ICAS ICAS logo

Quicklinks

  1. About Us

    Find out about who we are and what we do here at ICAS.

  2. Find a CA

    Search our directory of individual CAs and Member organisations by name, location and professional criteria.

  3. CA Magazine

    View the latest issues of the dedicated magazine for ICAS Chartered Accountants.

  4. Contact Us

    Get in touch with ICAS by phone, email or post, with dedicated contacts for Members, Students and firms.

Login
  • Annual renewal
  • About us
  • Contact us
  • Find a CA
  1. About us
    1. Governance
  2. Members
    1. Become a member
    2. Newly qualified
    3. Manage my membership
    4. Benefits of membership
    5. Careers support
    6. Mentoring
    7. CA Wellbeing
    8. More for Members
    9. Area networks
    10. International communities
    11. Get involved
    12. Top Young CAs
    13. Career breaks
    14. ICAS podcast
    15. Newly admitted members 2022
    16. Newly admitted members 2023
  3. CA Students
    1. Student information
    2. Student resources
    3. Learning requirements
    4. Learning updates
    5. Learning blog
    6. Totum Pro | Student discount card
    7. CA Student wellbeing
  4. Become a CA
    1. How to become a CA
    2. Routes to becoming a CA
    3. CA Stories
    4. Find a training agreement
    5. Why become a CA
    6. Qualification information
    7. University exemptions
  5. Employers
    1. Become an Authorised Training Office
    2. Resources for Authorised Training Offices
    3. Professional entry
    4. Apprenticeships
  6. Find a CA
  7. ICAS events
    1. CA Summit
  8. CA magazine
  9. Insight
    1. Finance + Trust
    2. Finance + Technology
    3. Finance + EDI
    4. Finance + Mental Fitness
    5. Finance + Leadership
    6. Finance + Sustainability
  10. Professional resources
    1. Anti-money laundering
    2. Audit and assurance
    3. Brexit
    4. Business and governance
    5. Charities
    6. Coronavirus
    7. Corporate and financial reporting
    8. Cyber security
    9. Ethics
    10. Insolvency
    11. ICAS Research
    12. Pensions
    13. Practice
    14. Public sector
    15. Sustainability
    16. Tax
  11. CPD - professional development
    1. CPD courses and qualifications
    2. CPD news and updates
    3. CPD support and advice
  12. Regulation
    1. Complaints and sanctions
    2. Regulatory authorisations
    3. Guidance and help sheets
    4. Regulatory monitoring
  13. CA jobs
    1. CA jobs partner: Rutherford Cross
    2. Resources for your job search
    3. Advertise with CA jobs
    4. Hays | A Trusted ICAS CA Jobs Partner
    5. Azets | What's your ambition?
  14. Work at ICAS
    1. Business centres
    2. Meet our team
    3. Benefits
    4. Vacancies
    5. Imagine your career at ICAS
  15. Contact us
    1. Technical and regulation queries
    2. ICAS logo request

ICAS comments on FCA’s proposed ban on debt packager referral fees

  • LinkedIn (opens new window)
  • Twitter (opens new window)
david-menzies By David Menzies, Director of Practice

29 November 2021

  • ICAS has commented on the FCA’s proposed ban on debt packager firms from being paid to refer customers on to other firms.
  • The FCA’s proposals intend to protect consumers by banning debt packagers from accepting referral fees – eliminating the current business model for these firms.
  • ICAS will publish its full response to the associated consultation prior to 22 December 2021, when the period for responses ends.

The Financial Conduct Authority (FCA) has proposed banning debt packager firms from being paid to refer customers on to other firms.

Debt packagers and the FCA

Debt packagers are regulated providers of debt advice, who refer customers on to other providers of debt solutions. The FCA, who regulate “debt counselling” activities, report that debt packagers rely on income from referral fees paid by these other firms. The FCA note that these fees can be many times higher when consumers are referred to an insolvency practitioner (IP) for an Individual Voluntary Arrangement (IVA) or Protected Trust Deed (PTD).

Following previous warning to the sector, the FCA has now concluded that debt packagers have a conflict of interest between giving advice in the customer’s best interest and making a recommendation that makes them more money. The FCA have concluded that the conflict of interest, while it could be managed, is so strong that the debt packager business model leads these firms to not comply with FCA rules.

The FCA considers that this business model puts consumers at risk of considerable harm from unsuitable debt advice. The FCA has seen evidence of debt packagers appearing to have manipulated customers’ details so that they meet the criteria for IVAs/PTDs and used persuasive language to promote products without explaining the risks involved.

The FCA’s proposals are intended to protect consumers by banning debt packagers from accepting referral fees – eliminating the current business model for these firms.

View are being sought on the FCA’s proposals via an associated consultation.

Comment

ICAS is fully supportive of both the sentiment and ultimate aim of this proposal. However, there are some areas of concern once the finer points of the proposals are considered in more detail:

  • Paragraph 1.12 of the consultation concludes that the proposed new rules "will end the debt packager business model." If that is the case then it can reasonably be expected that debt packagers will largely cease to exist. The most obvious concern arising as a result of this is where does the displaced debt advice demand end up? The clear indications from the consultation are that the FCA preference is for debt advice to be provided by the free debt advice sector. However, that sector is already short of resources, struggling to meet demand and has called clearly and loudly on repeated occasions for additional funding.
  • While there are rightly many concerns with the debt packager operating model, one positive it has brought has been to highlight the available options to those in problem debt through large scale advertising. Without this type of advertising in the market, how does that same messaging reach those who need advice? If the wider profile of debt advice and debt solutions isn't replaced it will mean that people who should be obtaining debt advice won't come forward. This can lead to a significant number of non-financial consequences for those individuals, including a substantial impact on their mental health and general wellbeing.
  • The FCA acknowledge that their current rules are ineffective. Paragraph 1.10 of the consultation states: “Consumers who seek debt advice are more vulnerable to harm due to being in financial difficulties. They need protection from non-compliant, biased advice which could cause them to enter debt solutions which are not in their best interests. Our existing rules, when complied with, should help provide this protection”. Not only are the current rules ineffective, but there is also a lack of enforcement by the FCA. If the rules were enforced, then those not complying would already be unable to operate.
  • The consultation goes on to state “The implementation of these proposals would reduce the amount of supervisory resource required to prevent and mitigate harm associated with the debt packager business model”. The question this raises is who will end up supervising and enforcing the new rules? One of the major unresolved issues is that "lead generators" are unregulated but it is often questionable whether the firms in question are truly "lead generators" or in fact "debt packagers".

On a more positive note, the FCA proposals do highlight that the concerns in this area lie primarily with the debt packagers.

While IPs have an obligation to, and do, make their own assessment and recommendation to individuals, it is often difficult to change a mindset which has been set before the IP even speaks to the debtor.

An IVA/PTD will not always be the wrong solution, it’s likely to be one of a number of options, but given that individuals in problem debt are more likely to suffer anxiety, adverse effects on their feelings and emotions as well as difficulty in decision making, it is not unreasonable to assume that initial debt advice has a significant bearing on the choice that will end up being made.

Overall, this proposal is welcomed but it is not going to be a panacea. This market is one widely known to "adapt". Much wider and co-ordinated action by FCA, Advertising Standards, Insolvency Service and Recognised Professional Bodies is still required.

Responses and expected timescales

The consultation is open until 22 December and ICAS will publish its full response before that date. Subject to the outcome of the consultation, the FCA expects that new rules could come into force in April 2022.


Respond to the consultation.

Consultation and responses

2022-11-mitigo 2022-11-mitigo
ICAS logo

Footer links

  • Contact us
  • Terms and conditions
  • Modern slavery statement
  • Privacy notice
  • CA magazine

Connect with ICAS

  • Facebook (opens new window) Facebook Icon
  • Twitter (opens new window) Twitter Icon
  • LinkedIn (opens new window) LinkedIn Icon
  • Instagram (opens new window) Instagram Icon

ICAS is a member of the following bodies

  • Consultative Committee of Accountancy Bodies (opens new window) Consultative Committee of Accountancy Bodies logo
  • Chartered Accountants Worldwide (opens new window) Chartered Accountants Worldwide logo
  • Global Accounting Alliance (opens new window) Global Accounting Alliance
  • International Federation of Accountants (opens new window) IFAC
  • Access Accountancy (opens new window) Access Acountancy

Charities

  • ICAS Foundation (opens new window) ICAS Foundation
  • SCABA (opens new window) scaba

Accreditations

  • ISO 9001 - RGB (opens new window)
© ICAS 2022

The mark and designation “CA” is a registered trade mark of The Institute of Chartered Accountants of Scotland (ICAS), and is available for use in the UK and EU only to members of ICAS. If you are not a member of ICAS, you should not use the “CA” mark and designation in the UK or EU in relation to accountancy, tax or insolvency services. The mark and designation “Chartered Accountant” is a registered trade mark of ICAS, the Institute of Chartered Accountants of England and Wales and Chartered Accountants Ireland. If you are not a member of one of these organisations, you should not use the “Chartered Accountant” mark and designation in the UK or EU in relation to these services. Further restrictions on the use of these marks also apply where you are a member.

ICAS logo

Our cookie policy

ICAS.com uses cookies which are essential for our website to work. We would also like to use analytical cookies to help us improve our website and your user experience. Any data collected is anonymised. Please have a look at the further information in our cookie policy and confirm if you are happy for us to use analytical cookies: