In 2014 the FCA took over responsibility for regulation of consumer credit. In 2015 it conducted its first thematic review of the debt management sector, looking at commercial and not-for-profit firms that provide debt advice and administer debt management plans. The FCA’s goal was to improve outcomes for customers in what is perceived to be a high risk sector in terms of potential customer detriment.
In its 2015 review, the FCA identified significant concerns with the quality of advice provided, particularly by commercial providers, and significant non-compliance with consumer credit rules. The FCA found an unacceptably low standard of advice provided by fee-charging debt management firms. Consequently, the FCA decided to engage in ongoing supervisory work to ensure debt management firms ‘raised their game’. To that end, it conducted a second thematic review, the results of which have just been published.
The Second Thematic Review
The second thematic review shows improvement since 2015. Most customers are now getting better advice. However, the FCA identified that two thirds of the firms under review still needed to make improvements in identifying and treating vulnerable consumers and in providing advice to couples and joint applicants, as firms repeatedly failed to consider suitability of debt solutions for each customer on an individual basis.
The FCA therefore identified two key areas where firms still need to make significant improvements going forward, namely:
- Advice given to customers seeking help together or who are already on a joint debt management plan and in particular the need to discuss suitable debt solutions for each customer individually.
- Identification and treatment of vulnerable customers, including consideration of how vulnerability may affect delivery and suitability of debt advice and the best interests of the customer.
The FCA also found that although firms were now devoting more time and resources to administering debt management plans, more improvement was still needed in identifying the need to review and adapt debt management plans in response to changes in customers’ circumstances.
The FCA noted that of the 311 commercial firms offering debt management plans that applied for authorisation to continue under the FCA regime, only 39 (around 1 in 8), were able to achieve this.
The FCA expects firms to review its findings from the 2019 thematic review and consider the implications for their business. The review includes examples of good and poor practice, which can be used by firms as a guide to identify and put right failures to give customers the quality of advice expected.
The FCA is taking further action to engage with firms where issues have persisted, including opening an enforcement investigation into one firm to date.
The FCA has also stressed that people struggling with debt can access free, expert, and independent advice using the debt advice locator tool on the Money Advice Service website, which is part of the Single Financial Guidance Body (SFGB). The SFGB provides guidance and information about money and pensions, and is an arms-length body of the Department for Work and Pensions.