Debt advice firms chasing commission will be banned from cashing in on vulnerable households under plans announced today by the regulator.
The Financial Conduct Authority (FCA) wants to stop debt packager firms from harvesting referral fees worth thousands of pounds.
Money Mail has reported on fears that those struggling with debt are being pushed into repayment plans that might not be in their best interests — but pay advisers generous commission.
Victims: Those struggling with debt are being pushed into repayment plans that might not be in their best interests – but pay advisers generous commission
In July we told how some firms were fiddling figures to ensure their clients qualified for debt solutions that paid higher referral fees.
The FCA warned earlier this year that the debt advice market was ‘broken’ and risked causing harm as more households struggled with money in the pandemic.
The watchdog said advisers could pocket three times as much in commission by recommending a client for an Individual Voluntary Arrangement (IVA).
Debt advisers can scoop up £1,200 for referring a customer for an IVA, but £400 for a similar debt-management plan.
The FCA says signing up to the wrong debt solution could cost more than £4,000 extra and take five years longer to clear the debt.
Threat: The FCA warned earlier this year that the debt advice market was ‘broken’ and risked causing serious harm as more households struggled with money in the pandemic
It warned there was evidence debt advice firms were manipulating client income and expenditure to meet the criteria for plans that paid referral fees.
Sheldon Mills, executive director of consumers and competition at the FCA, says: ‘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 harmful advice. This is unacceptable, as people seeking debt advice are often in vulnerable positions.
‘Our proposals will address the inherent conflict of interest present in the debt packager business models.’
Consultation on the plan to ban referral fees is open until December 22, and the FCA expects new rules from April.
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