The Financial Conduct Authority, the City watchdog, has warned that a number of debt management firms increase some of their clients’ financial problems rather than helping them, by selling them unsuitable services and products.
The report by the FCA, cited the case of one woman who was sold a product that would have taken her 125 years to repay.
The watchdog said that some of the debt management companies that charge their customers a fee were particularly at fault, often giving debtors poor advice. They are legally obliged to inform their customers that independent free financial advice is available to them, but the report by the FCA gave the example of one vulnerable client, who was told that free advisors were in fact ‘owned by banks’ and so not impartial.
Debt management firms that do not charge their customers were better said the regulator but still left room for improvement.
Acting director of retail supervision at the FCA, Linda Woodall, said that people turn to debt management firms when they are in serious financial difficulty. They need to be given suitable advice that will enable them to make an informed decision. Too many debt management firms are failing to meet the standards expected by the FCA.
Debt management companies are supposed to identify vulnerable clients but, according to the report by the FCA, many are failing to do so, even when their clients have disclosed significant medical problems or difficulty with understanding legal or financial issues.
Chief executive of the Money Advice Trust, Joanna Elson, said that the FCA report confirms what many who offer free debt advice have known for a long time – that some debt management firms are failing to give appropriate advice and, in doing so, are exacerbating their clients’ debt problems.
