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Warning over ‘harmful’ debt packager firms

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The financial regulator has raised concerns that some debt packaging firms are profiting from advice which puts their customers at risk of harm.

Debt packager firms advise people on how to deal with debts, often referring them to an Insolvency Practitioner or debt management firm, for which they receive referral fees.

These fees can be many times higher when the firms refer consumers to an Insolvency Practitioner to potentially enter into an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD) in Scotland.

The Financial Conduct Authority (FCA) has identified concerns that some debt packager firms manipulated customers’ income and expenditure to meet the criteria for an IVA.

Firms also used persuasive language to promote these products to consumers without fully explaining the risks involved, the regulator said.

It also found some firms provided advice that did not accurately reflect their conversations with consumers or information that consumers had given.

In some cases, the FCA said firms failed to sufficiently take into account customers’ circumstances and vulnerabilities, including mental health issues and economic abuse.

Consumers who are wrongly advised to sign up to an IVA or PTD may suffer significant harm. They may struggle to keep up the repayments and if they cannot do so, their IVA or PTD may fail. If it fails at an early stage, repayments already made may have largely gone towards the fees for the IVA or PTD rather than paying down debts.

They may also have backdated interest and charges added to outstanding balances by creditors and they could be made bankrupt.

Sheldon Mills, executive director, consumers and competition at the FCA, said: “The practices we’ve seen in this sector fall far short of the standards we expect from firms, let alone those claiming to offer help to people in need. We will not allow firms to profit from debt advice which puts their customers at risk of harm.”

The FCA has written to five firms identifying significant concerns over their practices.

The firms all subsequently applied for voluntary requirements to be imposed, which mean that they can no longer provide regulated advice services until the FCA is satisfied that they can comply with the rules.

The FCA has also used its powers to remove another firm’s permission to provide debt advice.

The five firms which applied for voluntary requirements are:

    • Assist UK Group Limited
    • Two Financial Services Limited
    • Consumer Money Worries Ltd
    • Faith Financial Solutions Ltd
    • Debt Help Limited

The firm whose permission to provide debt advice was removed is Action On CIO.

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