (FCA), which assisted South Wales Police in Mr Hall’s prosecution, issued a statement following the sentence.

The court heard that Mr Hall charged his customers £10 per month for a product known as a ‘Cover Plan’. The plan was designed to assist customers if their circumstances changed, thus preventing them from making payments into their debt management plan. However, the customers had not consented to paying for this cover, and Mr Hall could not supply any correspondence which made customers aware they were paying for this.

The three firms did not take on new business after May 21 2014, and the FCA says that all affected customers have received full refunds. Mr Hall agreed to an FCA request to cease accepting new business, to make refunds to affected customers and to wind down the firms in an orderly manner. Once the regulator was satisfied that all monies had been returned to customers, the interim permissions of the three firms were cancelled.

The case highlights the importance of treating customers fairly, and specifically of ensuring that customers are never paying for a product without their knowledge or consent. Communications with customers must be clear, fair and not misleading.

Debt management firms can continue to expect close scrutiny, as the FCA regards them as high risk. Most firms visited by the regulator will not end up in court, but firms that fail to comply with regulatory requirements could see their interim permissions cancelled, or could be subject to regulatory action.

Basic obligations for debt managers under the FCA regulations include:

• All debt solutions must be affordable for the customer
• In its first communication with a customer, a firm carrying out debt management activities must make them aware that free debt counselling, debt adjusting and credit information services are available, and that more information can be obtained by contacting the Money Advice Service
• Firms need to have documented procedures for the treatment of vulnerable customers, and ensure that these procedures are followed when applicable. They must also be able to identify vulnerable customers, which might include those with mental capacity issues, those with limited financial knowledge, the elderly or the disabled. Many customers seeking debt advice are likely to be ‘vulnerable’ in some way
• A firm’s fees and charges should not be so large that they prevent a customer from making repayments under the agreed debt solution. Firms should also have regard to the timing of fees and charges payments, and ensure that, as far as possible, these fees and charges are taken at times best suited to the customer
• When administering a debt management plan, a firm must ensure that it maintains regular contact with the customer and continually reviews the customer’s circumstances
• If a customer who previously has a good payment record on their plan then misses one or more payments, then the firm should treat this as evidence of a material change in the customer’s circumstances, and should therefore carry out a review of 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.