[INSIGHTS]: PS23/5: Debt Packager Rules & CP23/5 and final rules

Link to FCA documentation: PS23/5: Debt Packagers: Feedback to CP23/5 and final rules

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.

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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.
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Key Take Aways

  1. 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.
  2. The ban applies to firms providing debt counseling services without offering debt solutions themselves.
  3. Not-for-profit debt advice bodies and certain payments made pursuant to an enactment are exempt from the ban.
  4. Existing debt packager firms have a 4-month implementation period to adjust their business models, while new entrants are immediately subject to the ban.
  5. Firms must comply with the consumer duty and consider individual customer circumstances when providing debt advice.
  6. The FCA has determined that the ban is the most effective measure to address non-compliance and poor advice in the sector.
  7. The implementation period strikes a balance between consumer protection and the economic impact on existing debt packager firms.
  8. The amendments provide guidance on the scope of the ban, its purpose, and its application to appointed representatives.
  9. The FCA encourages firms that provide useful services for customers to remain in the market while complying with the new rules.
  10. The ban aims to address the underlying cause of non-compliance and poor advice by targeting the remuneration model that drives these issues.

CP23/5 and final rules

Link to FCA documentation: CP23/13: Strengthening protections for borrowers in financial difficulty: Consumer credit and mortgages

Summary

The Financial Conduct Authority (FCA) has released new regulations and guidelines in relation to arrears, payment difficulties, and repossessions for regulated mortgage contracts and home purchase plans. The document provides comprehensive guidance for firms on fair treatment and appropriate support for customers facing payment shortfalls or arrears. It outlines obligations for firms to communicate timely and clear information to customers, offer access to free debt advice and money guidance, consider alternative payment arrangements, and explore forbearance options. The FCA emphasizes the need for policies and procedures to address the fair treatment of particularly vulnerable customers, including those with mental health difficulties or mental capacity limitations.

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Key Points

  • Firms are required to inform customers about the availability of free debt advice and money guidance from not-for-profit bodies and provide appropriate referrals.
  • A record of income and expenditure assessments should be made available to customers for sharing with other lenders and debt advice providers.
  • Firms should consider whether customers would benefit from specialist sources of debt advice based on their specific circumstances.
  • Repossession of a customer’s home, goods, or vehicles should only be pursued as a last resort after exploring all other possible options.
  • Firms should not pressurize customers to raise funds from their pension schemes to repay debts.
  • Timely, clear, and understandable information should be provided to customers in arrears, including the potential impact of forbearance on their overall balance and credit file.
  • The FCA’s guidance on fair treatment of vulnerable customers should be considered when taking enforcement action or providing support.
  • Customers should be made aware of their rights to terminate hire purchase agreements or conditional sale agreements.
  • Continuous payment authorities should only be proposed or exercised in cases where customers are in or approaching arrears or default.
  • Charges applied to customers in arrears or default should be reasonable and take into account the frequency and nature of the events.
  • Firms should establish and implement policies and procedures for the fair and appropriate treatment of particularly vulnerable customers.
  • The FCA’s rules on arrears, payment difficulties, and repossessions also apply to regulated mortgage contracts that were previously regulated credit agreements.

Key Takeaways

  1. Firms must inform customers about free debt advice and money guidance services and make appropriate referrals.
  2. Timely and clear information should be provided to customers in arrears, including the potential impact on their overall balance and credit file.
  3. Repossession of assets should only be considered as a last resort after exploring all other options.
  4. Firms should consider the specific circumstances of customers with mental health difficulties or mental capacity limitations.
  5. Continuous payment authorities should only be proposed or exercised in cases of arrears or default.
  6. Charges applied to customers in arrears or default should be reasonable and reflective of the events.
  7. Customers should be aware of their rights to terminate certain types of agreements.
  8. Policies and procedures for vulnerable customers should be established and implemented by firms.
  9. The FCA’s rules apply to regulated mortgage contracts that were previously regulated credit agreements.
  10. Firms should review and assess the effectiveness of their support policies and procedures at appropriate intervals.
  11. Customers should be provided with a record of income and expenditure assessments for sharing with other lenders and debt advice providers.
  12. Firms should consider the Money and Pensions Service Strategic toolkit for creditors when providing help and support to customers.
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