Financial Conduct Authority bans debt management firms

Three debt management companies have been banned by the Financial Conduct Authority from offering their services. The firms impacted include Clear View, Haydon Associates Debt Management Consultants, and also Sterling Financial Security. The companies were only using a small percentage of the fees being charged to their customers for actual debt reduction. Most of the money was being used for other purposes.

About 3,000 customers signed up for the plans offered by these companies and will be impacted. Most of those individuals will benefit from the FCA decision as they were being greatly overcharge by the firms for the services they were receiving.

The companies were taking up to 90 per cent of the money being paid to them by these customers for fees. Only about 10% of the repayments being made were going to pay down a customers debts. So for every pound paid, only 10p was being used for the intended purpose. This is unacceptable practice for any firm.

It also turns out that most of these people, if not all of them, were not sent written statements telling the person how much they owe. So they did not know that up to 90% of the money they were sending to a repayment plan run by a company such as Sterling Financial Security was not being used to help them eliminate any debts they had.

Steps taken by the FCA on the debt management providers

While the 3 companies have been warned and are being banned from operating, the Financial Conduct Authority is also warning other consumers. They recommend that anyone that has used Sterling Financial Security or Clear View should check their statements as soon as possible. They should determine how much in arrears they still are on their debts and what exactly has been done with the money they thought they were repaying.

These firms can no longer offer their debt management services in the UK. They are stripped of their ability to negotiate with creditors or collect any type of fees from consumers. They were in effect operating illegally and not following the rules. In effect, they have been completely banned from operating by the Financial Conduct Authority watchdog agency.

Other counselling agencies are also being reviewed by the watchdog. If someone is seeking advice for dealing their unpaid bills, they can turn to any number of agencies that offer help with debt arrears. Many of the firms even offer their advice for free.

The authorities have started this process to determine if any other firms are operating illegally or are not notifying their customers as to what the monthly fees are and what the money is being used for. Most of the debt management companies will even need to submit new applications to the FCA to continue to operate.

The profit-driven debt management companies can provide a valuable service to struggling families. But if anyone wants to use their services, they need to make sure they closely assess the written statements given to them that will show how much of their repayment are for debts or fees. If they are not sure, families can always turn to the National Debtline instead of firms such as Haydon Associates.