Consumer credit research: debt management

Find out more about our research to understand the debt management market and the people that use it, published in 2014.

Debt management providers advise on debts, including debts arising from consumer credit or consumer hire agreements and may arrange and/or administer debt solutions for consumers with serious debt problems.

Debt solutions range from advice on how to pay debts off over a period of time to filing for bankruptcy.

Firms may recommend or administer a range of debt solutions including debt management plans and individual voluntary arrangements (IVAs). 

Both involve individuals paying back debts out of disposable income over time, with providers serving clients by negotiating repayments with creditors and in some cases by subsequently managing the distribution of those repayments.

Profit-seeking debt management firms charge fees to their clients for the debt services they provide. 

There are also not-for-profit organisations that provide debt advice services.

Key findings

  • Consumers often have multiple debts that they can no longer manage, and approach debt management providers only when in urgent need of help.
  • Consumers are likely to be particularly vulnerable  to income shocks and many may also have low financial capability.   This puts many in a weak position to ensure they receive a high quality and value for money service.
  • Consumers often have very limited knowledge of the market and therefore put a lot of trust in debt management providers and do not shop around, relying on recommendations, adverts and basic internet searches.  
  • Some debt management providers may provide poor quality advice due to frontline advisers lacking training and product knowledge and having incentives not aligned to consumers’ interests. Furthermore, there is evidence of high and/or non-transparent fees in the fee-charging debt management sector.
  • Consumers may suffer detriment including: poor value for money, being put into unsuitable debt solutions and providers not managing client money appropriately.

Our research also found consumer experiences that indicated problematic behaviour by some firms:

  • poor quality or incorrect advice, for example, a lack of distinction between advice and sales;
  • evidence that consumers experienced targeted advertising via the use of lead generators in the sales process; the role of a lead generator was not always clear to the consumer;
  • lack of clarity about the charges involved in a debt management plan, including set‑up charges and the front‑loading of fees. Consumers were also often unclear as to whether interest/charges would be frozen; and
  • confusion about the actions of debt management firms relating to creditors, with some consumers receiving complaints from creditors that they were not being paid.

What we will do

We published a Policy Statement  in February 2014 that set out new rules for debt management service providers which came into effect on 1 April.

Firms must now make significant repayments to creditors from the first month of a debt management plan, they will need to signpost the availability of free debt advice and they will have to meet prudential and client asset requirements.

We have also carried over existing standards from the Office of Fair Trading’s (OFT) debt management guidance as FCA rules or guidance.

As these changes came into effect after our research was carried out, some of the risks of detriment to consumers should be reduced from firms acting to comply with our new rules.

We will now:

  • assess the quality of advice given by debt management service providers in an in-depth thematic review, looking at whether firms are recommending appropriate debt solutions, including how incentive structures and the use of lead generators may be affecting consumers
  • supervise debt management providers to ensure they comply with our rules  and place the interests of their customers at the heart of their businesses
  • take swift action where we identify breaches of our rules, and conclude existing investigations initiated by the OFT
  • assess whether debt management service providers are fit to be fully authorised FCA firms, including assessing whether they meet our threshold conditions.

Further information

We carried out intensive consumer research to help us understand:

  • what consumers want and expect from the credit market
  • the role that credit plays for consumers in different circumstances and at different points in their lives
  • how credit can either help consumers or lead them into difficulty

You can see in-depth assessments into other areas of the credit market where we have seen potential risks to consumers. These are:

You can also see more detail in our full consumer research report.