Debt management firms are providing poor quality advice and encouraging vulnerable customers to buy unsuitable products, an FCA thematic review has found.
The FCA reviewed how both fee-charging and free debt management firms are complying with the consumer credit rules.
It found that while many firms had improved their practices in the last 12 months, the quality of advice provided by some fee-charging debt management firms was “unacceptably low”.
All debt management firms are required to have clear policies to identify and deal with vulnerable consumers. However, the FCA found that some firms failed to identify customers who had recently disclosed information such as significant medical problems or difficulties understanding financial or legal issues.
The FCA found firms failing to adequately assess customers’ financial circumstances before recommending a course of action; firms not making clear the type of service they provide and that free advice is available; and vulnerable customers encouraged to purchase products and services which were not suitable and impeded their ability to repay their debts.
The review also uncovered inaccuracies in the information provided by advisers eager to sign people up to a debt management plan. One fee-charging firm told a customer that the free sector was “owned by the banks” and they should only use the free sector if “they were prepared to do all the work themselves”.
The FCA reviewed the practices of eight firms. Firms that have not met the regulator’s expectations have been told to review past cases and provide redress where appropriate.
FCA acting director of retail supervision Linda Woodall says: “People who turn to debt management firms do so as a last resort.
“When they find themselves in this position it is vital that they are able to access suitable advice that allows them to make informed decisions about their future.
“Debt management firms play a critical role in the consumer credit market, but far too many are not meeting the standards we expect and we will be looking for significant improvement.”