FCA bans debt packaging firms receiving fees for referring customers

Money Wellness welcomes last week’s ban on debt packaging firms receiving fees for referring customers by the Financial Conduct Authority (FCA).

Debt packaging firms are companies that advertise for customers struggling with debt and can advise them on how best to deal with their money problems, often they refer them to an Insolvency Practitioner or debt management firm, for which they receive a fee. The ban will put an end to them being able to do this.

The FCA has taken the step to ban fees after finding out some companies were putting profit ahead of customers’ best interest. This has resulted in cases of some people being recommended products that have left them in a worst financial situation with higher repayments, because it has generated more income for the business.

Ian Somerset, Chief Executive of Money Wellness said: “As one of the most established and largest debt advice organisations in the country, we’re pleased to see the FCA act against these practices. The current model provided too much leeway for bad advice from a minority of debt packagers.

“It’s never been more important for people to have access to free independent debt advice and support, with rising numbers of consumers being made financially vulnerable because of the cost-of-living crisis.

“Daily the cases we see have become more complex, with people struggling with debts in several different areas. It’s therefore imperative that these consumers are given the best possible advice and solution for their individual needs. There’s no one-size-fits-all solution to debt.

“We believe these changes will benefit thousands of people and will help to further boost the image of the debt support sector and the excellent work the majority of organisations and charities do.”

Money Wellness is  one of only three organisations commissioned by the Money and Pensions Service (MaPS) to deliver free debt advice nationally and one of only two appointed to administer debt relief orders (DROs).