Changes out last week around the regulation of debt packager firms. Speaking with Kevin Still, who has been through this in detail there are some very interesting implications of this, not just from the regulation itself, but as always the unintended consequences as a result of these changes. A key summary of questions being.
- Definition of what is a debt packager – too broad or not?
- An effective blanket ban on fees between debt advice and debt solution providers – What does this do for the rest of the market?
- An emphasis on not-for-profit debt advice, vs free to consumer debt advice – Will this reduce the size of the debt advice market or make debt advice reliant on government funding, which may be limited, or inhouse debt solutions (where care also needs to be taken not to incentivize the wrong behaviour)
- There is also wording about the transportability of advice and data – will this change some collections process dynamics too?
More to come on this, with an expanded discussion with Kevin… do drop him a note if you have any questions.
Summary of the policy statement below
FCA Document: PS23/5
The Financial Conduct Authority (FCA) has implemented new rules to prohibit debt packagers from receiving commission or fees from debt solution providers. The amendments to the Consumer Credit sourcebook (CONC) and the Perimeter Guidance manual (PERG) aim to address the conflict of interest inherent in the current remuneration model and enhance consumer protection. The ban applies to firms providing debt counseling services but not offering debt solutions themselves, with exceptions for not-for-profit bodies and certain payments made pursuant to an enactment. Existing debt packager firms have a 4-month implementation period, while new entrants are subject to the ban immediately.
Key Summary Points
- The FCA has introduced new rules banning debt packagers from receiving commission or fees from debt solution providers.
- The ban applies to firms providing debt counseling services without offering debt solutions themselves.
- Exceptions are made for not-for-profit debt advice bodies and certain payments made pursuant to an enactment.
- Existing debt packager firms have a 4-month implementation period to adjust their business models.
- New entrants to the market are subject to the ban immediately.
- The ban aims to address the conflict of interest between debt packagers’ obligations and their financial incentives.
- The amendments provide guidance on the scope of the ban, its purpose, and its application to appointed representatives.
- Firms must comply with the consumer duty and consider individual customer circumstances.
- The FCA has considered alternative interventions but concluded that the ban is the most effective measure to address non-compliance and poor advice.
- The implementation period strikes a balance between consumer protection and the economic impact on existing debt packager firms.
Key Take Aways
- The FCA’s ban on debt packagers receiving commission or fees from debt solution providers aims to enhance consumer protection and address conflicts of interest.
- The ban applies to firms providing debt counseling services without offering debt solutions themselves.
- Not-for-profit debt advice bodies and certain payments made pursuant to an enactment are exempt from the ban.
- Existing debt packager firms have a 4-month implementation period to adjust their business models, while new entrants are immediately subject to the ban.
- Firms must comply with the consumer duty and consider individual customer circumstances when providing debt advice.
- The FCA has determined that the ban is the most effective measure to address non-compliance and poor advice in the sector.
- The implementation period strikes a balance between consumer protection and the economic impact on existing debt packager firms.
- The amendments provide guidance on the scope of the ban, its purpose, and its application to appointed representatives.
- The FCA encourages firms that provide useful services for customers to remain in the market while complying with the new rules.
- The ban aims to address the underlying cause of non-compliance and poor advice by targeting the remuneration model that drives these issues.
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