We set out our new rules banning debt packagers from receiving referral fees and summarise feedback to CP23/5 and our response.
Why we are changing
We are banning debt packager firms from receiving remuneration from debt solution providers. This will remove a strong incentive for debt packagers to offer advice which does not have regard to the best interests of the customer or is not appropriate to the individual circumstances of the customer.
Who this is for
- debt packagers and appointed representatives who act as debt packagers and their principals
- Individual Voluntary Arrangement (IVA) and Protected Trust Deed (PTD) providers and insolvency practitioners (IP)
- persons who provide leads to debt advice and debt solution providers
- firms administering Debt Management Plans (DMP) and/or the Debt Arrangement Scheme (DAS)
- not-for-profit debt advice providers (NFP)
- consumer groups who represent people who may seek debt advice
- recognised professional bodies who authorise and regulate insolvency practitioners
Firms subject to the new rules in the instrument in Appendix 1 must take steps to ensure they comply. In summary, where CONC 8.3.11R applies, existing debt packager firms must ensure they do not receive any commission, fee or any other financial consideration from a debt solution provider for any referral or related service conducted after 2 October 2023.
Any firms who act as principal to appointed representatives who would fall under the scope of the ban if they were an authorised person must take all reasonable steps to ensure that these appointed representatives also comply with the ban, as required under CONC 8.3.16R, by 2 October 2023 (subject to CONC 8.3.11R(2)).
Firms who start, or restart, carrying out debt packager business from 2 June 2023 will be subject to the ban and will not benefit from the implementation period. The rules also apply with immediate effect to principals with respect to any appointed representatives carrying out debt packager activity who are appointed on or after 2 June 2023.
Lead generators and insolvency practitioners should consider the new guidance in PERG and apply for authorisation where appropriate.
Debt packagers are commercial debt advice providers which do not typically provide debt solutions. Our analysis indicates that almost all revenue generated by debt packagers comes from referring customers to debt solution providers in return for a referral fee. We also know that debt packager firms receive much higher referral fees for Individual Voluntary Arrangements (IVAs) in England, Wales and Northern Ireland and Scottish Protected Trust Deeds (PTDs) than for other debt solutions such as Debt Management Plans (DMPs), which generate lower referral fees, or Debt Relief Orders (DROs), which don’t generate any fees.
In CP21/30 and CP23/5, we presented evidence we had gathered which showed debt packager firms were not complying with our rules. In particular, we identified concerns that some debt packager firms appear to have:
- manipulated customers’ income and expenditure (I&E) information to meet the criteria for an IVA or PTD
- not presented the risks and benefits of different solutions in a balanced way
- provided advice that did not accurately reflect their conversations with customers or information that customers had given
The evidence we have seen suggests debt packagers’ mismanagement of the conflict of interest between the need to have regard to the best interests of customers (as our rules require) and the provision of advice which maximises revenue for the firm leads them to not comply with our rules which puts consumers at risk of harm.