Debt management sector to be reviewed amid ‘poor practice’ fears
The financial regulator is reviewing the debt management sector over concerns ‘poor practice’ may be putting consumers at higher risk.
The review, announced by the Financial Conduct Authority (FCA), is looking to understand how providers are meeting consumer needs following a preceding thematic review in 2015, which found “significant concerns with the quality of advice being given by commercial providers”. It also accused debt management firms of “failing Britain’s most vulnerable consumers.”
Since 2015, the FCA said that a number of providers have been refused authorisation while others have left the market. Providers that have stayed in the market have had to provide evidence of compliance with the FCA’s threshold conditions. But, the regulator said that debt management remains a priority as poor practice by debt management firms poses a high risk to consumers, particularly those in vulnerable circumstances.
The review will tackle both fee-charging and free-to-customer debt management providers by examining the outcomes for consumers from the service given as well as the quality of the initial advice process.
In addition to employing existing findings from the previous thematic review, information from firms’ applications, complaints data, and intelligence from supervisory contact with firms – the FCA will also look at customer case files and visit providers for closer observation.
The review announcement comes amidst a series of moves by the FCA to address consumer vulnerability.
Results from the FCA’s Financial Lives survey, released earlier this week, found that half the UK public displayed characteristics of being “potentially vulnerable” – defined as being at risk of suffering disproportionately if things go wrong.
The same report found that only 40% of UK consumers had confidence in the financial services industry. And 13%, or one in eight people who received advice in the past 12 months, believed their financial advisers had at one point given them bad advice.
Earlier this month, in a speech given by FCA chief executive, Andrew Bailey, he highlighted the dangers posed to vulnerable consumers by high cost credit and banks’ lending practices – suggesting that fundamental reforms were necessary to ensure credit accessibility and affordability to the approximately five million Britons experiencing “real difficulties in paying off their balance”.
While the current review will be a broad assessment of the sector, the FCA warned that it will take “appropriate supervisory action” if firms are found to be “falling short of the standards”.
It expects to complete the review in Q1 2019.