City regulator proposes to ban debt packager referral fees


The City regulator is to press ahead with proposals to ban debt packager firms from receiving referral fees from debt solution providers, following further analysis of the market.

The Financial Conduct Authority (FCA) initially consulted on a ban after identifying a lack of adequate management of the conflict of interest between giving advice in the customer’s best interests and recommending an option that makes the firms more money.

Following analysis of the feedback the FCA received to that consultation, it decided to gather some additional evidence from the debt packager market.

Debt packagers are regulated providers of debt advice, who refer people to debt solution providers.

These firms earn money from referral fees paid by solution providers, which can be far higher when consumers are referred to an insolvency practitioner for an individual voluntary arrangement (IVA) or protected trust deed (PTD), than a government scheme such as a debt relief order, the FCA said.

The watchdog said a further short consultation will allow it to update its analysis of the market, by giving an opportunity to comment on the proposed ban of referral fees and provide insight on any new developments in the market.

Firms representing two-thirds of the market in customer numbers have either left or suspended their activities since the FCA first raised concerns in July 2021, the regulator said.

Sheldon Mills, executive director of consumers and competition at the FCA, said: “Many people are facing pressures on their finances due to the rising the cost of living, so it’s crucial they get good quality debt advice.

“Unsuitable or poor advice can really harm people’s financial lives. We want to stop this harm by removing the conflict of interest between firms giving advice in the customer’s best interest and recommending an option that makes firms more money.”

Consumers who enter a debt solution which is not right for them can face dire consequences, the regulator said.

For example, if someone is accepted on to one form of personal insolvency when another would have been more suitable, this could cost them more money and take them longer to become debt-free.

The consultation is open until March 2.

People who need help with their debts can get free and impartial advice from the Government-backed MoneyHelper website. Charities such as StepChange and Citizens Advice may also be able to help.


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