The FCA has proposed a ban on debt packager firms receiving payment to refer customers on to other firms.
In its consultation, applicable to both debt packager firms and appointed representatives who act as debt packagers, the FCA outlines its proposed new rules which aim to reduce the risk of consumers receiving non-compliant debt advice biased towards debt solutions which may not meet their needs but generate referral fees for the debt advice firm.
As regulated providers of debt advice, debt packagers typically rely on the income generated from the referral fees paid by other providers of debt solutions. The FCA highlights that this can create a conflict of interest between giving advice in the customer’s best interest, and making a recommendation that makes debt packagers more money.
The FCA estimates that 54,000 people sought advice from a debt packager in the year to March 2020, with demand for debt advice rising.
The proposed ban on referral fees aims to prevent the potential for customer harm arising from the current business model of debt packager firms by preventing the business model from operating altogether.
The consultation is open now until 22 December 2021, and subject to the responses to the consultation, the FCA expects that new rules could come into force in April 2022.
Written by Brandon Wong.
“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... 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.” Sheldon Mills, Executive Director of Consumers and Competition at the FCA