FCA reviewing for-profit debt management firms

During 2015, the FCA watchdog agency is taking a closer look at debt management firms that charge their customers a fee for the work they do. There are dozens of those agencies and hundreds of individual counsellors that operate in this industry. Now the Financial Conduct Authority is taking a look at how they operate.

The review process will closely examine how they operate. This will include an assessment of the fees they charge as well as the quality of the advice they give. Over the years there have been reports of poor advice from some of these firms, and the FCA will now be taking a closer look at their operations. One provider even recommended a debt repayment plan that would last over 100 years to a person on low-income.

This assessment is all part of the responsibility of the Financial Conduct Authority for consumer credit, ranging from payday lenders to other matters. Any organisation that operates in this area can be scrutinised by the watchdog.

What is the FCA reviewing

First, the way the industry contacts individuals. Many people do not even call one of these debt management firms. Instead the company will call the consumer. Some of the firms will call a family if they have been declined access to credit or many a loan application was declined.

These means that a person’s personnel information is being sold by another party. Or this also opens up the door to maybe a debt company is contacting a person when they are most vulnerable, right after a loan has been denied to them.

The Financial Conduct Authority is also scrutinising the fees being charged. Some companies are charging as much as £100 a month to families on a low income. While there are rules over what the customer’s minimum income needs to be, some firms are not closely following this. The monthly cost of up to £100 per month is very high, and vulnerable families that are in debt are the least likely to be able to afford this.

Other fees are charged for bankruptcy advice or if a customer wants to enter into a payment plan on their debt arrears. Some firms are asking customers to pay for services which many be be stable for what their financial challenge is. Or they may be asking vulnerable customers to purchase products that actually put them more into debt because of the fees involved for the advice.

Some cousellors are also cross selling products to consumers on a low income as well. The Financial Conduct Authority has received reports of debt management firms also selling people products such as insurance or maybe payment protection insurance. So this is another practice that is facing a close review by the watchdog agency.

The FCA is not only looking at how high the costs are for these services, but there is also a close review as to the quality of the advice being given. A key question being assessed is whether these companies are giving low quality advice to those families that a low income and in which their debts are spiraling out of control.

For now, there are a few recommendations for anyone in debt arrears. One is to always look for free advice first from one of the many not-for-profit firms, such as National Debtline. Also, when the FCA review is done, some customers may be given compensation for any bad advice they were given. So people should follow the results of this review as they may be able to file a claim if they used one of these firms.