FCA proposal to ban debt packager referral fees to protect consumers

Our personal finance campaigner comments on the regulator's plans.

• Debt packagers are regulated providers of debt advice, who refer customers on to other providers of debt solutions. They rely on income from referral fees paid by these other firms.
• These fees can be many times higher when consumers are referred to an Insolvency Practitioner for an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD).
• This means that debt packagers have a conflict of interest between giving advice in the customer’s best interest, and making a recommendation that makes them more money
• The Financial Conduct Authority’s proposals would protect consumers by banning debt packagers from accepting referral fees – eliminating the current business model for these firms. 

Myron Jobson, Personal Finance Campaigner, interactive investor, says: “It is high time the regulator takes action to address the conflict of interest that financially incentivises debt packagers to push those struggling with debt to an insolvency practitioner to potentially enter an IVA or PTD even if it is not in the consumer’s best interest.

“People who have debt or financial stress often report that it affects their physical and emotional health. The last thing consumers saddled with debt need is to stress about whether they can trust the person whose job it is to get them out of financial peril. The need for sound debt advice has never been more important at a time where many are still reeling from a loss in income, or worse, redundancy during the pandemic.

“Those struggling with debt do not have to suffer in silence – there is support out there. They should act swiftly and contact their creditors for more support. The FCA expects creditors to exercise leniency to those who are struggling financially, and to act in accordance with the customer’s best interests at this moment in time – in context of the financial pressures brought about by the pandemic.”