Debt vultures banned from commissions to prevent vulnerable households from being pushed into bad repayment plans
- Debt consulting firms will be banned from cashing in vulnerable people
- FCA wants to prevent these companies from collecting referral commissions
People in debt are pushed into plans that may not be in their best interests
Debt consultancy firms seeking commissions will be banned from cashing in vulnerable households under plans announced today by the regulator.
The Financial Conduct Authority (FCA) wants to prevent debt conditioning companies from collecting referral fees worth thousands of pounds.
Money Mail has expressed fears that those struggling with debt will be pushed into repayment plans that may not be in their best interests – but pay generous commissions to advisers.
In July, we discussed how some companies were playing numbers to make sure their customers were eligible for debt solutions that paid higher referral fees.
The FCA warned earlier this year that the debt counseling market was “broken” and at risk of causing damage as more households struggled with cash during the pandemic.
The watchdog said advisers could pocket three times as many commissions by referring a client for an Individual Voluntary Agreement (IVA).
Debt management counselors can recover Â£ 1,200 for referring a client to an IVA, but Â£ 400 for a similar debt management plan.
FCA says taking out the wrong debt solution could cost over an additional Â£ 4,000 and take five more years to write off the debt.
The FCA warned earlier this year that the debt advice market was “broken” and at risk of causing damage
He warned that there was evidence that debt counseling firms were manipulating clients’ income and expenses to meet criteria for plans that paid referral fees.
Sheldon Mills, Executive Director of Consumer and Competition at FCA, says, âDebt advice needs to be of good quality and meet the needs of consumers.
âToo often, people who contact debt providers for help receive damaging advice.
âThis is unacceptable, because people who seek debt advice are often in vulnerable positions.
âOur proposals will address the conflict of interest inherent in the business models of loan companies. “
The consultation on the plan to ban referral fees is open until December 22, and the FCA is awaiting new rules from April.