Debt packager referral fees to be banned under new FCA proposal

The Financial Conduct Authority (FCA) has proposed the banning of debt packager companies from being paid to refer customers on to other businesses.

The FCA claims that the proposals would protect consumers by banning debt packagers from accepting referral fees, which would eliminate the current business model for such companies.

Debt packagers are regulated providers of debt advice who refer customers on to other providers of debt solutions. This group rely on income from referral fees paid by these other firms, with the fees sometimes being many times higher when consumers are referred to an Insolvency Practitioner for an Individual Voluntary Arrangement or Protected Trust Deed.

This, the FCA claims, means that debt packagers have a conflict of interest between giving advice in the best interest of the customer and making a recommendation that makes them more money.

The FCA said that this business model ‘puts consumers at risk of considerable harm’ from unsuitable debt advice and claims it has seen evidence of debt packagers appearing to have manipulated customers’ details so they can meet the criteria for an IVA or PTD.

FCA executive director of consumers and competition Sheldon Mills said, “Debt advice needs to be good quality and meet the needs of consumers. Too often people who contact debt packagers for help are being given advice that could cause them harm. This is unacceptable, especially as people seeking debt advice are often in vulnerable circumstances.

“Our proposals will address the inherent conflict of interest present in the debt packager business models. This will help protect consumers who need support managing their debts.”

The consultation will be open until 22 December this year. The FCA expects the new rules could come into force in April 2022.

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