Debt management firms need to improve dealings with customers, says FCA

Many debt management firms should do more to improve the way they deal with customers, particularly those who are more vulnerable, the City regulator has found.

The Financial Conduct Authority (FCA) has been putting a spotlight on the sector, looking at commercial and not-for-profit firms that provide advice and administer debt management plans to help customers deal with their debts.

The regulator said a small number of firms still have “unacceptable standards and practices” and it is taking action to stop this.

A review in 2015 found significant concerns with the quality of advice being given by commercial providers in particular.

But the FCA’s latest review found that most customers are now getting better advice and outcomes than previously was the case.

The regulator said that while firms’ identification and treatment of vulnerable consumers is generally better than at the time of its first review, two-thirds of the firms that the FCA looked at still needed to make improvements.

Firms need to improve the way a customer’s vulnerability is identified and recorded, with more consideration about how a customer’s vulnerability might affect the delivery and suitability of the debt advice.

They should also raise their understanding of why, when and how the firm should adapt to meet the individual needs of the customer, the FCA said.

The review also identified a general need for firms to provide better advice to couples, or others seeking help together.

It said some firms routinely failed to consider or discuss what debt solutions are available and suitable for each customer individually.

The FCA said it did find instances of “unacceptably poor standards and practices”.

For example, one firm failed to identify an 87-year-old widow on a 95-year debt management plan as vulnerable, despite her telling the firm several times that she had difficulty with technology and with figures and paperwork.

Another firm collected unaffordable payments from a vulnerable customer for six months, despite having been told that the customer was struggling financially and had had to give up work after being diagnosed with cancer.

The FCA has started supervisory action in these cases.

Jonathan Davidson, FCA executive director of supervision, retail and authorisation said: “We are pleased to see the progress that debt management firms have made in becoming compliant.

“Those who have focused their culture on what is best for their customers, and not just on compliance, have made the biggest strides.

“But many firms have more to do, particularly for more vulnerable consumers, and we have also found that a small number still have unacceptable standards and practices – so we are taking action to stop this.”

The FCA has given feedback to firms in the review and said firms should look at its findings and consider the implications for their business, including putting the situation right if customers have not received the treatment expected.

The FCA set out, on taking over responsibility for regulation of consumer credit in 2014, that firms in this sector needed to raise their game if they wanted to continue to operate.

It said the sector has changed considerably under FCA scrutiny and regulation – and only around one in eight commercial firms offering debt management plans that applied for authorisation to continue under the FCA regime subsequently achieved this.

People who are struggling with debt can access free, expert and independent advice by using the debt advice locator tool on the website of the Money Advice Service, which is part of the Single Financial Guidance Body, at https://www.moneyadviceservice.org.uk/en/tools/debt-advice-locator.

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