Debt management firms failing customers
25/06/2015
Debt management firms are failing customers and the advice given to vulnerable people is “unacceptably low”, according to a review by the Financial Conduct Authority (FCA).
The review was carried out to monitor if customers are being treated fairly in the industry and showed that the debt management sector is one of the UKs highest risk consumer credit sectors.
Fee-charging debt management companies were shown to be offering advice that was at a “unacceptably low” level, but “free to customer” firms were generally at a higher standard.
The FCA found that even though there are rules in place for debt management companies to clearly identify and deal with vulnerable customers, some firms were failing to identify those customers. This was even when they disclosed important information about themselves, such as significant medical problems or difficulties understanding financial or legal issues.
The were also inaccuracies and failures in the information provided by advisers who were eager to sign people up to a debt management plan. One fee-charging firm misleadingly told a customer that the free sector was “owned by the banks” and that the customer should only use the free sector if “they were prepared to do all the work themselves”. There was also a lack of honesty regarding other options available to people, such as bankruptcy or IVA.
Linda Woodall, acting director of Retail Supervision at the FCA, said:
“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."
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