FCA Thematic Review of Debt Management Firms
FCA have now published TR 19/1. This is the second thematic review of the debt management sector, including fee charging and free-to-customer organisations.
Whilst FCA identified that the debt management sector has made improvements there is still a lot of work to do.
Listed below are the main areas of concern:
– Most firms are meeting the required standards for most customers. However there is still evidence of poor advice and unsuitable recommendations. FCA expect that all firms will act consistently at all times and for all customers.
– The majority of cases where FCA found poor outcomes relate to existing customers or customers acquired through merger. Firms need to make sure that they pay attention to all stages of the customer lifecycle.
– Firms need to do more to identify changes in customer circumstances to ensure that their debt management plan (DMP) is most suited to their needs. Reviews have to be conducted at least annually but should be done sooner if there is evidence of a change in circumstances. FCA found “numerous” examples of firms failing to act in this regard.
– Significant improvement is required where customers are seeking help jointly. Firms should consider the needs of each individual, rather than recommending combined solutions such as a joint DMP. They should also examine who is contractually liable for each debt and apportion income and expenditure appropriately. Procedures in these cases were inadequately documented.
– There were some issues with firms inaccurately converting weekly bills to monthly payments, the result being an overestimation of income available to pay into a DMP. Billing periods and cycles were also often overlooked resulting in customers being left with insufficient funds to meet their commitments.
– Whilst firms were generally signposting customers to sources of free debt advice they were not also advising customers that the Money Advice Service could also provide details of firms offering free debt adjusting services.
– Some firms were not referring customers to other firms where this might be more appropriate, for example if the customer’s best debt solution was not offered by the firm.
– Some firms were not giving customers sufficient time to consider the advice being given before signing them up to a DMP.
– In some cases firm’s records were incomplete and did not show whether or not the creditor had agreed to suspend interest and charges. This could have a material effect on the forecast duration of the DMP. Also where the forecast duration changes firms should notifying customers and re-evaluating whether the debt management solution is suitable.
– Two out of three firms need urgent improvements in their procedures for dealing with vulnerable customers. While most firms had policies and procedures in place these were not always followed. There were also gaps in evidencing how firm would deal with specific vulnerabilities. FCA is to consult on issuing guidance to all FCA regulated firms on the identification and treatment of vulnerable customers.
– FCA found weaknesses in systems and controls around record-keeping. MI was also found lacking, casting a question over whether QA procedures are delivering robust assurance.
Given the extent of work still required it is likely that the FCA will remain focused on the sector.