The FCA is proposing a ban on debt packagers receiving a referral fee with the belief that a conflict of interest has arisen, which is negatively impacting consumers in their journey to becoming debt free.
Debt packagers provide regulated debt advice to consumers, and dependent upon their circumstances they can refer consumers to an Insolvency Practitioner for either an Individual Voluntary Arrangement (IVA) or a Protected Trust Deed (PTD). However as debt packagers can receive large referral fees for introducing a consumer to Insolvency Practitioners the FCA believes that some consumers details are being manipulated to suit the criteria and are being referred when this is not a suitable resolution for the consumer. Where a Debt Relief Order would be much more suitable consumers instead are being advised upon seeking an IVA or PTD, they believe this is in an attempt to bolster the debt packagers profits. As a way to negate this the FCA is seeking to protect consumers by banning debt packagers from receiving any referral fee at all. This essentially will eliminate the current business model for debt packagers but will see to ensure that consumers aren’t facing additional cost and time to become debt free. In the FCA press release the figures quoted were an additional cost of up to £4,710 and up to 5 years longer to becoming debt free if the IVA or PTD aren’t suitable for them.
With an increase in consumers seeking debt advice from debt packagers, rising to an estimated 54,000 in the year to March 2020 this could see a huge number of consumers being negatively impacted. However could there be a better resolution to this? The FCA is still seeking consultation on this until December 22, 2021 with any outcomes coming into force as soon as April 2022.