We recently engaged with the FCA on a debt packaging authorisation application that we have been instructed on. The engagement with the FCA was by way of conference call which included a Senior Associate and Technical Specialist. We subsequently had a separate call with the Technical Specialist to the debt packaging sub-sector more broadly.
The FCA highlighted the potential consumer harm that it is observing in the debt packaging sector being caused by the potential conflicts of interest created by the remuneration model of debt packagers, namely that debt packagers are incentivised to introduce customers to commercial debt solution providers on their panels by way of having introducer fee arrangements.
The FCA relayed that this is particularly the case in relation to IVA referrals which typically command the highest introducer fees and creates a situation where debt packagers either refer a customer to an IVA provider or, if not eligible or suitable for an IVA, they refer the customer to the not-for-profit sector (i.e. essentially operating an ‘IVA or nothing’ arrangement).
It is recommended that debt packagers consistently provide independent and suitable advice that is not influenced by its commercial arrangements with commercial debt solution providers and that debt packagers seek to diversify the debt solution providers on their panels and provide more support to customers that are referred to the not-for-profit debt advice sector beyond merely providing those customers the contact details of the relevant debt advice charities (e.g. exploring proactive referrals such as hotkey transfers and sharing I&E assessments with debt advice charities).